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Chapter1PFA.pptxPublic Finance Administration
Chapter 1
Context of Local Government Finance
Economic Nature of Government Services
Government vs. Private Sector
Private sector produces private goods/services only
Government produces public and private goods
What’s the difference?
Private goods can be divided into units, and those unwilling/unable to pay can be excluded
Example: Can’t afford Nikes? No Nikes for you!
Public goods cannot be divided into units, and the nature of the service/goods does not allow for exclusion
Example: If your town offers police services, the very nature of patrolling makes both your house and your neighbor’s house safe, even if one of you doesn’t pay taxes
Why are local budget decisions important?
Budgets give legitimacy to local government actions, as it is the expression of officials elected to represent the citizenry
Budgets help guide the bureaucratic infrastructure set up to administer local policy
Budgets allow input by the private and non-profit organizations and other interest groups to influence the nature of local social and economic climates
Local government finance trends
Changes/evolution in budgeting formats
From line-item to zero-based, performance to program budgeting, efforts by elected officials and citizens to get “more bang for the buck” or realize specific goals
Greater reliance on alternative forms of revenue rather than the typical types of taxation
Greater use of revenue to fund outside organizations to realize objectives: privatization, NGO’s, etc.
“Tax Revolts” – the refusal of citizenry to provide any further revenue; revenue stagnation
Legal basis for local revenue collection
State constitutions
Provision of forms and types of taxation by municipal subdivisions
Local charter
General enactment of powers allowed by states
Citizen referendum
Required for some forms of revenue collection and/or revenue increases
Factors that influence local finance decisions
Citizen input/involvement
“Tax Revolts”; demands for certain services or response to local conditions
Local/State/National economic factors
Local/state/federal economic booms/depressions; inflation; low/high interest rate environments; intergovernmental conflict & competition; private market pressures
Social & Demographic changes
Aging/younger population; greater diversity of population through immigration; changes in personal income of citizenry
State & Federal Law
State/federal funded/unfunded mandates; changes in law addressing social equity; prohibition against certain taxation
