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LocalPublicBudgetingandtheChallengesofDecentralizedGovernance_26_03_23_10_04_32.pdf
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loCal PublIC budgetIng and the Challenges
of deCentralIzed governanCe
ThREE SCENARIOS
Scenario 1: The Complexity of Local Government and the Need for Interjurisdictional Cooperation
Following several unsuccessful attempts to pass local property tax levies to finance public services, four separate governing jurisdictions took action: They initiated a strategic planning process and enlisted help from their local university to assist in creating a tax levy plan and citizen outreach strategy for funding local services. The four governing units (a unified school district, a county, a city, and an independent parks and recreation district) realized that citizens were confused about how local services were funded and believed that too many governments were making too many requests for increased taxes. The goals of the strategic planning process were (1) to generate a better understanding of the priorities citizens placed on the separately funded public services; (2) to educate citizens on the mutual needs and funding sources of the various entities; and (3) to create a plan for property tax revenue requests by the four independent entities.
In the face of growing urbanization, government leaders in this large urban area were struggling to meet increased service demands without dramatically increasing property taxes or compromis- ing the existing property tax base upon which the various jurisdictions relied for funding. The major governing entities in the region agreed to create a joint task force to develop governance options. Ultimately, the task force recommended the creation of a new regional government and the transfer of regionwide functions to the new entity (e.g., regional land-use and growth plan- ning, management of the zoo and the Exposition Center, solid waste disposal, and parks and open space), with the taxing authority to fund these functions. Citizens and government leaders alike supported the recommendations of the task force.
Scenario 2: The Financial Fragility of Local Governments
On average, 40 percent of the funding for services provided at the local level comes as transfers from the state and federal government (Tax Policy Center 2008). Since the economic downturn of 2007–2009, 46 states plus the District of Columbia have initiated major budget cuts. These cuts resulted in the reduction of health care (31 states), services to the elderly and disabled (29 states and the District of Columbia), K–12 education (34 states and the District of Columbia), and higher education (43 states) (Johnson, Oliff, and Williams 2011). These cuts are occurring at a time when local debt has risen by more than 76 percent between 2000 and 2008 (U.S. Census Bureau 2003, 2012b).
1
12 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
Scenario 3: The Creative Governance Role of Career Administrators in Local Public Budgeting
Unable to fund the growing social service needs of its citizens, county administrative leaders facilitated a community envisioning process with citizens and stakeholders. The exercise served to identify shared aspirations and map existing resources in the nonprofit, business, religious, and governmental communities that might be better coordinated and leveraged to meet these unmet social service needs. The county created a new 501(c)(3), called the Vision Action Network, to serve as the holding company for addressing these needs, and it committed to using this new network as the governing entity for dispersing county-funded social service activities.
Struggling to find ways of replacing seriously undermaintained old buildings, a local school district entered into a partnership agreement with the Boys and Girls Club, the city, the develop- ment commission, and the private sector to develop a new mixed-income residential community large enough to require a new school. The new school includes a community and recreation center, which is partly owned and operated by the Boys and Girls Club and the city parks department. The school has full use of the athletic facilities for all of its school functions but only pays for a share of the total costs. Because the new development includes neighborhood businesses located within the new community and is built within a low-income area of the city, the development qualifies for low-interest federal loans. The old school building and land have been donated to the city in exchange for the land in the new community development.
We begin this book with these three scenarios to illustrate why local public budgeting deserves special attention. Budgeting is not simply a technical exercise about how best to expend the revenues collected from citizens through fees, charges, taxes, and other sources. It is ultimately about determining what the community values and generating the support necessary to fund these values. The support is reflected not only in dollars but in patterns of relationships that have been developed through time and have acquired institutional status. The local school, library, Boys and Girls Club, chamber of commerce, rotary club, friends group, community center, or a long- enduring citizen group may symbolize this institutional role. While the national and state budgeting processes are greatly influenced by well-financed lobbyists speaking on behalf of well-organized interest groups, this is not the case in most of the 88,657 local government jurisdictions in the United States (see Exhibit 1.1). Instead, the budgeting process is shaped by deeply embedded local institutional entities that have a vested interest in how government officials use the process to promote the common good of the community. This makes the budgeting process political, but it is a different kind of politics than the interest group model used to explain what happens at the state and federal levels of government.
Most books on public budgeting focus on the federal and, to a lesser extent, state budgeting processes. Moreover, most of these books view budgeting more narrowly as an interest-based lobbying activity that determines how various revenue sources will be allocated to support what government does. This model is less applicable to the state and especially local levels of government (Carroll and Johnson 2010). The reasons are an artifact of a legal and political structure that gives local citizens large amounts of control over the discretionary authority of elected officials to collect various kinds of revenue and to expend those revenues to support what government does.
We have organized this book around four core themes that, taken together, explain why government budgeting at the local level deserves to be given special attention. First, there are 88,657 local governments (see the aforementioned Exhibit 1.1) in the United States. These lo- cal governments are responsible for providing services that matter most to the average citizen, including those related to schools, land-use planning, public safety, water, sewer, transportation, and mental health. The complexity of this arrangement creates the need for cooperation across organizational and jurisdictional boundaries and provides a multitude of opportunities for the
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14 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
exercise of creative leadership on the part of career public administrators as they carry out their local budgeting responsibilities.
A second reason for giving special attention to local public budgeting is that for the foresee- able future, local jurisdictions will be facing a financial crisis that requires the invention of new approaches to local service delivery and civic engagement strategies to enlist the support and confidence of the local community. Because local governments are the legal creatures of the state within which they exist, they operate within a more constrained environment than do their federal and state counterparts. Despite this constrained environment, we argue that local administrators have opportunities to exercise creative leadership that are not as readily available to those with budget responsibility at the state and federal levels of government.
Policy decisions for most local governments are made by part-time and unpaid elected officials who depend on their career administrators for innovative problem solving. This is a third reason we believe local public budgeting deserves separate consideration.
Finally, local governments in the future will be increasingly responsible for what we call polity budgeting—that is, a concern for how the community’s assets across the nonprofit, for-profit, and government sectors can be identified and mobilized to make the highest and best contribution to the community’s common good. This goes beyond the traditional jurisdiction-centered concern for using the budget process to preserve the delivery of high-quality government services, even in the face of diminishing resources. In the future, we believe local governments will increasingly use their soft power of influence rather than relying on their smaller sphere of constrained hard power and formal legal authority in the local public budgeting process.
In the sections that follow, we will elaborate more fully on each of the four core themes of the book, summarized here:
• the unique role of local governments in building democratic legitimacy; • the perfect financial storm, a transformational opportunity; • the unique politics of local public budgeting; and • polity budgeting and the rebuilding of local communities.
ThE UNIqUE ROLE OF LOCAL GOVERNMENTS IN BUILDING DEMOCRATIC LEGITIMACy
In the United States, local governments play a decisive but legally subordinate role in build- ing and maintaining the legitimacy of democratic government. The Tenth Amendment to the U.S. Constitution makes explicit that “the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The states, in turn, have delegated their powers down to a wide variety of local governing bodies that provide the services about which the majority of citizens care most. This legal arrangement reflects the historical reality that many local governments existed prior to statehood, but it also embodies a conundrum: On the one hand, local governments play a sig- nificant, practical role in making democratic governance work; on the other, they are legally subordinate to their parent state authority. This conundrum will be explored more fully in the sections that follow.
The Practical Importance of Local Governments in the United States
In his travels across the United States in the mid-1830s, the French historian Alexis de Tocqueville was struck by the high levels of decentralization of governmental authority and the advantages this provided in building the trust of America’s citizens in their public officials:
CHALLENGES OF DECENTRALIZED GOVERNANCE 15
What I admire most in America are not the administrative effects of decentralization, but the political effects. . . . Often the European sees in the public official only force; the American sees in him right. . . . As administrative authority is placed at the side of those whom it administers, and in some way represents them, it excites neither jealousy nor hatred. . . . Administrative power . . . does not find itself abandoned to itself as in Europe. One does not believe that the duties of particular persons have ceased because the representative of the public comes to act. (Tocqueville 1835–1840/2000, 90)
If Tocqueville were to travel across the United States today, he would likely be even more im- pressed by the extraordinary expansion of the process of decentralization that has occurred over the past two centuries. As of the 2007 Census there were, 88,657 separate local governmental entities in the United States, each levying taxes or charging fees to deliver services to the citizens it serves. Exhibit 1.1 provides a summary overview of the kinds and growth of these governing bodies over the past 50 years. During this time, special districts have increased by more than 143 percent, growing from 12,340 in 1952 to 35,052 in 2007 (U.S. Census Bureau 2002, 2007a). In contrast, school districts have undergone a dramatic consolidation and contraction.
While all local governments in the United States are the legal creatures of the state within which they exist, the long-standing American tradition of bottom-up governance has resulted in the cre- ation of a rich array of models that set local governments off from their counterparts around the world. First, there is a very large degree of discretionary authority at the local levels of the system, resulting in a wide variety of governing structures and processes. Neither the central government nor a controlling political party dictates how the majority of money raised from local citizens shall be spent by local government officials. This is not the case in many single party systems or in countries like France, whose local governing bodies are the administrative agencies of the central government. While local officials are elected in countries like France, Japan, South Korea, and Italy, their discretionary authority is severely limited in comparison to local government officials in the United States. For example, in Japan and South Korea, local government officials have very limited taxing authority. This is also the case for European democratic states like France and Italy, where local governing bodies have limited powers to collect taxes for services like public safety, transportation, waste collection, and street lighting. In these centralized governments, most of the revenue flows downward through the central ministries to local offices. This contrasts with the United States, where local governments exercise significant discretionary authority over the collection and expenditure of taxes (Tax Policy Center 2008).
Most Americans are surprised to learn that so many local budgeting entities hold the author- ity to levy taxes, charge fees, and borrow money to pay for the services they provide. A typical citizen may be a taxpayer of up to a dozen local jurisdictions: city, county, borough, township, state, school district, fire district, water district, soil conservation district, library district, hospital district, parks and recreation district, just to mention a few of the more common possibilities. One of the authors of this book resides in a county with 33 separate governing jurisdictions and pays taxes to six separate entities. This complexity of the local government landscape creates unique budgeting and revenue issues both for citizens and for elected officials, which we will discuss in more detail in the section that follows.
The Legal Subordination of Local Governments to Their Parent State: Dillon’s Rule1
Each state defines by statute the types and kinds of local jurisdictions that can exist within its borders. This enabling authority is codified in state statutes, for which a dizzying array of models exist.2 For example, the state of Pennsylvania organizes its local government code authority by
16 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
county, subdividing each county into cities, class 1 townships, class 2 townships, and boroughs. By contrast, the state of South Carolina organizes its code authority by counties (Title 4), mu- nicipal corporations (Title 5), and Local Government Provisions Applicable to Special Purpose Districts and Other Political Subdivisions (Title 6). The state of Washington represents the extreme in specification of local government authority. It provides separate code authority for cities and towns (Title 35, which provides for the creation of class 1 cities, class 2 cities, and towns), home rule jurisdictions (Title 35A), counties (Title 36), library districts (Title 27), fire protection districts (Title 52), port districts (Title 53), public utility districts (Title 54), sanitary districts (Title 55), and water-sewer districts (Title 57).
Along the eastern seaboard of the United States, many local governments predated those of the states. These small governmental bodies provided the milieu for cultivating significant degrees of local autonomy—as well as direct and indirect democratic governance—decades in advance of the ratification of the U.S. Constitution. A U.S. Advisory Commission on Intergovernmental Relations report (1993, hereafter referred to as ACIR report) observed that during the colonial and revolutionary periods, “the custom and practice of local self-government was strong and pervasive,” and local institutions exhibited varied forms and functions (1993, 28–29). Most commonly known are the New England town governments, which operated under colonial town laws and practiced direct democratic governance. However, local governments in other colonies also exercised considerable “local privilege,” manifested in many instances through independent democratic decision processes, and in some cases were even empowered to send delegates with instructions to their colonial legislatures (1993, 27–30).
With the ratification of the U.S. Constitution came some drastic changes to the power structure at the local level. This dominant, national legal doctrine set forth the supreme laws of the land and, in general, treated local governments as mere creatures of the states—as products of the reserve powers ceded to the states under the Tenth Amendment to the Constitution. Technically, local governments in the United States are not even “guaranteed a republican form,” as the Constitution requires of the state governments in Article IV. The states, it is held, provide for the establishment of local governments, and they delegate authority to local governing bodies that otherwise hold no independent authority.
The tidy legal doctrine just described is now commonly referred to as Dillon’s Rule, after John Forest Dillon, a jurist from Iowa who had served on both state and federal courts and who articulated the doctrine in an 1868 Iowa case (Clinton v. Cedar Rapids and the Missouri River Railroad, 24 Iowa 455 [1868]). Dillon derived his analysis in part from Chief Justice John Mar- shall’s (served 1801–1835) jurisprudence as expressed in cases such as Fletcher v. Peck (10 U.S. 87 [1810]) and Dartmouth College v. Woodward (17 U.S. 518 [1819]), and from Federalist legal commentaries such as James Kent’s 1827 treatise on American law. In the Fletcher and Dartmouth College cases, Marshall—holding to strong Federalist views—outlined a theory of contract and property rights that favored centralized governmental interventions and policy to spur economic development over local self-determination. He deemed local governments a strong source of parochial interests that would likely do more to retard economic development than encourage it. For this reason, it was important that state governments possess strict authority over local governing entities as creatures of their own making. However, Marshall’s jurisprudence did not preclude limited protection by state and federal courts of local initiatives that did spur economic development or that established important mediating institutions for socializing and educating local citizenry. Marshall thus left at least an opening for local governments to play their own role in these affairs (see Barron 1999, 506).
Judge Dillon narrowed this thinking in the 1860s and1870s. Basing his jurisprudence in part on the popular laissez-faire and classical liberal doctrines of the late nineteenth century, he asserted that governments were constitutionally obliged to play strictly neutral roles over private civic and
CHALLENGES OF DECENTRALIZED GOVERNANCE 17
economic development. He proffered a bright-line distinction between public and private spheres of life, and state governments were obliged to strictly control local governments toward that end (Barron 1999, 507–509). If state legislatures failed in this effort, then “enlightened state judges would enforce the private boundary that public politics would likely breach” (509).
Though Dillon’s Rule is still considered authoritative, it is not the only legal doctrine recog- nized in statutes and case law. Thomas Cooley, a highly regarded state supreme court jurist from Michigan, immediately attacked the Dillon doctrine, arguing in his then-influential Treatise on Constitutional Limitations (1868, see also his concurring opinion in a Michigan case, People v. Hurlbut, 24 Mich 44 [1871]):
It is axiomatic that the management of purely local affairs belongs to the people concerned, not only because of being their own affairs, but because they will best understand and be most competent to manage them. The continued and permanent existence of local government is therefore assumed in all the state constitutions, and is a matter of constitutional right, even when not in terms expressly provided for. It would not be competent to dispense with it by statute. (emphasis added, Cooley 1868, 378)
As indicated, Cooley did not rest his defense of local autonomy on specific constitutional or statutory language, but rather “on a more general assertion of basic, unwritten constitutional norms” that derived from a more “organic approach to constitutionalism”—an approach associated with the Jacksonian common law perspective popular in that era (Barron 1999, 512, 518–519; see also Carrington 1997; Kahn 1992; Jones 1987; Paludan 1975; Siegel 1984; and Williams 1986). This amounts to a kind of inherent constitutional power, though a very limited one. Cooley “sought at once to embrace and to tame popular rule” by envisioning a “local constitutionalism in which public municipal corporations—such as towns and cities—would be responsible for imparting important values to the public in much the same manner that Marshall had previously imagined private civic corporations such as Dartmouth College would” (Barron 1999, 511–512). Cooley viewed the Constitution “not [as] a privatizing charter that protected individuals from government,” but as “a publicizing document that protected the community from self-interested public officials, corrupted by powerful private interests” (Barron 1999, 512). Living as he did in the Gilded Age (the late nineteenth century) of massive corporate monopolies and urban political machines, this twist on constitutional purpose was neither surprising nor uncommon, especially among reformers (ironically, a group with whom Cooley was not then associated; see Barron 1999, 509–520).
Cooley wanted to shelter local governments from powerful private interests that were often protected by state politicians as they perverted the public interests of communities for private gain. He witnessed this dynamic firsthand through cases involving railroad monopolies—a problem he took on more directly upon being appointed head of the Interstate Commerce Commission a few years later (see Rohr 1986, chap. 7). With Jacksonian fervor, Cooley championed the “autonomy and liberty of persons to order their own affairs, subject to general laws which do not create favored or disfavored classes of citizens” (quoted in Barron 1999, 514).
Cooley believed that local governments played a vital role in preserving Jacksonian conceptions of democratic equality; such theories allowed for the socialization of local people into public life via civic and entrepreneurial associations, and enabled them to participate in local self-governance. Cooley’s organic view of constitutions as facilitating the evolution of governing principles in the same way the common law does—through accreted habits, customs, lived experiences, and “common thoughts of men”—acknowledged the “from-the-ground-up” aspects of local gover- nance and community life that the dominant, more positivistic jurisprudence ignored. From this perspective, he conceived a “structural defense of the practice of local self-government” (Barron 1999, 516–518):
18 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
Local political institutions provided the fora through which people could engage in the practice of constitutionalism for themselves. The practice of local self-government would directly inculcate constitutional values in the public sphere by affording the local citizenry an opportunity to practice democracy with constitutional limitations. Through the practice of public politics at the local level, citizens would be forced in a direct and immediate way to determine for themselves which decisions would serve the “public” interests of their own communities and which would not. That experience would provide citizens with a greater understanding of what it meant to govern themselves in accord with constitutional limita- tions that would be possible under a regime of either centralized state legislative control or judicial supremacy. (518)
Cooley’s structural defense of local constitutionalism failed to become a more prominent legal doctrine for local governments in the United States. Dillon’s Rule imposes an arid legal standard on local entities—a standard that fails to account for their rich and varied nature and leaves them quite vulnerable to the vagaries of state legislative meddling. In effect, it forces them to govern their own affairs with one hand tied behind their backs. The ACIR report strongly recommended that a more balanced and consistent relationship between state and local governments was needed, and the report specifically cited Cooley’s doctrine as an important legal element in “refocusing the debate over how to balance state control and local autonomy” (1993, 7). The dominance of the Dillon Rule, however, has not been absolute. The organic or “from-the-ground-up” aspects of local self-determination and governance could not help but manifest themselves in law as well as in political life, and thus have been recognized in a more tenuous form through the adoption of home rule charters and related legislation.
Some scholars locate American precedents for home rule in the colonial and revolutionary eras (ACIR report 1993, 32–34), but Cooley’s doctrine clearly gave the home rule movement more impetus. “Although Cooley’s views were unequivocally adopted only in Indiana, Nebraska, Iowa, Kentucky, and Texas, they articulated a resurgence of values that would soon be embodied in institutional reforms designed to widen the scope of local choice” (1993, 34). These included the insertion of ripper clauses and more general state constitutional provisions against “special legislation,” which was commonly used to interfere with local powers and prerogatives relating to social and economic development in their jurisdictions. Ripper clauses specifically forbade state legislatures from delegating powers of interference in municipal functions to special com- missions, private corporations or associations, or any other entities that would work on behalf of private interests over local public interests. “By 1880, 28 of 38 states had incorporated similar restrictions in their constitutions” (ACIR report 1993, 35).
Going beyond self-imposed legislative restraints, states also began thinking in terms of “em- powering local citizens with the ability to articulate their preferences over institutional forms and functional powers within their communities” (ACIR report 1993, 41). Missouri first experimented with what later came to be called home rule provisions, a term originally associated with local or regional self-determination movements in Ireland and England, and then eventually around the world. The Missouri Constitutional Convention of 1875 conferred charter-making power on the city of St. Louis, though it was hedged about with many conditions and restrictions. Charter-making power was considered to be strictly a sovereign power of state legislatures, so this broke new legal ground. Discussion in the state convention centered on two concerns—curbing the extensive “corruption and favoritism by the state legislature in the management of the affairs of the city,” and recognizing “the principle of local self-government” (ACIR report 1993, 41).
These arguments notwithstanding, the Missouri legislature retained essential prerogatives and asserted its authority over St. Louis in clear language that subsequent state court decisions would strictly enforce. This set a pattern among states—one that remains largely in place to this day—of
CHALLENGES OF DECENTRALIZED GOVERNANCE 19
legislatures conferring various types of autonomy on specific local governments (or in general to all cities/towns of certain classifications), but retaining powers of express and implied preemption that state courts would often interpret strictly. States such as Illinois, New Jersey, and California have mandated liberal construction by state judges of municipal powers under law in the attempt to reverse the impact of Dillon’s Rule, but the judges have not always acted accordingly.
Beyond the conferral of chartering power, however limited it was in the Missouri Constitu- tion, another key provision granted “the power to act without prior authorization by the state legislature”—as long as those actions were authorized in the local charter, “did not conflict with a statute, and did not run afoul of a constitutional prohibition” (quoted in ACIR report 1993, 42). This caught on in many states as cities grew in number and size to the point that state legislatures could no longer maintain the degree of control they once exerted. Cities needed to exercise their own initiative on many local matters without constantly seeking legislative authorization. This developmental imperative led to the formulation of a “devolved powers” model of home rule, which provides for “a general grant of powers subject to enumerated restrictions” (ACIR report 1993, 44).
Frank Johnson Goodnow (1895/2008) had articulated an early version of this model, and, sig- nificantly, used English and Prussian models of organization, departing “from ‘the cross-checks and intersecting lines of divided responsibility’ of the federal idea in favor of ‘a simple pyramid’ of efficient, rationalized functional administration” (quoted in ACIR report 1993, 44). This model’s influence became widespread and contributed to the development of the council-manager model of local government during the Progressive reform era. It was used by University of Pennsylvania Law School dean Jefferson Fordham in 1953 as the basis for the American Municipal Association’s model home rule provision, and has since been referred to as the Fordham Rule.
Finally, a Supreme Court case arose from a dispute over a diverse structure of courts provided for in the Missouri Constitution of 1875. In Missouri v. Lewis (101 U.S. 22 [1879]), the court unanimously asserted each state’s “full power to make for municipal purposes political subdivi- sions of its territory and regulate their local government, including the constitution of courts, and the extent of their jurisdictions” (30). In sweeping language, the court affirmed states’ rights to adopt diverse legal systems, processes, forms, and institutions for carrying out municipal functions within its jurisdiction, even to the point of grafting foreign legal systems and practices into a part of the state (the example of Mexico was used in this case; see Missouri v. Lewis 1879, 32).
Ironically, the Missouri Constitution’s home rule provision for St. Louis required a form of government based on the federal constitutional model, with a “chief executive and two houses of legislation, one of which shall be elected by general ticket” (quoted in ACIR report 1993, 41). Few cities would follow this lead as Populist and Progressive reforms ensued. Indeed, as they developed over the twentieth and now twenty-first centuries, cities have cultivated even more di- verse forms of operation, largely out of a need for more extensive interlocal cooperation in order to leverage resources as federal and state governments pare back their support. As the 1993 ACIR report indicated, local governments must now address “such matters as dissolution and annexation, consolidation and separation, joint participation in common enterprises, interlocal cooperation and [new forms of] intergovernmental relations,” while “clarify[ing] rules concerning the forma- tion, operation, and dissolution of special districts” (46). The report notes with emphasis the shift that has occurred over many decades “from a preoccupation with conflict to a recognition of the pervasive collaboration through contractual arrangements that [can be obtained] in modern state and local government” (46).
In general, states are embracing diversity in forms of local government institutions; however, as local governments try to adapt to changing conditions, states’ treatment of local autonomy and self-determination remains mixed at best. Over the twentieth century, the spheres of local autonomy have alternately expanded and contracted, though it is safe to say that since the nineteenth century,
20 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
they have expanded more than they have contracted. They possess a limited variety of taxing and other revenue powers, eminent domain powers, and contracting powers typically associated with sovereignty, while never enjoying sovereign status. State legislatures still meddle and courts still invoke Dillon’s Rule from time to time, with the result that local governments continue to exist in an uneasy relation with their state masters. They continue to govern with one hand tied behind their backs.
In the sections that follow, we will summarize the major types and kinds of local government jurisdictions and forms of government, pointing out the wide variability from state to state with respect to the legal authority extended to the same types of governmental units. It is important for those who have budgeting responsibility to know what kind of authority and budget duties they have under their state statutes. The general summary of the types of local governments and their forms of governance in the following two subsections is not a substitute for knowing this more specific information.
Types of Local Government
There are six basic types of local government in the United States: counties and parishes; cities and towns; townships; boroughs; school districts; and special districts. Each will be discussed in greater detail in the sections that follow.
Counties and Parishes
All states except for Rhode Island and Connecticut have county units of government. Louisiana and Alaska subdivide the state into parishes and boroughs, respectively, instead of counties. While states rely heavily on counties to provide services, they vary widely in the power and functions delegated to them. In New England, counties serve as judicial court districts and provide sheriffs’ services. In the mid-Atlantic and midwestern states, counties provide a broader range of services, including courts, public utilities, libraries, hospitals, public health services, parks, roads, law en- forcement, and jails. Counties in western and southern states have even broader authority, including the provision of public housing, child/family/elder services, airports/recreation/convention centers, zoos, health clinics, museums, welfare/mental and public health services, animal control, veterans’ assistance services, probation/parole supervision, historic preservation, food safety regulation, and environmental health services.
Counties vary widely in the number and kind of elected offices used for county leadership. Most counties provide for a county registrar, recorder, or clerk (the exact title varies). The clerk collects vital statistics, holds elections (sometimes in coordination with a separate elections office or commission), and prepares or processes certificates of births, deaths, marriages, and dissolu- tions (divorce decrees). The county recorder normally maintains the official record of all real estate transactions. Other key county officials may include the district attorney, coroner/medical examiner, treasurer, assessor, auditor, and controller.
In New England, regional councils have been formed to fill the void left by the abolition of county governments. The regional councils’ authority is far more limited than that of a county government. For example, regional councils have no taxing authority or authority to issue permits; the aforementioned powers are delegated to the town governments. However, the regional councils do have authority over infrastructure and land-use planning, distribution of state and federal funds for infrastructure projects, emergency preparedness, and limited law enforcement duties.
Counties vary widely not only in their authority and the number and kinds of officials who are elected to office but also in their governance structures (Berman 1993; Coppa 2000; Jeffrey,
CHALLENGES OF DECENTRALIZED GOVERNANCE 21
Salant, and Boroshok 1989; National Association of Counties [NACo 2011a] www.naco.org). Approximately 60 percent of all counties use the commission form of government. (See explana- tion later in this chapter under the heading What Difference Do the Forms of Government Make to Local Public Budgeting?) Under this system, three to five commissioners share administrative responsibility for the functions not performed by the other elected officials described above (i.e., sheriff, coroner, district attorney, clerk, registrar, recorder, and so on). There is no person specifi- cally designated to carry out executive functions; rather, commission members share executive functions. Approximately 13 percent of the counties provide for an elected executive who serves as an equal member of the commission but has responsibility for operational oversight and budget management for the jurisdiction. The remaining 26 percent of the counties use a council-manager system, in which the commission hires a professional career administrator to provide administrative oversight for the county while working at the pleasure of the commission. Less than one percent of the counties have merged with cities. For example, Denver, Philadelphia, and San Francisco are simultaneously cities and counties. Just over half of the 3,033 counties in the United States have home rule with the delegated authority to operate with much greater independence regarding their taxing and budgeting control.
An important budget issue for many counties in the western part of the United States is the large amount of land owned by the federal government. More than 660 million acres of land— one-third of the entire United States—is exempt from state and county taxation due to federal ownership. Yet, many of the counties adjoining this land provide search and rescue services for recreationists who use the national parks and forested areas. In 1976, Congress recognized the need to compensate counties for the loss of tax revenue as well as the increased costs of provid- ing services on the adjoining federal lands. They adopted a system of funding called payment in lieu of taxes (PILT), which in some counties in the West has accounted for more than 80 percent of the entire county budget.
Cities and Towns
Cities and towns are by far the most numerous units of general purpose government in the United States, comprising 40 percent of the total. There is no agreed-upon definition distinguishing a city from a town, but most citizens commonly think of cities as larger versions of towns. From a legal point of view, most states recognize a legal distinction within their enabling legislation that either authorizes the establishment of one form rather than another or, more commonly, allows for the creation of class 1 and class 2 cities/towns. By contrast, the state of California treats towns and cities as legally equivalent. In New England, towns are the norm, in contrast to most other parts of the United States, where cities is the term of choice.
Both towns and cities are created and operate under several legal frameworks, including home rule charter, special act charters, or general law jurisdictions. Most cities and towns are general law jurisdictions, which means that they operate under the general enabling legislation provided by state statute. Home rule (or charter) cities and towns operate under a special charter approved by the local voters pursuant to state law. The charter lays out in considerable detail the governance structure, processes, and authority of the local jurisdiction. If chartered cities have the legal authority to amend their charters without state approval, they are considered home rule jurisdictions.
Cities provide the core services most citizens have come to rely upon, including public safety (police, fire), utilities (water, sewer, and franchising electricity, telephone, Internet, etc.), land- use planning and permitting, and overall quality of life. In sparsely populated areas of the United States like Maine and parts of the western United States, small towns and unincorporated areas rely on the county for law enforcement.
22 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
Townships
Most Americans would be surprised to learn that they live in a township. In fact, most of the United States has been divided up into townships as part of the General Land Survey System that was created with the passage of the Land Ordinance of 1785. This act provided that the land west of the Appalachian Mountains, north of the Ohio River, and east of the Mississippi River was to be divided up into ten separate states. This act, along with the Northwest Ordinance of 1787 (commonly known as the Northwest Territory Act), resulted in organizing most of the states into townships. The townships were mapped by the Public Land Survey System (PLSS) into square blocks that were six miles on each side, with mile-square subdivisions called sections, as illus- trated in Exhibit 1.2.
Exhibit 1.2
Public Land Survey Method for Numbering and Dividing Township into 36 Mile-Square Sections
6 5 4 3 2 1
7 8 9 10 11 12
18 17 16 15 14 13
19 20 21 22 23 24
30 29 28 27 26 25
31 32 33 34 35 36
Source: U.S. Bureau of Land Management 1974.
The creation of townships was not merely a land survey and mapping exercise. It was also an exercise in local public budgeting. For example, the original Northwest Ordinance of 1787 provided that section 16 of each township be reserved for a public school, thus guaranteeing that local schools would have an income and that the community schoolhouses would be centrally located for all chil- dren. In most of the western states, both sections 16 and 36 (or an equivalent) were designated to be held in trust by the state as a condition of statehood (Souder and Fairfax 1996; for an example, see Arizona State Land Department, “State Land Department Historical Overview,” www.azland.gov/ history.htm). The land survey system put in place by the Northwest Ordinance has served as the basis for creating townships with governing authority (called civil townships) in most of the midwestern states. According to the U.S. Census, 20 states currently use the township form of government (U.S. Census Bureau 2007b). In the early years, these townships cared for the poor, maintained the roads, preserved the peace, registered brands, and fulfilled the needs of local government generally. Today, townships in midwestern states provide services in the following broad areas:
1. public safety (including law enforcement, fire protection, and building code enforcement), 2. environmental protection (including sewage disposal, sanitation, and pollution
abatement), 3. public transportation (including transit systems, paratransit systems, streets, and roads), 4. health, 5. recreation, 6. libraries, and 7. social services for the poor and aged.
CHALLENGES OF DECENTRALIZED GOVERNANCE 23
Six East Coast states have created charter townships (Connecticut, Maine, Massachusetts, New Hampshire, New York, and New Jersey) that perform municipal-type functions that resemble the services traditionally provided by cities and towns.
Boroughs
The term borough—derived from the word burgh, meaning fortified town—originated in the Middle Ages and was used to describe settlements that were granted some self-governing rights from the central authority. Only six states use boroughs for governance and budgetary purposes. Most often, the present-day use of the word borough refers to a single town with its own self- government; in New York City, however, it refers to one of five subdivisions of the city (the Bronx, Manhattan, Queens, Brooklyn, and Staten Island). In the state of Alaska, the term is used instead of county and designates regions much larger than counties in other states. Alaska, unlike other states, does not recognize towns, cities, and townships as legal units of government in its codified law. Instead, it has only two tiers: the state and the boroughs (Title 7). Towns and cities acquire legal status by special charter on a case-by-case basis.
In Connecticut, boroughs are legal entities usually created within the populated center of a town, but they are still part of, and dependent on, the town within which they exist. This contrasts with both Pennsylvania and New Jersey, where boroughs are recognized as one of the authorized forms of municipal government under state law. In Pennsylvania, boroughs are self-governing units smaller than a city; in New Jersey, boroughs are one of the five recognized types of municipal government (the others are townships, towns, cities, and villages) (Cerra 2007). In Virginia, when multiple local governments consolidate to form a consolidated city, the consolidated city may be divided into geographical subdivisions called boroughs, which may be the same as the existing (1) cities, (2) counties, or (3) portions of such counties. Those boroughs are not separate local governments (VA Code, Title 15.2–3534).
School Districts3
As we indicated earlier in our discussion of townships, schools that are controlled by local citizens have been a cornerstone of American democratic governance (Spring 2008). This is in contrast to most parts of the world, where school funding and operation is controlled by the central state. While the number of school districts has declined through consolidations by nearly 80 percent over the past 50 years, more than 90 percent of the school districts in the United States are operated independently of other units of government (e.g., states, counties, cities, towns, and boroughs). Exhibit 1.1 shows a 6 percent growth in school districts between 1997 and 2007. This growth is largely due to the creation of independent education service districts, which provide supplemen- tary services to other independent school districts and help fund services that would otherwise be jeopardized by funding shortages at the state and local levels. (We will elaborate more fully on these kinds of districts in our discussion of special districts in the section that follows.)
There are some important exceptions to the general rule that schools are independent units of government. In Maryland, all school systems are run by the county; in New York State, some school districts are independent and others are subordinate to cities (e.g., New York City). Hawaii is the only state that functions as a statewide school district. The 2002 Census of Governments (U.S. Census Bureau 2002) lists the types and numbers of school systems in the United States as shown in Exhibit 1.3.
School districts have traditionally been funded by local property taxes. Exhibit 1.4 indicates that slightly more than 44 percent of the revenue for K–12 education is provided by local sources, with the states providing just over 44 percent and the remainder (12.5 percent) coming from federal
24 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
government grants. But there is considerable variation among the states with respect to reliance on local revenue sources versus reliance on state funding. For example, state funding in Hawaii and Vermont comprises nearly 90 percent of the total school revenue, in contrast to Nevada and Illinois, where the states provide about 30 percent of the total (Kenyon 2007, 47; National Center for Education Statistics, Table 2, http://nces.ed.gov/pubs2010/expenditures/tables.asp).
The variations in approaches to school funding are an integral part of the ongoing debate about the fairness of various strategies in supporting local public education. For example, school fund- ing on a per student basis in 2011 averaged from a low of $6,212 in Utah to a high of $19,076 in New York (U.S. Census 2013, p. 8). Such disparities are caused not only by differences in state support but also by differences in the value of local property, which determines the amount of property taxes that can be assessed. These disparities have resulted in lawsuits throughout many states to equalize the provision of educational support as a requirement of the equal protection clauses found in most state constitutions. Such suits have prompted more than a dozen states to
Exhibit 1.3
The Number and Kinds of School Districts in the United States
• 13,506 school district governments • 178 state-dependent school systems • 1,330 local-dependent school systems • 1,196 education service agencies (agencies providing support services to public school systems)
Source: U.S. Census Bureau 2002, 17.
Exhibit 1.4
Percentage Distribution of Revenues for Public Elementary and Secondary Education in the United States, by Source, Fiscal Year 2011
Source: U.S. Department of Education, National Center for Education Statistics, Common Core of Data (CCD), “National Public Education Financial Survey (NPEFS),” fiscal year 2011, preliminary version 1a.
CHALLENGES OF DECENTRALIZED GOVERNANCE 25
consider school finance restructuring, with litigation actively ongoing in about 20 states (Kenyon 2007, 12).
We will not devote extensive attention to school district budgeting in this text because it is a specialized field that is already covered in several excellent publications (see endnote 2). Note, however, that most of the principles we cover in each of the chapters in this book can be applied to school budgeting. More important for the purposes of this text, those responsible for local public budgeting need to understand the interactive relationship between local school budgets and the budgets of other local jurisdictions. This is illustrated in our opening scenarios, where local school funding is viewed by voters as competing for the funding of other public services. While similar to special districts discussed in the next section, school districts frequently hold the highest priority among local citizens for the allocation of scarce resources (Maher and Skidmore 2009).
Special Districts4
Special districts (also special-purpose districts, special service districts) are the most rapidly grow- ing unit of local government, increasing by 84 percent over the past 50 years. As with all local governments, the authority for creating special districts and the rules governing their operation are provided by state law. They have been created to furnish specific services that are typically not provided by general-purpose governments. These services include hospitals, ports, sewer and surface water treatment, water supply, fire and police protection, mosquito abatement, soil and water conservation, supplementary educational service, and upkeep of cemeteries. Most special districts provide only a single service, which makes them popular with citizens who want to live outside an incorporated city or town, pay lower taxes, but receive a higher level of service than is normally provided by the rural jurisdiction within which they reside. Special districts usually have their own governing boards and separate revenue authority from some combination of property taxes, fees, excise or sales taxes, and the issue of bonds.
Since the New Deal (1933–1938), five factors have greatly influenced the growth and autonomy of both cities and special districts. First, the process of expanding local jurisdictions began with President Franklin D. Roosevelt, who encouraged the creation of public corporations to float revenue bonds as a way of avoiding municipal defaults. He urged the creation of water, sewer, and electric power districts, arguing that “these governments should be used to circumvent debt limits and referendum requirements for issue of bonds” (Burns 1994, 53). Roosevelt provided model legislation for enabling citizens to form housing authorities and soil conservation districts, and tied federal funding exclusively to the creation of these jurisdictions.
Second, the impetus for expansion of special districts occurred under the pressure for economic development in the post–World War II period. The expansion of industry and housing, for example, caused the real estate industry to reorganize and apply political pressure to establish new cities and special districts.
Race played heavily as a third factor in the expansion of special districts. It was common practice prior to the 1950s for neighborhood improvement associations to create restrictive covenants that excluded individuals based on race. The U.S. Supreme Court declared in 1948 that race-based restrictive covenants were unconstitutional, and this encouraged cities to use their zoning authority in new and creative ways (Burns 1994, 60, 54–55).
Fourth, new pressure to expand cities and special districts occurred during the 1960s, with the New Frontier administration of President John F. Kennedy and the Great Society administration of President Lyndon B. Johnson. In this period, federal aid to cities almost doubled. It came in the form of programs for housing, urban renewal, mass transit, education, job training, poverty reduction, model cities, and grants-in-aid (Burns 1994, 62). These initiatives yielded two results. First, they changed the expectations of the role that cities could play in meeting the redistributive
26 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
social needs of the community. In addition to planning for growth and providing infrastructure, New Frontier and Great Society programs laid the groundwork for a larger community-building role to be played by public administrators. A second consequence of the Kennedy/Johnson program initiatives is that they increased the complexity of local government and placed new challenges of interorganizational and interjurisdictional coordination on local government leaders. For example, transportation planning had to be coordinated with a growing number of local jurisdictions as well as with newly created administrative bodies. The elected and career officials responsible for these new arrangements were placed in the catbird seat.
The fifth factor that spurred the growth of cities and special districts was the significant increase in state and local taxation during the 1960s. Starting in 1961, taxpayers at the local level expe- rienced the largest increase in taxes since the 1930s. This increased burden induced businesses and residents to create new cities and special service districts in the attempt to escape these tax burdens. New special districts also gave the public options in deciding whether they wished to purchase additional services (Burns 1994, 62). For example, if suburban dwellers wished to live in the pastoral setting of the countryside but still have access to city-level police and fire services, how could their desires be funded? One answer has been to provide everyone in the countryside with a base level of rural/county-level service and the option to purchase additional levels of police, fire, health, education, or other services through a special district. During the decades following the local taxation crisis of the 1960s, special districts grew in number from 21,264 in 1967 to 35,052 in 2002, an increase of more than 60 percent.
The expansion in the number, complexity, and role of local government jurisdictions since the New Deal has greatly increased the challenges for those who govern. At an administrative level, managers and elected officials have to coordinate more of their work with other jurisdictions. For example, how many special levies will voters support during any given election? How can jurisdic- tions coordinate their need for voter support while demonstrating that they are wise and prudent stewards of the community’s resources? At a political level, the challenge becomes even greater, as communities balkanize into relatively isolated pockets that are organized by socioeconomic status, race, ethnicity, and business opportunities for employment. Under such circumstances, it becomes difficult for administrators to meet the needs of the community in ways that create a shared sense of common interest across many boundaries established by narrow self-interests.
what Difference Do the Forms of Government Make to Local Public Budgeting?
For the forms of government, let fools contest, That which is best administered is best.
(Alexander Pope 1732–1733/1994)
Alexander Pope’s epigraph, taken from his Essay on Man, has proved to be less true than he might have wished. This is because citizens trust themselves more than they trust others when it comes to spending their money. If they have to trust others, they would rather trust those over whom they have the most direct control than those over whom they exercise only indirect control, like professional career administrators. This principle has been institutionalized into the majority of local systems of government, which do not have the traditional tripartite system of checks and balances and separation of powers. Most local governments have more of a fused power model that structurally resembles the parliamentary system. While there are important exceptions, the prevailing practice in local governments is for part-time elected officials to make policy decisions that are implemented by a professional career administrator who works at the pleasure of the elected council.
This local government model reflects the spirit of the American Revolution, which memorial- ized the principle that elected representatives of the people shall have the authority to levy taxes
CHALLENGES OF DECENTRALIZED GOVERNANCE 27
and approve spending. For that reason, the U.S. Constitution requires that all appropriation bills originate in the U.S. House of Representatives (the People’s House). However, at the local level, this legal authority is exercised by part-time and unpaid elected officials who depend heavily on the expertise of career administrators to assemble the details of taxing and spending plans. For that reason, the forms of government play an important role in shaping how the budgeting process gets carried out in each of the following four types of local government structures: the strong mayor form, the council-manager form, the weak mayor form, and the commission system.
Strong Mayor
The strong mayor form of city government consists of a mayor and a city council, each elected independently through predominantly nonpartisan elections. Both share in making policy, although the mayor has near-complete authority over the executive branch of government and commonly takes the initiative in making policy recommendations. The mayor appoints officers of the execu- tive branch—the city attorney, assessor, treasurer-comptroller, and heads of departments—who serve at his or her pleasure, although these appointees generally must be confirmed by the council. The city council, in its role as the legislative branch, approves key mayoral appointments and ordinances prior to their becoming effective.
The objective of the strong mayor form of local government is to centralize control over the executive agencies of government. This control is defended on a variety of grounds. From a partisan political point of view, many proponents of democratic accountability argue that the mayor should be able to control the policy directions of a city by appointing department heads who share his or her policy agenda and political affiliation (especially in some larger cities that have partisan elec- tions). From a “good government” perspective, proponents argue that democratic accountability necessitates unswerving attention be paid to issues of administrative efficiency and effectiveness. Without the supervening oversight of a strong mayor or professional chief executive officer (i.e., city manager, county administrator, etc.), many believe these values may be compromised by the self-serving and self-aggrandizing interests of individual departments, programs, and their constellation of stakeholders.
In keeping with the desire of the strong mayor system to centralize executive authority, the budget is prepared and presented to the legislative body in a fashion similar to the role of the U.S. president or a state governor in presenting a budget to the legislative body for deliberation. One of the major differences is that most local and many state legislative bodies do not possess the kind of analytic capacity exhibited by the Congressional Budget Office (CBO) or the congressional appropriations committees. This limits the ability of elected legislators to undertake their own independent analysis of financial impacts and outcomes of various funding options—particularly at local levels of government where part-time elected officials are heavily reliant on the work undertaken by the mayor or city manager’s budget office.
Council-Manager
The council-manager form of city government is the most widely used system in the United States. According to the International City/County Management Association (ICMA 2006), the council-manager form is used in 63 percent of cities with populations of 25,000 or more; in 57 percent of cities with populations of 10,000 or more; and in 53 percent of cities with populations of 5,000 or more. According to a 1996 survey of municipal forms of government by the National Civic League, 61 percent of council-manager cities have popularly elected mayors (National Civic League 1996). More than 80 percent of all cities (mayor and manager) in the 1996 survey reported having appointed a chief official such as a city manager. This means that many mayor-
28 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
council cities have a chief administrative officer who answers to the mayor or the council, much like a city manager does. In the other cities, the mayor administers the day-to-day operations of the government.
The council-manager form of government consists of a city council (the members of which are elected predominantly in nonpartisan elections), a mayor (in most cases selected from the mem- bership of the council but elected at-large in others), and a city manager (appointed by the city council). In this system, the council determines city policy and the mayor merely presides over city council meetings. The executive branch of government is administered by the city manager, who is a professionally trained administrator. The city manager appoints executive officers, supervises their performance, develops the city budget, and administers programs.
Theoretically, the city manager cannot make policy, but as a practical matter, the recommenda- tions of the manager are usually given great weight by the council. But it is also the case that when the city manager makes recommendations, he or she has done so based on prior conversations with each member of the council. This process plays a decisive role in shaping the city manager’s recom- mendations to the council. For this reason, many scholars argue that the relationship between the city manager and the council should be understood as a process of coproduction (see endnote 5).
The council-manager form of government was created by the “good government” advocates of the Progressive Era at the beginning of the 1900s. The objective of the council-manager plan was to take the politics out of city government by turning over its administration to a professional manager. Beyond this, as a practical matter, it was difficult for citizens to evaluate the admin- istrative performance of their elected officials. The council-manager plan was developed in the early days of the Progressive movement as a response both to this reality and to the influence of political parties and party politicians over city government under the mayor-council plan. Party and personal loyalty were attacked as an inappropriate basis upon which to run local govern- ment. Critics argued that there is nothing political about operating sewer, water, transportation, parks, garbage, and other local infrastructure systems. They pointed out that such systems could be run more effectively by a professionally trained administrator taking general directions from an elected city council. The council-manager system attempted to divide policy or politics from administration. While more recent studies have documented that this bright-line distinction does not exist very clearly at the local government level (Svara 1985, 1990, 1991, 1999, 2006; Montjoy and Watson 1995), there is a general consensus that the council-manager form of government is “less political.” If the members of the council are elected in nonpartisan elections, the influence of party politics is even further reduced.
The council-manager system has important implications for the budgeting process. Both the development and implementation of the jurisdiction’s budget is in the hands of the council-manager. In putting the annual budget together, the city manager has extensive discretionary authority in shaping the spending priorities of the various departments. The manager works with members of council to meet their personal and collective priorities. Once the budget is ready for presentation to council, this anticipatory work by the city manager makes the budget approval process more routine than contested.
Once the budget is approved by the council, the manager has the discretionary authority to implement the budget within the broad policy and fiscal guidelines established by council. Usually these guidelines give the city manager broad discretion, especially through control over filling vacancies and authorizing new positions.
Weak Mayor
Most smaller cities, and a few larger ones (i.e., Minneapolis, Minnesota), have a weak mayor form of city government, with a mayor who performs mainly ceremonial functions. Unlike the
CHALLENGES OF DECENTRALIZED GOVERNANCE 29
strong mayor system, a weak mayor does not have the power to veto council decisions, to over- see city government operations, or to draw up and implement the annual budget. Most “weak mayor” cities are very small; the mayor does not have separate executive authority, and the staff performs primarily clerical and direct service functions. The weak mayor system is the product of the Jacksonian democratic belief that too many government officials with too much power endanger the ability of the majority of middle-class Americans to control their government and keep it accountable.
Under the weak mayor system, the budgeting process is controlled by the council as a whole. The mayor facilitates the public participation activities that are part of the council’s budgeting role and serves as the ceremonial leader of the council’s deliberations over the budget adoption process. The mayor is “first among equals” when it comes to voting on the budget and exercising influence over the outcome.
Commission System
The commission form of city government fuses executive and legislative functions almost completely in the hands of elected commissioners. They hold the power to pass legislation and participate directly as administrators in overseeing the executive implementation of policy and ad- judicated appeals, usually dealing with personnel and land-use issues. Members of the commission (which is like a city council) are elected in nonpartisan elections, and one member is designated (or in some cases is elected) chair of the board to preside over meetings. Again, as in the council- manager plan, the mayor has little power. The commission makes policy for the jurisdiction and appoints some of the executive officers, such as the city attorney, assessor, treasurer, and chief of police. However, in addition to making appointments of departmental/bureau executive officers, the commissioners themselves act as heads of the various city administrative units (the park commission and the public works commission, police, fire, and the like). Each commissioner is ordinarily assigned as head of one or more commissions and is charged with their administration. The elected board of commissioners as a whole coordinates policy and approves the city budget. Thus, the members of the commission act as legislators, administrators, and judges.
The commission system was created in 1901 in specific response to the terrible hurricane on the island city of Galveston, Texas, in the Gulf of Mexico. On September 8, 1900, hurricane winds of at least 120 miles per hour ripped across the Texas coastline, killing over 5,000 people and reduc- ing the city of Galveston to ruins. During the 18-hour storm, tidal waves swept through sea-level streets, destroying homes and buildings and wiping out electricity, roads, and communication systems. As news of the disaster spread, supplies, including tents for the nearly 8,000 homeless, poured into Galveston from across the nation.
Influential business leaders in the community feared that the city might never recover its pros- perity under the leadership of the incumbent city council, so they seized the initiative, prepared a plan, and requested that the governor appoint them as a commission to govern the city during the rebuilding period. To appease opponents who argued that appointed government was undemocratic, the plan was altered to provide for popular election of two of the five commissioners. Subsequent court challenges to the constitutionality of the partially appointive government led the Texas leg- islature to make the office of all five commissioners elective, and in this form, the commission plan became popular across the nation (Bradley 2010).
The commission system was viewed by many of the business-oriented reformers of the day as the right answer to getting things done quickly, effectively, and efficiently. Experienced and knowledgeable business leaders could take single-minded control over a given functional area and mobilize the resources needed to complete a plan of action. At its peak in 1918, 500 cities had adopted the commission system, but by 1984, the number had dwindled to just 177. Portland,
30 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
Oregon, is the largest city of its size still governed by the commission form, and it is widely re- garded as a “strange anomaly” (Morgan, Nishishiba, and Vizzini 2010).
The commission system gradually fell out favor as it was replaced by the city-manager system, which was increasingly viewed as being much more effective in harnessing the growing and com- plex functions of local government under a single executive who had been specifically trained in the business of “making government work.” Galveston abandoned its own child when the island city adopted the council-manager form of government in 1960 (Rice 1977).
Ironically, the commission form of government fell out of favor for some of the very reasons that it was created in the first place. First, the commission system was criticized for its lack of professionalism. For example, a commissioner, who typically has considerable private-sector expertise in financial management and budgeting, may end up having oversight responsibility for transportation, police, fire, or other departments for which he or she has no special compe- tence, training, or experience. The city manager movement aggressively advanced the view that managing the public’s business required special people who were committed to public service as a calling—people who were armed with the modern management tools necessary to transform this commitment into efficient and effective delivery of services carried out by technically trained career professional administrators. While the critics of the commission system agreed with their opponents on the need for management expertise, they doubted that private-sector business experi- ence would provide that expertise. Public-sector work was regarded as uniquely different from the substantive competence necessary in managing for-profit enterprises in the private sector.
In addition to assuming responsibility for hiring and managing a professional cadre of public administrators, proponents of reform argued that a city manager could do a much better job than a group of independent commissioners in coordinating all of the complex activities associated with the delivery of local public services. While initially seen as a take-charge system that could get results in a hurry, the commission system came to be viewed as seriously defective in its ability to coordinate activities among diverse city functions. For example, the commissioner of environmen- tal services might announce a new initiative to mitigate erosion through a partnership with local volunteer organizations to “plant a 100 trees per month,” with little or no discussion with other commissioners who may have tree-planting responsibility in their roles as commissioners for the transportation or parks bureau. A city manager system was viewed as the solution to this problem because it created a single focus of responsibility for coordinating the disparate sets of expertise and organizational units that need to work together in order to achieve a common purpose.
Finally, in addition to the challenges of coordination posed by the commission system, there is also the problem of providing adequate representation to a diverse population. Take, for instance, the issues associated with at-large elections. At-large balloting is intrinsic to the commission concept, but elections of this type have been known to dilute minority voting strength. For this reason, most southern cities were forced to abandon the commission plan because of suits brought under the Voting Rights Act of 1965 and subsequent amendments (Rice 2010).
Despite the variety of governing models at the local level of government, they all share some common characteristics that enable us to talk about the distinctiveness of local public budgeting as opposed to state and federal budgeting processes and systems. First, a confluence of forces has created a moment of truth for many local governments. While both the state and federal systems of government are asking whether they can continue to do business as usual, no one is questioning their continued existence. This is not the case with some local governments, where increased atten- tion is being given to their ability to declare bankruptcy, go out of existence, or transfer authority for some provision of services back to the state. On average, eight municipalities per year for the last 30 years have filed for chapter 9 bankruptcy protection. The city of Detroit has captured national attention by successfully filing for bankruptcy after Kevyn D. Orr, the state-appointed emergency financial manager, failed to find alternative solutions to paying off the city’s 18 billion
CHALLENGES OF DECENTRALIZED GOVERNANCE 31
dollar debt. The city’s bankruptcy, like most that have occurred, is a result of a combination of years of mismanagement and unanticipated financial calamity. Only a few bankruptcy cases have been the result of fraud (McGee 2011). With growing concern that local government revenues may not be adequate to meet ongoing financial obligations, chapter 9 bankruptcy has grown in importance as an option (Christie 2010; McGee 2011). When this occurs it puts the jurisdiction’s public assets like art and historical museum treasures in competition with unfunded legal mandates and pension liabilities as well as the normal list of private-sector creditors.
From a legal point of view, local jurisdictions that pursue bankruptcy do not have access to the same options as the private sector in dealing with their financial challenges. The rule-of-law framework governing local governments creates the following limitations: (1) Local governments are subordinate legal entities of the state and subject to the state’s supervening authority. (2) Lo- cal governments do not have the reorganization option that the private sector has in bankruptcy proceedings. (3) Local governments do not have the “liquidation of assets” option that the private sector has in bankruptcy proceedings. (4) The only option available to most cash-strapped local governments is to pay their debts, but such payments are subject to the state’s supervening author- ity and the adjudication of the priority these debts have under the jurisdiction’s legally binding contract obligations.
In addition to the financial legal framework shared by most local governments, a second com- monality is the frequent blurring of the lines between the executive and legislative functions of government. This may be the artifact of the formal structure of authority, as with the commission or city manager forms of government, or it may be the artifact of part-time elected officials. In either case, there tends to be a much closer working partnership between the executive and legis- lative branches of local government than is the case at the federal and state levels of government. This has important implications for local budgeting, as we will explain in greater detail in the next two sections.
ThE PERFECT FINANCIAL STORM: A TRANSFORMATIONAL OPPORTUNITy
The complexity in number and types of local government in the United States and the significant role they play in funding and providing local services are reason enough to devote a book to local public budgeting. But there is another reason that local public budgeting deserves special atten- tion. Over the past decade, two forces have come together to create the perfect local government funding storm, and we believe this convergence will transform our traditional approach to local government budgeting. On the revenue side, local governments are facing growing constraints on their ability to generate revenue. On the expenditure side, there has been an expansion of federal unfunded mandates, an explosion in employee benefit costs (e.g., health care and pensions), a continuing and rapid deterioration of infrastructure, and growth in demand for services that often outstrips local revenue capacity. All of these developments have reduced the discretionary control by local administrators and elected officials over the budget process.
The Revenue Limitations
Exhibit 1.5 indicates that 38 percent of local revenue comes as transfers from the state and federal government, and another 28 percent comes from property taxes. Both of these sources of rev- enue have fallen dramatically since the collapse of the housing mortgage market in 2008. When combined with the political psychology surrounding increased taxation, local governments face a steep uphill climb in persuading voters to pay higher taxes for government services. This has forced local officials to think of alternative ways of funding local services—an issue we will deal with in much greater detail in chapter 8.
32 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
Property Tax Limitations
The dependence of local governments on property tax revenue hit the wall in 2008, when the private market for home mortgage financing dropped from nearly 60 percent of the total to less than 5 percent (Phillips 2011). While government-guaranteed loans increased, it was not enough to close the private-market mortgage gap. In the wake of the Wall Street mortgage crash in 2008, home values dropped 23 percent in the Phoenix, Arizona, area in just one year. In California’s Riverside County, budget officials witnessed an 11 percent drop in property tax receipts. Las Vegas, Nevada, experienced the first property tax decrease in at least 30 years. Since property tax revenue accounts for 50–60 percent of a typical county budget—funding everything from schools and police to trash pickup—many jurisdictions have had to cut personnel and benefits, freeze hiring, and require employees to take furloughs in order to balance the budget (Allen 2009). Schools are especially vulnerable to the downturn in property taxes. Nearly half of the property taxes collected by counties across the United States goes to fund elementary and secondary education (Kenyon 2007). This constitutes about 50 percent of the total revenue that schools receive, the other half coming from state and federal funding sources (Biddle and Berliner 2002).
As we suggested in our introductory scenarios, local governments may be the most vulnerable to economic downturns of all governments. In chapter 7, we will show that heavy dependence on property tax revenue by local governments has been severely constrained by various property tax limitations put in place either by a vote of the state legislature or by an initiative process of the citizens. This so-called taxpayer revolt began in 1978, with the passage of California’s Proposition 13, (also known as the Jarvis initiative) which established a maximum property tax of 1 percent
Exhibit 1.5
Local Government Revenue by Source, 2010
Source: Tax Policy Center, State and Local Government Finance Data Query System http://www.taxpoli- cycenter.org/taxfacts/displayafact.cfm?Docid=530.
CHALLENGES OF DECENTRALIZED GOVERNANCE 33
of the full cash value of such property. It decreased property taxes by assessing property values at their 1975 value and restricted annual increases of assessed value of real property to an inflation factor, not to exceed 2 percent per year. It also prohibited reassessment of a new base year value except for (a) change in ownership or (b) completion of new construction. In addition to decreasing property taxes, the initiative contained language requiring a two-thirds majority in both legislative houses for future increases of any state tax rates or amounts of revenue collected, including income tax rates. Proposition 13 also required a two-thirds majority vote in local elections for local govern- ments wishing to increase special taxes. Variations on Proposition 13 have been adopted in 37 states (Mullins and Joyce 1996; Winters 2008). Proposition 13 added insult to an already injured system of local government financing. In 1971, seven years before its passage, school districts in California were hit with a court-ordered school-funding equalization mandate that forced the state to pick up a greater portion of the tab for school funding (Seranno v. Priest, 5 Cal.3d 584 [1971]).
State interference in local government decision making has not been limited to property tax. Over time, restrictions have been placed on many sources of local tax revenue, either through limits on the amount that can be raised (through tax rate or revenue caps) or on the uses of the revenue. Special interest groups have also persuaded federal and state legislators and voters to preempt local govern- ments from levying certain taxes altogether. Depending on the state, these kinds of restrictions affect taxes on retail sales, Internet sales, real estate sales, income, payroll, hotel and motel revenue, fuel, cigarettes, liquor—in short, virtually anything that a local government might tax.
Decline in State and Federal Intergovernmental Revenue
In addition to limitations on property and other tax revenues, intergovernmental revenue from the state and federal government is on the decline. In the two years following the 2007–2009 economic downturn and Wall Street collapse, 46 states plus the District of Columbia initiated major budget cuts that resulted in the reduction of health care (31 states), services to the elderly and disabled (29 states and the District of Columbia), K–12 education (34 states and the District of Columbia), and higher education (43 states) (Johnson, Oliff, and Williams 2011). These cuts were both broad and deep.
On the revenue generation side of the budget-balancing equation, local jurisdictions have pushed for increased reliance on user fees and the creation of various kinds of special districts that can generate new revenue for identified categories of service. For example, some districts are intended to encourage urban renewal and economic development by reliance on tax-increment financing (TIF). TIF diverts property tax revenue (up to a certain threshold) in the targeted renewal district from local taxing jurisdictions, thus encouraging private investments in buildings and land to spark redevelopment efforts. Property values in redeveloped areas invariably rise, generating greater property tax revenues that, in turn, cover the cost of the improvements in the district. Other special service districts provide residents with the opportunity to purchase higher levels of police, fire, and additional services contingent on their willingness to approve higher levels of property taxes to pay for the services. These strategies to increase taxes and fees are an inherent part of Populist democracies where voters have the freedom to decide what services they want and what they are willing to pay (for further elaboration on this issue, see the section titled The Proximity Imperative: The Political Psychology of Taxation v. Expenditures and Their Consequences for Local Government Budgeting on page 39.
Expenditure Control Pressures
Local revenue has been increasingly constrained at times of upward pressure on expenditures from employee benefits, increased demand for services, and rapidly deteriorating infrastructure.
34 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
Employee Benefit and Retirement Programs
Publicly funded employee-benefit costs (retirement and health care) became a cause célèbre with the crash of the Wall Street mortgage market, and they will continue to garner front-page attention for the foreseeable future. Since then state and local jurisdictions have undertaken considerable strides to reduce employer contributions. Since 59 percent of the contributors to the state plans are local government employees whose jurisdictions provide the financial support for employee participation, there is considerable pressure on local governments to make continuing changes (GAO 2012, 4). Despite these on-going efforts, the GAO study concluded that “most plans have experienced a growing gap between actuarial assets and liabilities over the past decade, meaning that higher contributions from government sponsors are needed to maintain funds on an actuarially based path toward sustainability (GAO 2012, 8).
In 2010, the Pew Charitable Trusts reported that the total accrued retiree pension and nonpen- sion benefits totaled $3.35 trillion nationwide, but only $2.35 trillion (85 percent) in assets had been set aside to cover these benefits, leaving a trillion dollars of unfunded liability (Pew Center on the States 2010a). In 2013 Pew reported that pension and retiree health care costs were re- sponsible for the unfunded liabilities in 42 out of the 50 states. In the other 8 states, public debt was the primary cause for unfunded liabilities. As of fiscal 2010, the largest of these long-term obligations was for unfunded pension liabilities in 31 states, unfunded retiree health care costs in 11 states, and public debt in 8 states. Some studies have pointed out that these retirement benefits enjoy protected legal status, much like one’s personal property, and therefore cannot be reduced quickly or easily. Taking this factor into account means that a lower discount rate should be used to calculate the unfunded retirement and benefit liabilities of public entities. Doing so increases the liability to more than $3 trillion (Collins and Rettenmaier 2010, 5). Whether one uses Pew’s admittedly conservative number or the higher number that reflects a lower discount rate, it still leaves local governments with serious long-term expenditure control issues.
Local Government Infrastructure
At the eye of the local government funding storm (when decreasing revenue meets increas- ing expenses) is the financing of local government infrastructure, which is in a serious state of disrepair. The American Society of Civil Engineers (ASCE) has maintained an inventory of the growing infrastructure needs that exist at the federal and local levels of government throughout the United States. The ASCE estimates the total infrastructure costs to be more than $3.6 trillion (see the total needs column in Exhibit 1.6) to maintain and improve roads, bridges, transit sys- tems, airports, schools, waterworks, sewers, dams, solid waste disposal, and more. The second column in Exhibit 1.6 provides a summary of the estimated existing level of funding for each of the infrastructure categories. The final column provides a summary of the additional amount of funding that is needed each year over an eight-year span (2013–2020) in order to bring American infrastructure up to a B-level standard.
In 2002, the U.S. Congressional Budget Office estimated that for the years 2000–2019, the annual costs for investment in the nation’s water and waste water systems would average between $24.6 billion and $41 billion. The CBO projected that the annual costs (in 2001 dollars) over the period for operations and maintenance (O&M), which are not eligible for aid under current federal programs, will average between $25.7 billion and $31.8 billion for drinking water and between $21.4 billion and $25.2 billion for wastewater (CBO 2002). In 2013 the EPA calculated, based on 2011 data, that local water treatment infrastructure needs totaled $384 billion, consisting of $247.5 billion to replace or refurbish aging or deteriorating water lines, $72.5 billion to construct, expand, or rehabilitate water treatment infrastructure, and $39.5 billion to construct, rehabilitate, or cover
CHALLENGES OF DECENTRALIZED GOVERNANCE 35
finished water storage reservoirs (U.S. EPA 2013). What is troubling about these numbers is that the local government gap between infrastructure funding and replacement needs is widening at the very time that the national government is shifting increased attention away from infrastructure support to local government and toward reducing the federal deficit. This is illustrated by the al- location of funds under the American Recovery Act of 2009.
Traditionally, spending money on infrastructure has been viewed by many economists as a sound strategy for priming the economy during periods of downturn. But, contrary to public perceptions, only a small portion of the American Recovery Act of 2009 was dedicated to infrastructure invest- ment. According to calculations in a study conducted for the New America Foundation (a nonprofit policy institute in Washington, D.C.), of the $787 billion originally allocated for the Recovery Act, only about $92.5 billion was spent on infrastructure, or roughly 12 percent of the final package. The majority of the funding provided by the act took the form of tax cuts, transfer payments to individuals, and assistance to state and local governments, as illustrated in Exhibit 1.7 (Sherraden 2011). While President Obama’s 2012 budget proposal to Congress included increased spending for selected infrastructure programs designed to bolster the nation’s economic competitiveness, there is little reason to believe that local government infrastructure needs will receive significantly increased and sustained support in the coming years from the federal government as it struggles to reduce the federal deficit.
Exhibit 1.6
2013 Report Card for America’s Infrastructure (in billions)
Infrastructure Systems Total Needs Estimated Funding Funding Gap
Surface Transportation1 $1,723 $877 $846 Water/Wastewater Infrastructure1 $126 $42 $84 Electricity1 $736 $629 $107 Airports1,2 $134 $95 $39 Inland Waterways and Marine Ports1 $30 $14 $16 Dams3 $21 $6 $15 Hazardous and Solid Waste4 $56 $10 $46 Levees5 $80 $8 $72 Public Parks and Recreation6 $238 $134 $104 Rail7 $100 $89 $11 Schools8 $391 $120 $271 Totals $3,635 $2,024 $1,611 Yearly Investment Needed $454 $253 $201
Sources: American Society of Civil Engineers (ASCE) 2013. In previous versions of the Report Card, investment estimates were based on a five-year period. In 2013, ASCE completed its economic study series (Failure to Act) on America’s current and future infrastructure investment needs. These studies provided investment need estimates until 2020, which is the time period used for all estimates in Exhibit 1.6.
1Data taken from ASCE Failure to Act report series published 2011–2013. 2Airport needs and gaps include anticipated cost of NextGen: $20 billion by 2020 and $40 billion by
2040. 3Total needs are federal and nonfederal high hazard dams. 4Funding includes only publicly funded remediation, not funds from the private sector. 5Total needs numbers are based on discussions with the National Committee on Levee Safety, 6Total needs and funding include all costs associated with Parks and Recreation. Funding gap is capital
needs only. 7These numbers are based on market projection and current investment trends. 8These numbers are based on the last available national data collection and brought to current market
dollars.
36 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
What makes the local infrastructure issue so problematic is the decline of the municipal bond market triggered by the Wall Street crash of the home mortgage market in 2008. Traditionally, local governments have sold bonds to fund such things as roads, sewer systems, and government buildings. Because they are guaranteed by the general fund revenue from property taxes or the rates charged to sewer and water customers, municipal bonds were viewed as nearly risk free. That is no longer the case. Today, state and local government debt is at an all-time high of 22 percent of the U.S. gross domestic product (GDP) (usgovernmentspending.com, 2014). Unlike the federal government, if state and local governments want to spend more than they bring in, they must borrow it from investors. However, if investors believe that governments can no longer pay off the bonds, local jurisdictions will have to raise taxes and/or dramatically reduce services instead of borrowing. According to some observers, this is a strategy that local governments will readily pursue in order to maintain a high bond rating from private-sector investors (Hunsberger 2011). The average citizen is largely unaware of the indirect interactive consequences that bonding authority has on local public budgets. This is an issue discussed in greater depth in chapter 16.
At the same time that the national and state governments have restricted local revenues, they have also put pressure on the expenditure side through a growing series of mandates. These in- crease local government costs directly, as in the case of requirements to obtain permits for storm drains that discharge to streams, or requirements to provide medical services to jail inmates, or indirectly through such things as mandates to pay inflated wages for public works contracts or to restrict or eliminate the ability to terminate nonperforming employees.
Expenditure Reduction Strategies
As local revenue has declined and expenditures have increased, local jurisdictions have resorted to various cost-cutting strategies to complement new revenue-generation strategies discussed in
Exhibit 1.7
Allocation of Spending under the Recovery Act of 2009 (in billions)
Source: Sherraden 2011.
CHALLENGES OF DECENTRALIZED GOVERNANCE 37
the previous section. On the cost reduction side of the equation, local governments are making greater use of intergovernmental agreements with other jurisdictions and contracts for services (Cooper 2003; LeRoux 2007) and are applying new outcome-based performance and management strategies to reduce administrative transaction and overhead costs (Osborne and Hutchinson 2004). Many of these initiatives are treated as part of the new public management (NPM) movement to find ways of “making government run like a business” (Osborne and Gaebler 1992; Osborne and Hutchinson 2004; Osborne 2006). Intergovernmental agreements are increasingly common legal agreements among local jurisdictions to share police, fire, and fleet maintenance, or to take advan- tage of bulk purchases for materials and supplies. Some jurisdictions may be too small to provide specialized services, whether it be a library, convention center, or a public transportation system. Two local jurisdictions even used an intergovernmental agreement to share a director of budget and finance. Each jurisdiction by itself could not afford to pay a competitive salary to attract the kind of experienced administrator needed to deal with pressing and complex local finance issues, but together they could offer a competitive salary. It has become increasingly common for local governments to contract out solid waste, custodial services, building maintenance, food services, construction projects, computer services, transportation services, mental and public health services, and even public safety services.
There are growing examples of local governments contracting out the entire management of all city services. One of the first models of a contract city dates back to 1954, in the city of Lakewood, California. Dubbed the Lakewood Plan, the model was followed by several Southern California cities that contracted primarily with other governments. This model contrasts with the Sandy Springs Model, where, in 2005, Atlanta’s Sandy Springs contracted out its city functions to the Colorado-based CH2M Hill consulting firm. The city entered into a five-year contract for $27 million per year for the first two years; leaders asserted that the results had “created a new model for twenty-first century municipal government.” At least a dozen other communities in the Atlanta metropolitan area were inspired to follow the lead of Sandy Springs and hire private contractors to run their cities. “I think everybody across the country, from the federal level down to state and local, are seeing that resources are becoming harder and harder to come by, and you have to start doing things differently,” noted Sandy Springs city manager John McDonough. “You can’t just keep raising people’s taxes. That was not a model Sandy Springs wanted. They wanted fiscal restraint and accountability, and that’s what this model has provided them” (quoted in Peisner 2006).
The defenders of these private contracting arrangements argue that the costs to the city’s taxpay- ers in the form of corporate profit is more than offset by cost savings resulting from the private firm’s freedom from state mandates and interference in operations. Despite these arguments grounded in the values of efficiency and effectiveness, contracting out local services to private-sector firms remains a hotly debated topic. This is an issue we will explore in greater detail later in this chapter in the section titled The Special Role of Nonprofits in Polity Budgeting, on page 47.
While few local jurisdictions have been pushed to the extreme exemplified by Lakewood and Sandy Springs, the majority has joined the wave of reform over the past decades to implement what has come to be called “outcome-based” or “performance” management governance (Osborne and Hutchinson 2004). The notion is fairly simple in principle. Instead of focusing all of one’s energies on managing the dollar costs of an activity and the rules to ensure process compliance, managers are encouraged to shift the focus to measurable performance outcomes. Commonly identified with the NPM movement, this strategy is said to (1) help eliminate unnecessary rules and process controls, and (2) result in reduced costs, increased efficiency and effectiveness, and improved customer satisfaction. A new cottage industry of consultants has been spawned by this results-oriented expenditure control strategy.
While local governments face a variety of financial challenges that will require forceful and creative leadership in the decades ahead, there are good reasons to be optimistic. As we argue
38 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
later in this chapter, local governments are blessed by a long tradition of taking initiatory respon- sibility; they possess systems of government that promote the coproduction of solutions among elected officials and career administrators in collaboration with community partners. Building on this tradition, we believe that local governments will be able to operate successfully in even more complex networks of local government partners.
ThE UNIqUE POLITICS OF LOCAL PUBLIC BUDGETING
We have already examined the complex organizational and jurisdictional considerations that af- fect the local public budgeting process, as well as the financial crisis that dominates budgetary concerns at the local level. A third reason to give special attention to local public budgeting is that, in most cases, the politics of the budgeting process is quite different at the local level from the politics at the federal level. From a public administration viewpoint, local governments are different because they establish their own budget processes. National and state governments can too, in theory, but their bureaucracies are typically too large to respond to principles of good management very quickly or extensively, and in any case, very few public administrators within those governments have much influence over the larger processes within which they carry out their budget activities.
The classic view of public budgeting at the federal level is that it is governed by the interplay of major large and well-organized interest groups. Over the course of his remarkably productive and highly influential academic career, Aaron Wildavsky explicated the “interest-based” political logic that drives the federal budgeting process (Wildavsky 1961, 1966, 1978, 1984, 1988, 1993). It is a logic that can best be understood in term of interest group politics that dominate the policy and budget allocation process at the subgovernment level of the U.S. Congress. Scholars have documented the key role played by a predictable coalition of vested interests that include key lob- bying groups, elected officials, and agency career public servants who make the decisive policy and budget appropriation decisions at the subcommittee levels of Congress. Once an agreement to fund an activity is reached among the vested interest groups making up the iron triangle (i.e., elected officials, agency administrator, and lobbying group), it becomes very difficult to make significant changes from one year to the next. This dynamic is one of the major explanations of the incrementalism that characterizes the federal budgeting process and is put into operational practice through the principles of base budget and fair share increases and decreases from the base, depending on whether spending is on the rise or the decline.
While there are variations on this model,5 scholars are in fundamental agreement that the federal budgeting process is largely controlled by peak interest groups. These groups use their relationships with administrative agencies and the subcommittees of Congress to form coalitions to ensure (1) successful passage of legislation (authorization), and (2) the funding to support it (appropriations). Such a process serves the reelection interests of political officials and the administrative interests of bureaucrats whose ability to provide services for clients usually falls short of demand.
Based on our own experience with many different types of local public budgeting processes, our work as consultants, and our role as educators of career public administrators, we have identified three major factors that create a different political logic at work in most of the nearly 89,500 local government jurisdictions. First, local governments are closest to the citizens and more accessible in bearing the burden of frustration that citizens experience in paying their taxes. Second, the large number of government jurisdictions at the local level encourages a spirit of cooperation. Third, most local governments have a different political structure than the tripartite systems of checks and balances and separation of powers that exist at the federal and state levels of government. The local system encourages greater cooperation between the legislative and executive functions of government. Taken together, these factors create a political logic at the local level that is far
CHALLENGES OF DECENTRALIZED GOVERNANCE 39
different from the logic dominating the budgetary process at the federal level. We will discuss these differences in more detail in the rest of this chapter.
The Proximity Imperative: The Political Psychology of Taxation v. Expenditures and Their Consequences for Local Government Budgeting
In a democratic society, the division of resources between the public and private sectors is roughly determined by the desires of the electorate. But because it is such a complex and time-consuming task to acquire adequate political information, the electorate is chronically ignorant. . . . This ignorance causes governments to enact budgets smaller than the ones they would enact if the electorate possessed complete information. . . . The resulting misalloca- tion of resources becomes more and more serious as the economy grows more complex. (Anthony Downs 1960, 541)
And, we would add the following to that last statement: The seriousness of this misallocation of resources also increases as government becomes more Populist. Anthony Downs reminds us that there is an important psychological dimension to the public budgeting process. Because citizens lack knowledge about (1) what is in the budget, and (2) what ends the budget items are intended to achieve, the majority will always opt for the trade-off of spending the money themselves rather than have it spent by elected officials on unknown activities with uncertain benefits. This is another way of saying that the economic rationality of the budgeting process is less important to the electorate than the political rationality of whether the citizens think they are “getting their money’s worth.” Since the benefits of the budget are indirect and longer term, it is hard for taxpayers to believe that government is doing all it can to eliminate waste and reduce spending on programs that are out of alignment with their personal priorities. This places a very heavy burden on public officials to educate the citizenry as to what is in the budget and what benefits are achieved with the dollars that are being spent. As we will see in our review of budget formats in Part III of this text, much of the history of public budgeting is driven by a push for efficiency and effectiveness: Experts working for the executive branch of government want to make use of their analytic expertise and training to ensure that the taxpayers are getting their money’s worth. But, as Downs suggests, no matter how successful public officials may be in undertaking this challenge, they will never be fully successful in overcoming the relative ignorance of the electorate regarding the contents of the budget and the intended outcomes of public expenditures.
Citizen anxiety over taxation and spending is not only the result of the rational calculation of individuals; it is also an issue of political principle that goes to the heart of America’s founding: respect for the private interests of individuals. This and other topics are addressed at length by Alexander Hamilton, John Jay, and James Madison in the 85 essays that make up The Federalist Papers. As Hamilton observed:
Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly disappointed, and the treasuries of the States have remained empty. The . . . popular government, coinciding with the real scarcity of money incident to a languid and mutilated state of trade, has hitherto defeated every experi- ment for extensive collections and has at length taught the different legislatures of the folly of attempting them. (Hamilton 1787, Federalist No. 12, quoted in Rossiter 1961, 92–93)
Hamilton’s reminder that you can’t substitute taxation for wealth generation without undermin- ing the legitimacy of government itself continues to pose a political problem for all government leaders, but especially those at the local levels, where control over the conditions of economic
40 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
prosperity are severely limited. Unable to do much about economic development and limited by what can be collected from property taxes even when development is robust, public officials are left with the difficult task of triaging and coordinating efforts among multiple jurisdictions to assuage the concerns of taxpayers (see opening scenarios). Even 150 years ago, Tocqueville was struck by the general “stinginess” of American citizens. “To judge what sacrifices democracies know how to impose on themselves, we must therefore await a time when the American nation is obliged to put half of the revenue from goods into the hands of its government, like England” (Tocqueville 1835–1840/2000, 213). That has not happened and probably never will.
The Local Government Cooperation Imperative
In addition to the challenge of having to produce and maintain a budget that balances expenditures with revenues, local officials face another ordeal—namely, managing the competition among multiple jurisdictions for the “taxpayer’s willingness to pay.” Imagine three separate governing bodies that independently decide to ask taxpayers for approval of new bond measures in the same election cycle or during the same budget process. All may risk failure if they do not coordinate their conversations with each other and explain to taxpayers (1) why the proposed measure should be passed, and (2) what people’s support of the proposed measure will mean in terms of the col- lective benefit to the community. As an alternative, public officials may simply decide to have these conversations at different times with the citizens by sequencing their approval requests for additional revenue over a period of years. In either case, there is a need for local governing bodies to coordinate their interface with a common pool of taxpayers and to demonstrate their good faith efforts to maximize the use of scarce resources through visible signs of cooperation.
Local Government Partnership Between Elected Officials and Career Administrators
As the preceding discussion of the various forms of local government makes clear, one of the im- portant characteristics that many local governments share is that they are run by part-time elected officials who may receive little or no pay for their work. As a result, career administrators bear an especially heavy burden of successfully managing the multiple and intersecting relationships of community stakeholder groups, elected officials, and career administrators. Managing these rela- tionships is especially difficult in the United States because of the deep and long-abiding distrust of government in general and public officials in particular (Karl 1987; Morgan, Green, Shinn, and Robinson 2013, chap. 5). Citizens are not certain that they can trust their government officials to be good stewards of their tax dollars, especially when these officials are perceived as having a self-interest in growing pet programs and organizations. There is a large and well-developed body of research that seeks to describe and explain how this tripartite set of relationships among citizens, elected public officials, and career administrators is most successfully managed.6 A rela- tive lack of success is reflected in the rather short tenure of city and county administrators. The International Association of City and County Managers Association reports that the average tenure for city and county managers was 7.5 years in 2006 (ICMA 2009).
While public officials at the federal government level have to deal with the same challenge of managing the conflicts between the pains and fairness of revenue generation with the public de- mands for services that usually exceed revenue, there are two important differences that distinguish local from national government budgeting. First, the federal government has the legal authority to carry deficits, while all state and local governments have to create and maintain a balanced budget. While local governments can borrow money, the constraints on local governing units (as we will see in Part II) are far more stringent than is the case with the national government.
CHALLENGES OF DECENTRALIZED GOVERNANCE 41
Taken together, we believe the psychology of getting and spending money, the number and kinds of local governments, and the fused power structure of authority that characterizes most of these forms creates a different political logic that distinguishes the politics of local budget- ing from the politics of budgeting at the federal and state levels of government. A combination of reliance on professional career administrators, part-time elected officials, the requirement to create a balanced budget, nonpartisanship, and proximity to citizens results in the need for more transparency and greater cooperation among those who have the responsibility of developing a budget and getting it approved.
POLITy BUDGETING: BUILDING LOCAL COMMUNITIES7
A fourth and final reason that local public budgeting deserves to be treated separately is that local government leaders are not simply budgeting for the government; they are budgeting to achieve the larger good for the community. While this can also be argued for those involved in the federal and state budgeting processes, the common community good is more tangibly visible at the local level, where decision makers are in face-to-face relationships with nonprofit service providers, other jurisdictions, and the business community on a regular basis. The common good is less of an abstraction and is less capable of being reduced to ideological principles or formulaic solutions to budget constraints. Typically, the effects of local budget cuts are far more immediate and glaring to citizens than cuts that result from the consequences of decisions trickling down from state and federal budgeting levels. With most state and federal grant funds, the target populations who are helped or hurt by funding decisions are less visible, not always well organized, and benefit from a layer of professional career administrators who serve as a buffer that obscures and tempers the adverse consequences for the local community. Ultimately, when these efforts by the professional cadre of grant administrators cannot quietly solve the problem created by reduced funding, local officials have to engage the community in discussions about how best to deal with decreased federal and state funding.
We call this budgeting for the common good polity budgeting. By polity, we mean the organic wholeness of a political system that contributes to the distinctive way of a life of a political com- munity. Such an approach emphasizes the synergistic influence of history, institutions, and culture in creating a shared system of values, as well as shared agreement on governance processes and structures, both formal and informal. Since the late 1990s, there has been a resurgence in the scholarship that uses polity or regime as the unit of analysis for understanding political change, governance, and leadership development (Rohr 1989; Morgan, Green, Shinn, and Robinson 2008; Ozawa 2005; Elkin and Soltan 1993; Johnson 2002; Stone 1989; Leo 1997, 1998; Lauria 1997). Our use of the term polity throughout the book is consistent with this scholarship. It is also con- sistent with what others have described as networked governance (O’Toole 1997, 2006; Provan and Milward 2001; Provan and Kenis 2007; Isett et al. 2011). In addition, we recognize extensive intergovernmental cooperation and partnerships, and intergovernmental and interlocal agree- ments as networked elements of a community polity (LeRoux, Brandenburger, and Pandey 2010; LeRoux and Carr 2007). These relationships are illustrated in Exhibit 1.8.
Exhibit 1.9 shows a local problem that needs attention. It might be affordable housing for a given target population; it might be social services for individuals with mental illness; it might be crime-fighting efforts. Pick your favorite. In the exhibit the problem is the need for a school district to build a new school. This book argues that local governments will be called upon with increasing frequency to use their budgeting process not necessarily to solve such problems by themselves, but to play a leadership role that leverages all of the assets in the community to maximize the community good. Notice in Exhibit 1.8 that the government sits as an equal partner with other institutions in the community. This contrasts with the depiction in Exhibit 1.9, where a govern- mental entity is taking the lead to enlist the support of other partner organizations and institutions
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in the community to leverage scarce resources. Our opening scenario on building a new school illustrates this kind of leveraging role. The school district enlists the support of the city, the Boys and Girls Club, members of the business community, neighborhood associations, and a school foundation to (1) generate sufficient funding, (2) pool resources, and then (3) build a new shared multiuse facility that is jointly funded and owned by a variety of community partners. In both types of polity leadership illustrated in Exhibits 1.8 and 1.9, budget officials are required to coordinate resources across interjurisdictional units of government to include actors in the market economy as well as in the nonprofit civic sector. Polity budgeting requires local government officials to bring both an intersectoral and an institutional perspective to their budgeting roles. We will elaborate more fully on each of these polity budgeting components in the next two sections.
The United States possesses a mixed economy that relies upon the contributions of the public and governmental sectors, along with private, nonprofit, and for-profit sectors, to contribute to the common good of the community. No single sector can be counted on to do it all. This simple principle underpins American democratic governance and is legally recognized in our state and federal constitutions, statutes, administrative rules, and judicial opinions. The private sector has confidence that its private property will be protected and that businesses have constitutionally guarded rights to advance their interests in the political process. The nonprofit sector enjoys special legal recognition at both the national and state levels of our political system, including exemption from taxation on its income at the federal level and in most states. Citizens are free to join these nonprofit organizations, knowing their rights of association and advocacy will be protected. In addition, if these outlets for meeting the collective needs of groups of individuals are not adequate, and if general-purpose governments are not responsive, citizens in most parts of the United States can exercise their political rights to form special governmental units to assist them in their efforts. This legal system has produced a complex array of entities that contribute to the public good, but in doing so, it has made coordination and cooperation difficult.
The variety and complexity of the mixed economy can produce confusion about the role of the parts and how the parts contribute to the larger common good, not to mention the expenditure of energies that sometimes work at cross-purposes to the common good. To simplify this complexity, Exhibit 1.10 summarizes the essential differences among the sectors based on how they arbitrate value differences and the breadth of interests they serve. Private-sector agencies and firms negotiate value differences through the market, and their interests are parochial. The interests of nonprofit organizations, on the other hand, are usually regarded as part of the larger common good. Special districts and general-purpose public agencies arbitrate value differences through the political process but differ in the scope of interests they embrace. Special districts are established to pursue parochial interests in contrast to the broader common interests of general-purpose governmental units. The distinctive characteristics summarized in Exhibit 1.10 are not meant to be exhaustive; they simply illustrate that each of the sectors has its own logic and that there is complex interplay among these sectors, marked by mutual dependence in serving the larger common good.
The public sector plays a pivotal role for organizations operating in the private, nonprofit, and special district sectors of the economy. Markets cannot sustain themselves without a stable infra- structure of roads, communication systems, defense systems that protect and maintain international lanes of commerce, banking systems that provide security for loans, a legal system that enforces contracts, and a regulatory system that stabilizes the rate and complexity of change in markets as well as their relationships with consumers and communities. The nonprofit sector also relies on this infrastructure, depending heavily upon the grants, contracts, and other forms of sponsorship by governments at all levels, not to mention its privileged tax exempt status. The elaborate legal and procedural environment of many governments helps provide stability for the other sectors, but it also presents impediments to highly efficient operations. Private-sector firms and nonprofit organizations enjoy substantial advantages over the public sector in this regard.
CHALLENGES OF DECENTRALIZED GOVERNANCE 45
The private sector’s concern for innovation, creativity, and customer satisfaction is assumed to be the best mechanism for efficiently maximizing the allocation of society’s resources. This may be the case—as long as the goals of society are compatible with those of individuals and the demands of customers can be arranged to induce a market response. But there are numerous instances when these private marketplace conditions do not exist. The following are the most com- mon examples of market failures or exceptions that have provided justification for public-sector intervention: (1) the provision of public goods, such as national defense; (2) the amelioration of some of the diseconomies or externalities of collective action, pollution of the environment and drug abuse among them; (3) the avoidance of tragedy of the commons problems, such as natural resource depletion; (4) reaping the collective benefits of public economies, such as education and early childhood development programs; and (5) taking advantage of natural monopolies, such as water, sewer, and other public utilities. In these and other instances, the public sector is encour- aged to intervene in the private marketplace in the interest of promoting greater equity (Okun 1975; Wanat 1978, chap. 2).
Neither the public nor the private sectors are as capable as the nonprofit sector of meeting individual clientele needs with the fewest rules and lowest costs to the client. This is partly because nonprofits rely on the extensive passion of volunteers and because they are free from a variety of legal mandates imposed on local governing bodies. Soup kitchens and shelters for the homeless, runaway youth, and domestic violence victims rarely require clients to meet some extensive eligibility requirements. Those who provide these kinds of services to narrow target populations are passionate about what they do, and this passion—combined with flexible, adaptive approaches to care—is clearly reflected in the quality of treatment that is extended to each person in need. Because of these factors, more service can usually be provided for fewer dollars than is the case with either the public sector or the private marketplace. Nonprofits are also created in response to a variety of impulses, including government failure to provide sufficient public goods (for example, United Way); the American tradition of self-help (Alcoholics Anonymous); a commitment to helping others (Catholic Charities); or a desire to advance the interests of a target community (National Education Association, American Association of Retired Persons, the National Rifle Association, the Native Fish Society, the Boy Scouts of America, the Sierra Club, and the like).
Exhibit 1.10 Institutional Forms
46 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
The special district sector offers still another alternative to providing public services. Unlike gen- eral-purpose governments that administer a broad range of services, special districts are established to administer one specialized activity on a cost-of-service basis. Fire, hospital, police, water, sewer, library, and other services can be provided by creating a unit of government whose sole purpose is to administer that service at a specified cost to each member of the district. The advantage of this approach is twofold: It allows citizens to purchase additional levels of service that government may not be able to provide, and it controls the price they are willing to pay. One of the disadvantages of special districts is that they further balkanize public service delivery and allow those with more financial resources to obtain more and better service than the poor. As Nancy Burns points out in her study of local government, special districts are frequently a product of race and class motivations (Burns 1994). Under such circumstances, it becomes more difficult to build a shared sense of the common public or community interest.
In short, organizations operating in the public, private, nonprofit, and special district sectors are suited to perform quite distinctive tasks. It is important for local public budgeting officials to know what each sector can do particularly well and why, as they increasingly reach out across the sectors to obtain assistance in rethinking how to budget for the common good. The distinct characteristics of each sector are summarized below in Exhibit 1.11. The summary is not exhaustive but rather illustrates that each of the sectors has a logic of its own, and that there is a complex interplay among the sectors with mutual dependence of one upon the other. These characteristics also have important implications for shaping the ethical obligations of those responsible for budgeting for the common good. We will illustrate this more concretely in the next section, where we focus on the special role of nonprofits in the local public budgeting process.
Exhibit 1.11 Comparative Characteristics of Sectors
Private Sector Nonprofit Sector Public Sector Special Districts Mission driven Clientele driven Legal/rule driven Purpose driven
Results oriented Needs oriented Process oriented Service oriented
Entrepreneurial Meeting needs with few rules and questions asked
Bureaucratic Technical expertise
Motivating others for high performance
“Doing the right thing” Constitutional agent of a sovereign power
Bounded legal authority
Customers Target populations Citizens Target population
Flexibility Service Control Service
Innovation Flexibility for target population
Following rules Service within narrow legal authority
Customer satisfaction Clientele needs Citizen rights and responsibilities
Client satisfaction
Incentives “Doing good” Regulations Service
Employee empowerment
Voluntary commitment Hierarchy Functional competence
Delegation of authority Informal coordination Centralization of authority
Parochially governed
Self-interest Responsibility Accountability Efficiency
Interests Values Rights Service
Preferences Needs Equity Effectiveness
Profit Moral duty Duty to the law Duty to clients
CHALLENGES OF DECENTRALIZED GOVERNANCE 47
The Special Role of Nonprofits in Polity Budgeting8
An important but largely ignored development over the last several decades has been the rapid rise of nonprofits in providing local services to the community. This is a result of an important shift that has occurred in the role of government in funding social services. Federal government spending on social services increased by 259 percent in inflation-adjusted dollars between 1965 and 1980 (Salamon 1999, 61). However, beginning in the late 1970s, government spending began a sharp reversal and experienced a 15 percent decline in inflation-adjusted dollars between 1977 and 1994 (116).
Despite the decline in government funding, support for the social service sector continued to grow as a result of the increased role played by the nonprofit and for-profit sectors. For example, between 1977 and 1992 (Salamon 1999, 116):
• Private social service agencies grew by 130 percent. • The number of employees working for these agencies grew by 140 percent. • The revenues of these agencies rose nearly 240 percent above what they had been in 1977,
even after adjusting for inflation.
Exhibit 1.12 summarizes the key trends in social service delivery between 1977 and 1996. The paradox of declining government support and expansion of spending is explained by the shift of service provision to nonprofits and the private sector, which have relied increasingly on fee income and greater support from private giving. By 1996, “fees came to outdistance both government and private giving as a source of nonprofit human service agency income” (Salamon 1999, 117). As of 1980, “approximately 25 percent of all government spending in the fields where nonprofit organizers were active flowed to such organizations” (63). In Massachusetts, the dollar amount of purchase-of-service contracts with private nonprofit service agencies more than doubled between 1977 and 1981, increasing from $36 million with 380 contracts to $84 million and over 1,000 contracts (Smith and Lipsky 1993, 56). In addition to these contracts for services, federal block grants and federal programs providing funding for Head Start, runaway shelters, and an extensive array of other social services have been funneled to nonprofit organizations.
What are the consequences of this enlarged role for nonprofit organizations in becoming major providers of public goods and services? From one point of view, it represents the triumph of America’s reliance on associations to achieve the common good of the community. Huge numbers of volunteers become enlisted in supporting these associations and in the process, to quote Tocqueville, “sentiments and ideas renew themselves, the heart is enlarged and the human mind is developed” (Tocqueville 1835–1840/2000, 491). But from another perspective, the mu- tual dependence of government and nonprofit organizations raises significant questions. Smith and Lipsky ask, “If the state no longer directly delivers services, but authorizes private parties to conduct its business, where shall we locate the boundaries of the state? Massive contracting for services should also have significant implications for the limits of government and the autonomy of nongovernmental community affairs. . . . More dependence on nonprofit organizations means not less but more government involvement in the affairs of voluntary and community agencies” (Smith and Lipsky 1993, 5).
Why is it the case that more contracting out is likely to undermine rather than strengthen the nonprofit sector? To answer this question, we need to return to the distinctions made in the previ- ous section between the public, private, and nonprofit sectors. The public sector’s emphasis on providing maximum service to as many citizens as possible conflicts with the nonprofit sector’s emphasis on providing as much service as possible to its chosen clientele population (see Exhibit 1.12). In addition, the public sector is held to a different standard of accountability than the non-
48 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
profit sector. The dual principles of equity and accountability for public-sector officials create an incentive to write contracts that require nonprofit organizations to deliver specified levels of service to given numbers of clientele with the dollars available. To accomplish this goal, nonprofits may have to alter their mission to accomplish the specifications of the contract. For example, instead of providing homeless shelter services to a given client for as long as it is needed, the nonprofit may be required to restrict the service to a client in order to meet its contract goals with respect to target numbers. It may even be subject to direct control by government “over admission, treatment and discharge decisions” (Smith and Lipsky 1993, 229, 122–132).
In addition to the need for a nonprofit to rearrange its service mission to accommodate the specifications of a contract, the accountability requirements of the contract may require the agency to hire professionals in accounting, financial management, personnel, and fundraising in order to meet its elevated eligibility standards and reporting procedures. This pressure to professionalize the management of nonprofit organizations can displace volunteers, thereby losing much of the passion, flexibility, empathy, and singleness of focus that they bring to such organizations (Smith and Lipsky 1993, 83–87, 100–108).
There is a final, unintended consequence of government’s reliance on the contract for services process as a substitute for providing direct service. As public dollars have become increasingly scarce, the pressure to squeeze greater results from the contractors tends to rise. As a result, nonprofit service providers are being asked to deliver more for less, as are government agen- cies in general. When this occurs in the private business sector, the results are quite predictable, and so is the case with nonprofit organizations. To meet this demand for greater economies and efficiencies, nonprofit organizations have consolidated and merged their operations, leaving many fewer providers in the community than in the past (Smith and Lipsky 1993, 177–182). Smith and Lipsky conclude that the nonprofit sector now reflects “a shift . . . from the informal
Exhibit 1.12
Comparison in Social Services Delivery by Sector, 1977–1996
Source: Salamon 1999, 116. Copyright © 1999, 2012 The Foundation Center. Used by permission.
-15%
130% 140%
240%
38%
106% 122%
191% 167%
199%
403% Government Private Sector
-100%
0%
100%
200%
300%
400%
500%
l
Government employment (1977-1994)
Establishments (1977-1992)
Employment (1977-1992)
Revenue (1977-1996)
Tota Nonprofit For profit
Spending
CHALLENGES OF DECENTRALIZED GOVERNANCE 49
to the formal care systems, greater homogeneity of service within particular service categories, a diminished role of the board of directors in agency governance, and destabilization among nonprofit agencies” (215). In short, they have become more instrumental than constitutive in their mission and culture, and are thereby weakened in their ability to promote citizen engagement in governance. Those responsible for the public budgeting of services play a decisive role not only in providing efficient and effective services but also in ways of doing so that preserve the vitality of local communities, including the ability of nonprofit organizations to perform their distinctive role in contributing to the common good. For this reason, we believe it is important for those who are responsible for local budgeting to thinking institutionally in their approach to budgeting for the common good. What does it mean to think and to act institutionally? We will address this question next.
Importance of an Institutional Perspective
As we have argued in this section on polity budgeting, local officials will be increasingly required to enlist the support of others across jurisdictional and organizational boundaries in promoting the common good through the exercise of their discretion in the budgeting process. This boundary- spanning leadership requires identifying long-term partners who have acquired the trust and le- gitimacy of the community. Such partners are frequently an integral part of what citizens associate with the very identity of the community itself and, because of that, enjoy institutional status, not just an organizational identity. As Philip Selznick has argued, “Institutions are established, not by decree alone, but as a result of being bound into the fabric of social life” (Selznick 1992, 232).
This process of institutionalization establishes cultural identity that makes the whole greater than the sum of an organization’s parts (Powell and DiMaggio, 1991). The Green Bay Packers, for example, mean far more to their fan base and their community than winning games and making money. The team engenders ways of dressing, of conversing, and of living during the season. It is literally and figuratively “owned” by the community. It is the pride of the community. Likewise, the transformation of a set of religious practices into something like the Catholic Church, the development of the market economy in the United States, or the role of the U.S. Forest Service in public land management exemplifies public institutions built through such processes and illustrates why institutions have to be understood historically in order to fully grasp their significance. Every local community has its own examples of such entities.
There are at least three major advantages to taking an institutional approach to local public budgeting: (1) It greatly influences our understanding of how change occurs; (2) it significantly improves our understanding of the interface between public- and private-sector activities; and (3) it enriches our understanding of the processes for generating legitimacy. All three will be increasingly important for those who have local public budgeting responsibility. The future will require local budget leaders to redefine the government’s role in promoting the common good in partnership with institutional leaders across multiple sectors. In order for this change to add up to a difference that counts and to acquire legitimacy, it must be embedded in the institutional agents who can hold and sustain these agreements over time.
As the lead partner in this process of redefining what the community values, it is important for local public officials to be clear about the ethical role responsibilities they have as agents of a rule-of-law system bounded by state and federal constitutional and statutory authority. Since many of these officials operate within a fused power model similar to a parliamentary system (e.g., weak mayor, city manager, commission), the ethical role of administrators in the budgeting process is confusing and frequently conflicting. It certainly belies the traditional bright-line dis- tinction between the legislative and executive functions. How do these local forms of government square with the conventionally held view of American democracy, where responsibility for policy
50 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
development is lodged in the legislative branch and responsibility for policy implementation is the purview of the executive branch? What legislative role does the city manager play with part- time elected officials? How do council members and commissioners who hold both legislative and executive functions balance these roles in ways that ensure legislative responsiveness while also giving appropriate attention to the executive capacity to implement policy with energy, ef- fectiveness, and efficiency? These are questions we will address in the next chapter, titled “Local Public Budgeting and Democratic Theory.”
We conclude this chapter with some final reflections on the purposes of the text. Our goal is to show how the budgeting process and the role of its participants contribute to the overall func- tioning of our many systems of local democratic governance. We argue that our system of checks and balances and separation of powers necessitates a strong role for career administrators, citizen activists, elected officials, and technical experts. This view does not do much to help resolve conflicts in the budgeting process, but it does help reframe the conflicts so that they are seen as a natural and necessary by-product of our peculiar form of democracy. We believe this reframing has a sobering influence on expectations. By viewing conflicts as an important part of the process of our system of democratic governance, participants are less likely to see conflicts as artifacts that can be made to disappear through the magic of budget reform or restructuring. This book, therefore, is intended to serve as a corrective to what some might call the corrosive consequences of the somewhat obscured perspectives of participants in the public budgeting process. It is not designed to make one a technical expert on budgeting. Instead, it is written with the following three specific goals in mind:
• to help participants understand the overall logic of the public budgeting process and the respective role performed by each of the participants;
• to provide the reader with a historical understanding of the limits and possibilities for budget reform initiatives; and
• to demonstrate the need for participants in the budgeting process to view their activities as an essential element in our system of democratic governance.
In fact, this book assumes that you cannot be a responsible agent in the budgeting process without possessing a theory of democratic governance. In the absence of such a theory, participants simply become instrumental functionaries in a mechanical kind of process.
Given the broad focus taken by this text, readers cannot expect a quick read to provide them with what they need to be fully proficient with the microdetails of their jurisdiction’s budget process. The information in this text clearly needs to be supplemented by the detailed technical information and organizational requirements that are unique to the public budgeting process for each jurisdiction and organizational unit.
STUDy qUESTIONS
1. How many and what kinds of local governments do you pay taxes to support? What kinds of services do you receive in return for these payments?
2. What authority does each of the jurisdictions to which you pay taxes have to raise various kinds of revenue (i.e., bonds, taxes, fees for service, etc.)?
3. What are the consequences of having so many local government jurisdictions to meet the needs of citizens?
4. What is the structure of the various local governments that you pay taxes to support? How are budget allocation decisions made? What kind of influence do you have over these decisions?
CHALLENGES OF DECENTRALIZED GOVERNANCE 51
5. In many states, county governments provide a wide variety of local and regional services. The County Governance 1.1 exercise on the textbook website (www.pdx.edu/cps/budget- book) provides an opportunity to investigate county governance and service delivery. If you live in a state without strong county governments, adapt the exercise to a nearby medium or large city or township government.
6. In what ways does the local budgeting process differ from the processes at the federal and perhaps the state level?
NOTES
1. For this section, we have drawn heavily from Green and Morgan’s “Making the Constitution Relevant to Local Governments, Special Districts, and Authorities,” paper presented at the National ASPA Conference, March 13–17, 2014, Washington, D.C.
2. States vary widely in the number and kind of local jurisdictions that have been created under state authority (U.S. ACIR report 1993; “Local Governments in the United States,” chapter 1 of State Laws Govern- ing Organizational Structure and Administration. Report M-186, 1993. Washington, DC: U.S. Government Printing Office). For example, the State of Colorado in 2009 listed 3,183 local government units (cities and counties) and an additional 3,628 special districts (including school districts) (State of Colorado, Department of Local Affairs 2009). This contrasted with New Jersey’s 2002 listing of 587 local units and 825 special districts (City-data.com 2010b). In 2002, Louisiana listed 362 local units of government and 110 school and special districts (City-data.com 2010a).
While there is wide variation in the number and kinds of local units of government that exist in the United States, it is generally true that the farther west one lives, the greater the number of local units of government you will find. This is largely a relic of the influence of the Populist era at the close of the nineteenth century. Frustrated first by the unwillingness of legislative bodies to control the growing abuses by private business and second by the unresponsiveness of elected officials to the electorate, Populist reformers introduced a variety of new accountability mechanisms that included recall, the initiative, and the referendum. While some scholars include these reforms as part of the Progressive movement in the early decades of the twentieth century, they were Populist in origin and were included in the national Populist Party platforms of 1892 and 1896 (Johnson and Porter 1973, 110). In fact, most of the electoral reforms advocated by the Populist move- ment became reality decades later under the banner of the Progressive movement. One of these structural changes included recall by voters of some elected public officials prior to completing their term of office. Another instrument of direct democracy included the initiative, which enables voters to place measures di- rectly on the ballot without having to go through the legislative process. Such measures can include changes in statutes as well as alterations to a state constitution. A third reform, the referendum, allows the legislative body to refer a controversial piece of legislation directly to the voters for final approval. These instruments were first introduced in the West. Oregon became the first state to establish the statewide initiative and popular referendum. In the early days of the twentieth century, these institutions became widely known as the Oregon System. They fell into disuse in the middle decades of the twentieth century before being revived in 1970s and 1980s as a way of dealing with citizen dissatisfaction and loss of confidence in government policies—especially in connection with taxation and spending. A final pillar of Populist accountability was put in place with the successful campaign to broaden the use of direct popular election for officials such as secretaries of state, education commissioners, treasurers, district attorneys, clerks, auditors, and sheriffs (see Morgan, Green, Shinn, and Robinson 2013, chap. 5, 100–105).
3. School district budgeting will not be a primary focus of our attention in this book, largely because the topic is covered quite well by other texts (see Poston 2010; Hartman 2003; Sorenson and Goldsmith 2006; Kratz 1996) and because each local system varies widely as a result of the way in which state, local, and federal funding creates various mixes of discretionary authority by local school boards over the budget expenditure process. In general, local discretionary authority has been significantly reduced in recent years as a result of the federal No Child Left Behind Act and the increased role of state governments in supporting school funding.
4. We have relied heavily in this section on our previous treatment of this issue (see Morgan, Green, Shinn, and Robinson 2013, 44–47, 116–118). See Burns (1994) for a detailed analysis of the reasons for the rapid growth in local governments during the period between 1960 and 2000.
5. For variations on the interest-based model, see Lowi (1979), Wilson (1989), and Ripley and Frank- lin (1991). For actor-based models, see Anderson 2003; Lowi and Ginsberg 2000; Rourke 1984; Kingdon 1995; and Meier 2006. For advocacy-coalition models, see Sabatier and Jenkins-Smith (1993). For inter-
52 GENERAL CONCEPTS OF LOCAL PUBLIC BUDGETING
governmental relations models, see Scherberle 2004; Goggin, Lester, and O’Toole 1990; Elazar 1987; and Grodzins 1960.
6. See Lazenby 2009, chap. 3; Morgan and Kass 1993; Nalbandian 1994, 2000; and Svara 1990, 1991, 1998, 1999, 2006. For a history of the debate on the role of city managers in local government, see White 1927; Stone, Price, and Stone 1940; Childs 1963; Stillman 1974, 1977; Ammons and Charldean 1989; Green 1989; Hale 1989; Banovetz 1994; Teske and Schneider 1994; Hinton and Kerrigan 1995; Svara 1985, 1990, 1991, 1999, 2006; Montjoy and Watson 1995; Crewson and Fisher 1997; Rove 1999; Wheeland 2000; and International City/County Management Association 2008a.
7. We have relied heavily in this section on our previous treatment of this issue (see Morgan, Green, Shinn, and Robinson 2013, pp. 44–47, 470–471; Robinson and Morgan 2014, chap. 12.).
8. We have relied heavily in this section on our previous treatment of this issue (see Morgan, Green, Shinn, Robinson 2013, 44–47, 113–115, 470–471).
