Exceptional Proff 612

Shui-Yan Tang is Frances R. and John J.

Duggan Professor in Public Administration

in the Sol Price School of Public Policy and

research director for the Judith and John

Bedrosian Center on Governance and the

Public Enterprise, University of Southern

California.

E-mail: [email protected]

Richard F. Callahan chairs the

Department of Public and Nonprofi t

Administration in the University of San

Francisco’s School of Management.

E-mail: [email protected]

Mark Pisano is Professor of the Practice

of Public Administration in the Price School

of Public Policy, University of Southern

California, and co-chair of the Federal

System Panel of the National Academy of

Public Administration.

E-mail: [email protected]

Using Common-Pool Resource Principles to Design Local Government Fiscal Sustainability 791

Public Administration Review,

Vol. 74, Iss. 6, pp. 791–803. © 2014 by

The American Society for Public Administration.

DOI: 10.1111/puar.12273.

Shui-Yan Tang University of Southern California

Richard F. Callahan University of San Francisco

Mark Pisano University of Southern California

Th is article analyzes local government fi scal sustainability as a common-pool resource (CPR) problem. Comparing the experiences of Los Angeles County, San Bernardino City, and San Bernardino County, California, the analysis applies a framework developed from three decades of CPR research to show the importance of six micro-situational variables—communications with the full set of participants, known reputations of participants, high marginal per capita return, entry or exit capabili- ties, longer time horizon, and agreed-upon sanctioning capabilities—in shaping collective action dynamics and building the trust and reciprocity among stakeholders needed to achieve fi scal sustainability. Th e underlying contextual conditions for these micro-situational variables vary based on specifi c socioeconomic and political settings, but the fi ndings suggest that institutions and processes can be designed based on several well-tested principles in CPR governance to encourage stakeholders to look beyond their immediate self-interests and make decisions that account for the community’s long-term fi scal sustainability.

Fiscal sustainability has become and will con-tinue to be a major challenge for local govern-ments in the United States. As forecast by the U.S. Government Accountability Offi ce (2013), operating defi cits for state and local governments will increase and continue for decades. Reduced tax revenues resulting from demographic changes will also create budgetary stresses for governments at all levels, and these stresses will continue for decades (Pisano 2013b). Confronting these fi scal sustainability challenges requires coordinated eff orts among multiple actors in the local community, both inside and outside government, to refashion institutions, budgetary processes, and core assumptions about ways for fund- ing and delivering local public services. As evidenced by a number of highly visible municipal bankruptcy cases in the recent past, including the cities of Detroit, Michigan, and San Bernardino, California, if this

trend continues, many more cities around the country may face the prospect of chronic fi scal imbalance and, perhaps, bankruptcy in the future. In the current public fi nance and budgeting literature, many quan- titative studies link various institutional, political, and socioeconomic variables to local fi scal decisions, mostly based on cross-sectional data at a given point in time; yet few qualitative studies provide detailed and over-time analyses of the processes and mecha- nisms by which local stakeholders may gradually overcome collective action problems to develop fi scal sustainability.

In this article, we analyze local government fi scal sustainability as a common-pool resource (CPR) problem. Originally developed to examine natural resource governance issues, the CPR perspective is well suited to studying public sector fi scal sustain- ability issues because they share similar collective action problems (Feiock and Scholz 2010). A long tradition of academic research on CPRs has adopted a case study approach (Ostrom 1990). Similarly, we draw on our three-year, in-depth case study research and apply the framework from fi ndings in the CPR literature to explain the results of in-depth case studies of three local jurisdictions—Los Angeles County, San Bernardino City, and San Bernardino County—con- ducted between 2011 and 2013.

Many fi scal challenges currently facing state and local jurisdic- tions in the United States resemble the classic tragedy of the commons, a situation in which most users understand that the existing way of using the CPR will eventually lead to its ruin, but no one is willing to

reduce one’s use or contribute to its replenishment if no credible means exists to overcome the inherent col- lective action problems. CPRs have two basic charac- teristics: diffi culty of excluding potential benefi ciaries and subtractability of use (Ostrom 2005). Because of

Using Common-Pool Resource Principles to Design Local Government Fiscal Sustainability

Many fi scal challenges currently facing state and local juris-

dictions in the United States resemble the classic tragedy of

the commons.

792 Public Administration Review • November | December 2014

We then analyze the case of San Bernardino City, which declared bankruptcy in 2012. Th e third case is San Bernardino County, which illustrates possible ways of averting a fi scal crisis through concerted eff orts by the key stakeholders. Th e next section links the cases to well-established theories about the interactive dynamics and institutional design variables that characterize sustainable CPR governance. Th e fi nal section draws conclusions about the utility of the CPR framework for studying and facilitating fi scal sustainability.

Fiscal Institutional Factors In an overview of the extant literature on the political economy of fi scal institutions, Von Hagen (2006) identifi es three general types of institutional arrangements—ex ante fi scal rules, electoral rules, and the budgetary process—that can potentially address the CPR problems inherent in public fi nance and budgeting. First, ex ante fi scal rules—such as balanced budget requirements, numeri- cal debt ceilings, and preset limits on the growth of taxation and spending—can limit the growth of public expenditure. A common drawback of such rules, however, is that decision makers can often circumvent them and, in the process, produce unintended negative consequences. For example, balanced budget requirements may create incentives for decision makers to look at the short term while neglecting the long-term problems created by short-term fi xes, such

as delayed maintenance on critical infrastruc- tures, shifting fi nancial obligations to future generations, and others (Bifulco et al. 2012).

Second, electoral rules shape elected offi cials’ preferences for fi scal allocation. As shown

by Baqir (2002), for example, after controlling for other possible determinates, U.S. municipal governments with larger numbers of legislators tend to have higher public spending per capita because individual legislators are motivated to make spending proposals that benefi t their own constituencies. Such an eff ect is mitigated in cities that have a strong-mayor form of government, but the eff ect is not aff ected by whether the legislators are elected at-large or from indi- vidual districts. Th e results, however, leave open the question as to whether some communities may have adopted a strong-mayor form of government as a way to control public spending in the fi rst place.

Th ird, the budgetary process matters. For example, it is often posited that a more centralized budgetary process, coupled with transparency, encourages all participants to resolve their compet- ing claims on the budget in a coordinated manner (Peterson 1995). Yet how the budgetary process can be centralized and made more transparent is contingent on the underlying institutional structures. For example, in a strong-mayor form of municipal government, the mayor’s offi ce can be the focal point for negotiating and implement- ing budgetary deals. In municipal governments in which the heads of major departments are independently elected, diff erent forums and mechanisms for budget negotiation and implementation may be needed.

A Collective Action Perspective Th ese three types of fi scal design are important, yet by themselves they do not fully explain why some communities are more success- ful than others in confronting major fi scal challenges. First of all, diff erent factors work together in a confi gurative way; for example, diff erent combinations of ex ante fi scal rules and electoral rules

these two basic characteristics, many CPRs are susceptible to col- lective action problems in relation to provision and appropriation. Provision problems relate to the types of eff orts needed to maintain a resource’s long-term productive (i.e., supply) capacity; appropria- tion problems relate to collective eff orts needed to limit appropria- tion of (i.e., demand for) resource units in order to maintain the resource system’s sustainable yield in the long run.

Public sector fi scal decisions resemble CPR problems. As suggested by Von Hagen, “At the heart of the common-pool problem of pub- lic fi nances is an externality that results from using general tax funds to fi nance targeted public policies” (2006, 470). In other words, government revenues are pooled together from diverse sources; the costs of public expenditures are generally paid for by the entire political jurisdiction, while the benefi ts of specifi c government expenditures tend to be concentrated among specifi c groups (Baqir 2002; Weingast, Shepsle, and Johnsen 1981). Th us, each group (and its political representatives) wants to get a larger share of the com- mon revenue pool. Th ose who benefi t from each specifi c program prefer a budgetary allocation that is higher than the socially optimal level. But if every group tries to maximize its share, the collective outcome will be excessive public spending, unsustainable defi cits, or fi scal crisis.

A balanced and sustainable budget benefi ts everyone in the community. If the exist- ing institutions and processes for allocating fi scal resources for diff erent purposes can no longer provide for a sustainable and economi- cally sound budget, no one wants to accept cutbacks unilaterally. Everyone, however, is potentially worse off if the political jurisdic- tion faces long-term budgetary shortfalls, bankruptcy, or other major operational disruptions. Th e collective action problems that participants face in their eff orts to restructure the institutions and processes for fi scal decision making constitute a second-order pris- oner’s dilemma. Collective action problems are especially serious during major economic downturns; as funds become increasingly scarce, stakeholders are more motivated to fi ght to preserve their own share of the budget, disregarding the impact on the jurisdic- tion’s long-term fi scal health. Th e classic tragedy of the commons occurs when short-term imperatives—for example, resolving col- lective bargaining through the deferral of costs—deplete available resources in the long term. Nonetheless, the tragedy of the com- mons is not necessarily immutable if stakeholders believe that there are credible means of increasing revenue sources or of sharing the pains of budgetary cuts equitably and that they will be better off in the long run by supporting short-term belt-tightening and altering their operational strategies. Drawing on the comparison of three case studies, this article shows how theoretical postulates derived from the CPR research regarding interactive dynamics and institu- tional design principles help explain the success or failure of local governments in addressing fi scal commons dilemmas.

To set the stage for our three-case comparison, we provide an over- view of the extant literature on the political economy of fi scal insti- tutions, followed by an initial discussion of the analytical leverage provided by approaching fi scal challenges as CPR problems. Th is is followed by an analysis of the case of Los Angeles County, mostly in terms of how the case aligns with the fi ndings in the CPR literature.

A balanced and sustainable budget benefi ts everyone in the

community.

Using Common-Pool Resource Principles to Design Local Government Fiscal Sustainability 793

variety of CPRs—irrigation systems, groundwater basins, fi sheries, forests, and others—Ostrom and associates identify a number of contextual variables related to the resource system, resource units, governance system, and users that are most likely to impact CPR users’ chances of overcoming resource use dilemmas (Blomquist, Schlager, and Heikkila 2004; Lam 1998; Ostrom 1990; Ostrom, Gardner, and Walker 1994; Schlager and Heikkila 2011; Tang and Tang 2001; Tang 1991, 1992), with additional research applying the CPR framework to regional and federal governance (Callahan 2007; Feiock 2013; Feiock and Scholz 2010).

As argued by Ostrom (2005), no defi nite sets of operational and collective choice rules can be the magic bullet for resolving CPR problems in all circumstances. Rather, it is by careful experimenta- tion that CPR users can work together to develop a governance system that fi ts the resource system, resource units, and users of their specifi c CPR. In this respect, eight institutional design principles, as originally presented in Ostrom (1990) and further refi ned later in Ostrom (2005), have remained a useful guide for linking the six micro-situational variables to the contextual vari- ables that explain successful CPR governance. Th e eight principles are (1) clearly defi ned boundaries, (2) proportional equivalence between benefi ts and costs, (3) collective choice arrangements, (4) monitoring, (5) graduated sanctions, (6) confl ict-resolution mechanisms, (7) minimal recognition of rights to organize, and (8) nested enterprises.1

Th is list of principles goes beyond the fi scal rules, electoral rules, and budgetary processes that were identifi ed as critical institutional factors aff ecting fi nancial CPR problems. Instead, the list highlights the importance of institutional arrangements, both formal and informal, that take into account the interactive dynamics among the resource system, resource units, and users of a CPR.

Th ese principles are not blueprints but can be seen as “structural similarities” among robust, long-serving CPR systems (Ostrom 2005, 257). Th ey can also be viewed as guidelines for designing institutions that support the six micro-situational processes con- ducive to the resolution of CPR problems. Although these eight principles have been shown repeatedly to be useful guidelines for designing robust institutions for CPRs in the natural world, a key question is how many of them may be directly relevant for other types of CPRs, as in the case of the fi scal commons, which involves not only collective action problems parallel to those preva- lent in natural CPRs but also some of its own unique problems. Understanding the applicability of these principles will add to the current public fi nance literature; it may also help us resolve the puz- zle regarding the endogenous and confi gurative eff ects of institu- tional variables on public fi nancial decisions.

In this article, we apply Ostrom’s insights into micro-situational variables and institutional design principles for robust CPR govern- ance to examine what accounts for the divergent fi scal performance of three local jurisdictions in California: Los Angeles County, San Bernardino City, and San Bernardino County. Developing in-depth case studies to address complex problems allowed Ostrom’s CPR research to “examine the factors that appeared to account for the robustness of some systems and the failures of others” (Ostrom 2006, 5). Similarly, the case study research design in this project

may favor diff erent types of budgetary processes. A related question concerns the possible endogeneity of institutions—that is, on the one hand, fi scal and electoral rules condition the budgetary process, while on the other hand, diff erent fi scal and electoral rules may themselves be results of eff orts to improve the budgetary process. In addition, to be viable tools, institutional arrangements must be self-enforcing in the long run, that is, participants must have self-motivated reasons to abide by them if they expect other participants to do the same (Greif 2006; Knight and Johnson 2011; Tang 2012). What conditions are conducive to the establishment and maintenance of institutions for ensuring fi scal sustainability in local governments?

Ideas for tackling these diffi cult issues can be found in the broader literature on CPR governance. Ostrom (2005) argues that CPR problems cannot be eff ectively resolved by cookie-cutter methods or by simply drawing on the traditional research methods focused on the study of either “the state” or “the market.” In many circum- stances, locally developed solutions that are neither state nor market driven are better suited to the underlying ecological, socioeconomic, and governance contexts, suggesting the need for institutional diversity in addressing varied CPR situations. Yet one cannot go to the extreme by claiming that each situation is unique and requires an entirely diff erent solution; if so, no systematic scholarly work on the subject would be possible. CPR research, as with public administration research, has been advanced through interdisciplinary frameworks (Raadschelders 2011). Specifi cally, one needs to (1) understand the typical situations participants fi nd themselves in rela- tion to CPR problems, (2) analyze the “micro-situational” conditions that are conducive to participants resolving their CPR problems, and (3) develop general frameworks (or models) that can identify major factors and how these factors may combine to aff ect the ways partici- pants interact with one another in diff erent CPR situations.

As argued by Ostrom (1990, 2010), for users to successfully manage a CPR in the long run, they need to develop trust and reciprocal relationships with each other, learning how to work together to develop and enforce an appropriate set of rules that will help them overcome various types of commons dilemmas related to provi- sion and appropriation issues. Extensive experimental research has been conducted in the past three decades to examine the micro- situational conditions under which participants in social dilemma settings are likely to cooperate with each other to produce mutually benefi cial outcomes. As summarized by Ostrom (2010, 661–62), these fi ndings include the following:

• Communication is feasible with the full set of participants • Reputations of participants are known • High marginal per capita return for participants in successful collective eff orts • Entry or exit capabilities for key participants so that no one will be taken for granted • Longer time horizon • Agreed-upon sanctioning capabilities

Because these results were derived from experimental research, for them to be useful as policy and management tools, they need to be mapped onto specifi c contextual attributes—specifi c features of the resource system, resource units, users, and governance system. Based on more than three decades of in-depth fi eld research on a

794 Public Administration Review • November | December 2014

six micro-situational variables. Next we summarize lessons from the three cases by examining them in the context of eight questions on institutional design principles.

The Exemplary Practices of Los Angeles County With a population of close to 10 million, Los Angeles County is the largest county in the United States. Th e county is highly diverse, with minorities accounting for more than 50 percent of the popula- tion. With more than 100,000 employees, the county government provides direct municipal services to almost a million people who live in the unincorporated area (outside the 88 incorporated cities in the county), in addition to providing the usual county-level services such as public assistance, public safety, health and human services, and transportation.

Like other counties in California, Los Angeles County’s revenue- generating power is highly constrained, especially since passage of Proposition 13 in the 1980s, which has severely limited the ability of local jurisdictions to raise revenues through tax increases without two-thirds voter approval. Since Proposition 13, larger amounts of local revenues have been redirected through the state. Th e overall fi scal situation in Los Angeles County in the past three decades has been one of reduced discretion coupled with constrained revenues and increasing service needs. Despite this challenging environment, Los Angeles County has been relatively successful in maintaining fi scal sustainability. In the face of the recent economic downturn, the county has managed to maintain the following bond ratings: Moody’s MIG 1, Standard & Poor’s SP 1+, and Fitch’s F1+.

Several contextual and incidental factors—structural features, criti- cal events, the budgetary process, and labor relations—are relevant for understanding why Los Angeles has been able to maintain fi scal sustainability.

Structural Features Th e county is governed by a board of fi ve supervisors, who tradition- ally had long tenure, with many of them serving continuously for decades. Term limits of three consecutive four-year terms were approved by voters in 2002. Because the provision was not retroac- tive, several long-serving supervisors are still in the board, with their terms scheduled to expire in the next few years. Th e long tenure of the county supervisors encouraged the board members to adopt a relatively conservative approach to budgeting, as they realized the likelihood of facing the negative consequences created by current fi s- cal mistakes many years later. In Los Angeles County, the supervisors are highly involved in the budgetary process, and this helps translate their more conservative approach to fi scal matters into actual practices.

In the past two decades, the board of supervisors has gradually given the chief administrative offi cer more power. Traditionally, the county government had a stovepiped and fragmented administrative struc- ture, with each supervisor overseeing a range of departments, thus making it diffi cult for departments to coordinate with each other. Such a fragmented structure was gradually reintegrated by the strong leadership of a succession of well-respected chief administrative offi c- ers since the 1980s continuing to today. In 2007, the board changed the administrative system from a chief administrative offi cer (CAO) model to a chief executive offi cer (CEO) model. In the current CEO

facilitates an in-depth comparison of jurisdictions successfully sustaining their fi scal commons with a jurisdiction that fi led for bankruptcy. Th is research design addresses the “how” question of explaining how diff erences emerge, which is a particular strength of case study research (Yin 1994). Additionally, case study research design addresses the nuanced questions of governance (Heinrich, Hill, and Lynn 2004).

Th e case studies were conducted mainly through interviews with key stakeholders between 2011 and 2013. More than 10 interviews were conducted in each city. Most of the interviews lasted more than one hour, and the interviewees were ensured anonymity. For most interviews, we used a set of questions that we prepared ahead of time to ensure that we covered all the main issues we wanted to learn from the interviewee. Additional questions were raised during the interview based on the interviewee’s initial responses to the prepared questions. Interviewees in each case included key elected offi cials (including board, council, and committee members and chairs), chief administrative offi cers, department heads, staff s of elected offi - cials, leaders of charter revision commissions, labor leaders, and busi- ness and community leaders. We also consulted secondary sources, including newspaper reports, documents from bond rating agencies, offi cial Web sites, and offi cial planning and budgeting documents. Expert panels of researchers and experienced practitioners in local government reviewed the case studies over a three-year period to check for accuracy and to comment on the case descriptions.

As the details for each case study have already been published (Callahan and Pisano 2014; Pisano and Callahan 2012, 2013a), this article provides only a brief sketch of each and instead focuses on comparing lessons from the cases. Two levels of analysis—one at the micro-situational level and the other at the institutional design level— are used in our comparison.

At the micro-situational level, we focus on the interactive dynam- ics among key fi scal stakeholders in the local jurisdictions; specifi - cally, we use Ostrom’s six micro-situational conditions identifi ed in experimental settings to examine how stakeholders and leaders in the three jurisdictions diff er in how they interact with each other in fi scal decision processes. Diff erences in these micro-situational dynamics help us make sense of how varying dynamics contribute to diff erent fi scal behaviors and outcomes. Diff erent from the aggregate measure- ments used in quantitative studies on similar topics, information that we gathered from in-depth interviews with stakeholders in each case allows us to lay out in greater detail the underlying mechanisms of these situational dynamics.

Next, we draw on Ostrom’s questions regarding the practical appli- cation of her eight design principles for sustainable CPR govern- ance and use them as a template for relaying micro-situational dynamics to institutional design issues. As will be shown in the subsequent discussion in this article, these principles do not point to any specifi c set of political structures as a prerequisite for fi scal sustainability, but they do highlight crucial institutional variables, both formal and informal, that are important for sustaining the local fi scal commons.

In the rest of this article, we fi rst briefl y outline each case. Th en we examine how the three cases match or mismatch each of Ostrom’s

Using Common-Pool Resource Principles to Design Local Government Fiscal Sustainability 795

pension program with reduced benefi ts for newer hires. In the 1990s, the county, following the budgetary principles identifi ed earlier, was able to resist the political pressure prevalent in California at the time to adopt new benefi ts packages for all public employees, including the provision for calculating pension benefi ts based on 3 percent of salary per year served with retirement at age 55, which in recent years has turned out to be a major source of fi nancial head- ache for many other government jurisdictions in California. Th e county administration has built a level of trust with the unions by virtue of its ability to maintain a fi scally sound budget and pension system and to make salary and benefi t adjustments that are appro- priate for the economic conditions overtime.

The Bankruptcy of San Bernardino City With a population of approximately 200,000, San Bernardino City is the seventeenth-largest city in California. In fi scal year 2012, the city reported a $45 million defi cit on a projected budget of $65 million, with reserves depleted (Shanforth and Lawson 2013). With a projected debt of $240 million (including $47 million in pension obligations) and continuing defi cits in the coming years, the city council declared bankruptcy under chapter 9 in July 2012. It was the largest municipal bankruptcy in the United States at the time, before Detroit took the title in 2013.

Th e fi ling contrasted dramatically with the All-America City Award it received from the National Civic League in 1978. For several dec- ades before the 1980s, San Bernardino was one of the fastest-grow- ing areas in the region. Beginning in the late 1970s, however, the city began to lose jobs, as several major employers, including Kaiser Health Care System and Norton Air Force Base, closed. Th e city’s economy also suff ered as a result of the regional development pat- tern, which shifted commercial and entertainment activities to the nearby cities of Ontario and Rancho Cucamonga, about 15 miles west of San Bernardino City. Th e housing market collapse since the Great Recession further undermined the local economy by eliminat- ing many residential construction jobs. More than 70 percent of city residents are renters, with the majority of the property owners residing outside the city.

Structural Features Established as a charter city in 1906, San Bernardino has a seven- member council elected by district. Th e mayor, attorney, clerk, and treasurer are elected. Elected citywide, the mayor has extensive pow- ers, with the majority of the staff reporting to him or her. Although the mayor sits on the council, he or she does not have a vote. Th e mayor has veto power over council decisions, but vetoes can be overridden by a supermajority vote of the council. In the past four decades, there has been a succession of several relatively long-serving mayors. Th e mayor and council members are subject to term limits.

As the only elected offi cial not subject to term limits, the city attorney has played a central role in policy making and operations, as the city charter accords the city attorney the exclusive author- ity to interpret the charter. Th e previous city attorney had served six terms since 1987 and was only recently defeated for reelec- tion in November 2013. Th e city attorney’s involvement in policy and operational issues has created considerable confl icts between the offi ce of the mayor and that of the city attorney. Th e confl icts became so intense that a past mayor requested and obtained a

model, the CEO selects the department heads (with approval by the board), who report to the CEO for budgeting and coordination except for those elected countywide, such as the sheriff .

Critical Events Th e path to fi scal sustainability in Los Angeles has involved several critical events. Th e fi rst event occurred during the national reces- sion of 1988–92. During that period, Orange County declared bankruptcy, and Los Angeles County was under close scrutiny by its lenders. Credit Suisse, a major lender to the county, requested a conference call during a regular board meeting on a Tuesday morn- ing. Th e supervisors felt compelled to adjourn the board meeting and took the call. Th is event helped strengthen the supervisors’ resolve for greater fi scal discipline. During the early 1990s, however, the supervisors had yet to turn their resolve into actual discipline because they lacked the organizational culture, administrative struc- ture, and communication processes to carry it out.

In 1997, CAO David Janssen, who had taken offi ce the previous year, inherited an $800 million budget defi cit and was presented with four competing budget proposals from the supervisors. To deal with the situation, Janssen introduced a more disciplined budgetary process and successfully negotiated a renewal of billions of dollars of federal waivers for the county hospital system. Janssen’s actions led to sustained budget balances in the following decade. Upon Janssen’s retirement in 2007, Bill Fujioka took over as the new CEO with enhanced powers. Th e county faced budget shortfalls during the recession of 2008–09 but was able to implement new measures in supply chain management, achieve budget reductions without layoff s, and maintain the county’s credit ratings.

Budgetary Process With the support of the board of supervisors, Janssen gradually developed a budgetary process based on procedures to ensure transparency, consistent information fl ows across departments, and integration through a single point of coordination, with presenta- tion of all relevant information and options for the supervisors’ consideration and avoidance of creating sensational political issues through freewheeling leaks to the press. Gradually, these open and transparent procedures helped create and sustain an organizational culture that supported the principles of (1) need-based instead of allocation-based budgeting; (2) conservative practices that included counting budget revenues that are agreed upon and that will continue beyond the current year, while excluding one-time funds that force ongoing or open-ended commitments in the operating budget; and (3) linking performance and effi ciency evaluation to the budgetary process.

Th ese budgetary principles were further reinforced by (1) long- serving supervisors being fl uent in fi scal matters and highly engaged with the CAO/CEO in the budgetary process, (2) strategic planning processes involving coordinated participation from departments, (3) transparent and orderly fl ows of information from a staff with highly developed professional skills in budgeting, and (4) the board and staff working closely to confront various fi scal crises.

Labor Relations Over the past three decades, the county was able to negotiate with the unions to adjust the pension system, which is now a six-tier

796 Public Administration Review • November | December 2014

groups that could moderate these eff orts. Many of the active civic groups that helped the city earn the All-America City Award back in 1978 are no longer active.

Averting Financial Crises in San Bernardino County In terms of government structures and functions, San Bernardino County is similar to Los Angeles County. With a population of more than 2 million, San Bernardino County has a fi ve-member board of supervisors elected by district. In addition to making legislative decisions, the supervisors possess executive powers in hiring and fi ring senior administrative staff and overseeing county departments. Historically, supervisors were eager to protect the fi nancial interests of their respective districts, with few incentives for engaging in priority setting across districts. Similar to Los Angeles County, San Bernardino is vulnerable to state transfers and funding. As cities in the region faced economic downturns, San Bernardino County had to face extra fi nancial burdens in taking up the slack in public safety, redevelopment, and other services.

Being in the same region, San Bernardino County experienced simi- lar economic pressures faced by San Bernardino City—reductions in property tax and sales tax revenues, increased unemployment, and residents leaving because of unaff ordable mortgages. In addition to external economic forces, many political problems have historically plagued the county government. Th e local and regional press regu- larly ran articles featuring the cumbersome administrative structure and ineffi cient operations of the county government. Th e county was also known for its dysfunctional political culture, including corruption charges and convictions of an elected supervisor and staff members for violating state law, as well as large legal judgments against the county awarded to developers.

When the Great Recession hit, the county was in an uncertain fi nancial condition. During the 2009 budget cycle, for example, the county ran an $80 million defi cit, which was subsequently rolled into the following year. Th e structural defi cit in the county devel- oped from failures to account for the full costs of capital projects and collective bargaining agreements with county employees, county agreements to provide services for other local jurisdictions without charging for the full overhead costs, and a lack of coordina- tion across departments in making budget decisions.

A window of opportunity opened up when two new supervi- sors were elected in 2008. Chaired by Garry Ovitt, former mayor of Ontario, California, the new board subsequently hired Greg Devereaux, who had been the city manager of Ontario, as chief executive offi cer. Devereaux negotiated a fi ve-year employment contract with the board, which gave his offi ce central authority to oversee and coordinate activities across all departments in the county. Instead of reporting directly to each supervisor separately, all department heads now report to Devereaux. Th is change helped facilitate priority setting across departments and geographic districts in the county. It also allowed the development and implementation of budget priorities and expense reductions to enhance the long- term fi scal health of the county.

Th e chief executive offi ce developed an integrated fi nance track- ing system across all departments. Each department must include estimates of the full allocation of overhead administrative expenses,

restraining order on the city attorney. A city administrator tradition- ally headed the administrative system. Th e system was changed to a city manager form in 2006, with enhanced powers to oversee city department heads.

Th e city has used the charter to set operational and budgetary policies. Section 186 of the charter ties salary increases for police offi cers and fi refi ghters to the average increase in public safety units in 10 specifi c California cities, most of which are located in the more prosperous Orange County and the San Francisco Bay area. Th e result has been automatic increases that have outpaced the city’s fi scal capacity.

Critical Events In addition to charter provisions for automatic salary adjustments, the city council approved in 2004 a pension program for public safety personnel, in which pension payments are based on 3 percent for each year of service with retirement eligible from the age of 50. In addition, health coverage continues until the retiree becomes eligible for Medicare. At the time of the bankruptcy fi ling, the state pension system, CalPERS (California Public Employees’ Retirement System), was listed as the “largest single creditor at more than $140 million,” with the CalPERS legal fi ling asserting that “the city was trying to improperly renege on its pension debts” (Walters 2012).

Several years before fi ling for bankruptcy, the city council did try to improve the city’s operational and fi nancial management by chang- ing the city administrator position to a city manger position, giving the latter position more enhanced authority over city departments. Experienced professionals were brought in to fi ll the city manager position. Nationally known facilitators were brought in to help organize policy retreats to consider strategies to revamp the city’s cost structure. Th ese eff orts provided some momentum for change but subsequently gave way to the prevailing city politics (which will be further explained below). In 2012, the city’s fi nancial plight was compounded when the state governor and legislature eliminated redevelopment agencies throughout the state, resulting in the use of operating revenues to off set staff costs.

Budgetary Process Th e exchange between the city attorney and the mayor in the July 2012 council meeting—accusing each other of not knowing the city’s true fi scal condition—was symptomatic of a lack of collaboration among the city’s key institutional actors in the budgetary process. A lack of collaboration, together with charter provisions guaranteeing highly generous pay raises and pension benefi ts to public safety offi cers, has made it diffi cult for the city to adjust its fi nancial choices in response to changing economic situations and state polices. Although the mayor and city manager attempted to introduce a more coordinated approach to budgeting, their eff orts failed to turn the situation around.

Labor Relations Th e public safety unions for police and fi re are well organized. Less than 10 percent of the 100-plus uniformed members live inside the city. Th e public safety unions are politically active, and they are known to be eff ective in handing electoral defeat to council members who advocated for change in pension policy. Th e unions advocated for increasing compensation adjustments and strength- ening the authority of the city attorney in charter amendments. Nonetheless, there were no other organized eff orts by other civic

Using Common-Pool Resource Principles to Design Local Government Fiscal Sustainability 797

businesses—who are willing to support not just their own interests but also the long-term interests of the community. Th e importance of such “community maintenance” (Gardner 1996) eff orts is illus- trated by the case of San Bernardino City, which deteriorated from being a National Civic League All-America City in 1978 to declar- ing bankruptcy in 2012. External economic forces have played a signifi cant role undermining the fi scal condition in San Bernardino City; elected leaders in the city have tried to take steps to avert a fi nancial disaster. Th eir eff orts failed mainly because of their inabil- ity to develop a facilitative framework for overcoming the collective action problems inherent in the CPR problems they faced.

San Bernardino County has faced similar challenges as those faced by San Bernardino City. Elected leaders in San Bernardino County took advantage of a window of opportunity by forging a new majority on the board that sought to change the decision dynam-

ics by hiring a seasoned chief executive. To foster changes, sustained eff orts are needed to involve stakeholders and build the process and stable expectations among stakeholders for reconciling their short- and long-term inter- ests in budgeting decisions. But it remains to be seen whether such eff orts can be main- tained in the long run.

At the most general level, as argued by Ostrom, the key to resolving CPR dilemmas

is to develop trust and reciprocity among participants. To operation- alize this general argument, one must identify the impact of specifi c contexts on the formation or destruction of trust and reciprocity. Ostrom’s micro-situational variables characterize a type of context that can facilitate the development of interactive dynamics support- ing trust and reciprocity among participants. Table 1 summarizes how the three cases align with the six micro-situational variables.

and budgets presented to the board must include a 10-year expendi- ture forecast. Th e CEO and board created greater transparency and encouraged the identifi cation of cost savings measures across depart- ments and supervisory districts in the county. Th is also led to more eff ective uses of federal community development block grant funds based on highest need on a countywide basis, instead of a mechanical split among the supervisorial districts, as had been the case in the past.

Th e 10-year forecast informed collective bargaining across 16 sepa- rate negotiations, leading to agreements to multiple tiers of pension benefi ts, reduced county matches to pension funds, and reduced annual salary increase increments. Strategic planning processes were convened with the participation of county offi cials, city offi cials, civic leaders, and regional planning agency offi cials to consider (1) long-term strategic allocation of fi nancial and environmental resources for the region and (2) possible ways of leveraging resources from multiple jurisdictions for operating existing resources, such as parks and water resources, for greater cost eff ectiveness and more sustainable uses. Th ese eff orts have enabled the county to continue operations without declaring bankruptcy, but the county is not without continuing fi scal stress. While the county maintains a Moody MIG-1 rating as a whole, its pension obligation bonds have been downgraded.

Linking the Three Cases to the Six Micro-Situational Variables and Questions on Design Principles Th e case of Los Angeles County shows that it takes a long time to build the structural and cultural foundations for overcoming the CPR problems inherent in fi scal decisions. Once established, such foundations need to be continuously maintained by all key stake- holders in the community—offi cials, labor, civic organizations, and

Table 1 Matching and Mismatching Ostrom’s Six Micro-Situational Variables

Micro-situational variables Los Angeles County San Bernardino City San Bernardino County

Communication is feasible with the full set of participants

Open and structured communications among elected offi cials, admin- istrators, and stakeholders in the broader community

Few open communications between the city attorney and mayor/council; the broader community of stakeholders is seldom involved in budgetary communications

Efforts to enhance communications across departments and districts and among stake- holders in the region

Reputations of participants are known

Good working relationships between the board and the CEO; trust between partnering organizations, including the unions

Key stakeholders (including the city attorney and public safety unions) are known for their uncompromising stances in protecting their vested interests

A new majority in the board, working with a reputable chief executive, began to demon- strate a commitment to developing honest and responsible budgetary decisions

High marginal per capita return for participants in successful collective efforts

The budgetary process and person- nel policy link performance and effi ciencies to budgetary allocations in different departments

Public safety offi cers’ salaries and benefi ts are guaranteed by the charter; they do not see any high return for working with other stakeholders

A new budgetary system was put in place that rewarded departments for sound fi scal planning and decisions

Entry or exit capabilities for key participants so that no one will be taken for granted

Seasoned public management professionals engage the board on budgetary issues without fear

Given the deep divisions among elected of- fi cials, executives do not enjoy the security needed to lead credibly an orderly budget- ary process

A strong professional reputation and a fi ve- year employment contract allowed him to carry out his reform agenda without fear

Longer time horizon Supervisors have long tenure and are willing to plan for the long term; the long-term viability of the pension system encourages employees to ac- cept compromises in benefi t cuts

The city attorney has long tenure, while other elected offi cials are subject to term limits; they have different agendas; the long- serving city attorney has the public safety unions as his major source of support

Supervisors are subject to term limits, and the chief executive offi cer has a fi ve-year contract with supermajority protection; a 10-year expenditure forecast requirement has been built into the budgetary process

Agreed-upon sanctioning capabilities

Shared commitment to the long term by all major stakeholders; depart- ment heads face tangible sanctions (both formal and informal) for sub- mitting infl ated budgetary requests

Mistrust between elected offi cials and en- trenched positions of pubic safety unions make it diffi cult for them to reach credible compromises and enforce them

A more transparent and inclusive budgetary process has been taking shape; elected of- fi cials and department heads have become more likely to face sanctions for infl ated budgetary requests

To foster changes, sustained eff orts are needed to involve stakeholders and build the

process and stable expectations among stakeholders for recon-

ciling their short- and long-term interests in budgeting decisions.

798 Public Administration Review • November | December 2014

with city government suggests the absence of a high rate of return for cooperation. In San Bernardino County, the new fi nance and budgeting system put in place by the new chief executive offi cer began to show department administrators that their departments would be rewarded for sound fi scal planning and decisions. Th e stra-

tegic planning process has begun to identify ways to partner with nonprofi ts and other governments to attain more effi cient uses of resources.

Entry or Exit Capabilities for Key Participants So That No One Can Be Taken for Granted In Los Angeles County, the professional expertise of staff , includ- ing the chief administrator, provides professional options beyond county employment. Th e exit option of key participants provides a level playing fi eld in discussions between elected and appointed staff . In San Bernardino City, as a result of the deep divisions among elected leaders, appointed executives do not enjoy the security needed to lead credibly an orderly budgetary process. In San Bernardino County, the new chief executive offi cer has a strong professional reputation and was able to negotiate a fi ve-year employment contract, which allowed him to carry out his reform agenda with long-term credibility.

Longer Time Horizon In Los Angeles County, supervisors have usually had long tenure, including one serving for 40 years, but they are still subject to potential electoral challenges, especially if major budgetary crises emerge. A combination of long tenures and lessons learned from the Orange County bankruptcy created pressure for the supervisors to consider the long-term impact of annual budget decisions. An understanding emerged that if they sacrifi ce the long term to deal with short-time problems, they are likely to be the ones who have to deal with the consequences in years to come. Employees’ belief in the long-term viability of the county’s pension system encour- ages them to accept compromises to benefi t cuts. In San Bernardino City, major elected offi cials were elected at diff erent times and have diff erent expectations about the duration of their tenure. Th e council members are subject to term limits. Th e long-serving city attorney is not subject to term limits and appeared to have a diff erent agenda from those of other elected offi cials and admin- istrators. Th ere were no mechanisms in place for elected council members or city administrators to account for the long-term impact of negotiated labor agreements or annual budget decisions. In San Bernardino County, the 10-year expenditure forecast requirement has been built into the current budgetary process. It remains to be seen whether future supervisors and chief executives will continue to support the new budgetary process.

Agreed-Upon Sanctioning Capabilities In Los Angeles County, internally, with the development of a system of integrated information fl ows, a strategic planning process involv- ing all key departments, and a shared commitment to a long-term view, department heads face tangible sanctions (both formal and informal) for submitting infl ated budgetary requests. Externally, by relying on the bond market and bond rating system for short-term borrowing (e.g., tax anticipation notes and revenue anticipation

Communication Is Feasible with the Full Set of Participants Los Angeles County has been able to develop and sustain a transparent budgetary process that facilitates open communication among depart- ment heads, the chief administrator/executive, and the board of supervisors. Budget discussions also include communications with stakehold- ers and networks of partnerships across the county. Th e case shows that communication with the public is important, but it needs to be structured in ways that facilitate thoughtful deliberation and analysis. In a large and politically diverse county like Los Angeles, it is important to not politicize every budgetary decision; freewheeling leaks to the press can be counterproductive. In San Bernardino City, there are few open communications between the city attorney and mayor/council. Even at the meeting declaring bankruptcy, the city attorney disagreed with council members on the city’s fi scal condi- tion. Th e broader community of stakeholders is seldom involved in budgetary communications. In San Bernardino County, eff orts were made to enhance communications across departments and supervi- sory districts in the county and among relevant stakeholders in the entire region.

Reputations of Participants Are Known Los Angeles County’s reputation for conservative budgeting facili- tates negotiation with unions regarding pension issues, as the unions can have confi dence that short-term sacrifi ces by their members will be reliably compensated in the future. Th e known reputations reduce uncertainty and create incentives for considering long-term fi scal impacts, as well as for building trust. Good working relation- ships between the board and the chief administrator/executive also facilitate negotiation with the unions. Partnering organizations throughout the county know that sound fi scal decisions are consist- ently made, building trust among stakeholders throughout the county. In San Bernardino City, the reputations of long-standing participants actually worked against addressing the fi scal crisis. Reputations of key stakeholders are known, but only for the uncom- promising stance they take in protecting their vested interests, as in the case of the public safety unions. In San Bernardino County, the new majority on the board has begun to demonstrate a commit- ment to developing an administrative structure and budgetary proc- ess that facilitates responsible budgetary decisions on behalf of the county as a whole, enhancing the members’ reputations. Th e board chair and newly hired CEO had known reputations for responsible budgeting and strategic successes in their respective roles prior to taking their county positions.

High Marginal Per Capita Return for Participants in Successful Collective Efforts In Los Angeles, supervisors are concerned about the political repercussions of major budgetary crises, but such concerns may not necessarily translate into concerted eff orts unless other condi- tions for sustainable cooperation exist. Th e budgetary process and personnel policy link performance and effi ciencies to budgetary allocation and rewards for employees in diff erent departments. In San Bernardino City, the charter guarantees public safety offi cers’ salaries and retirement benefi ts; as a result, they do not see any high return for cooperating with other stakeholders to address budget- ary shortfalls. Th e absence of a robust civic infrastructure engaged

Th e absence of a robust civic infrastructure engaged with city government suggests the

absence of a high rate of return for cooperation.

Using Common-Pool Resource Principles to Design Local Government Fiscal Sustainability 799

ultimately, they all need to be convinced to support fi scal decisions that may be disadvantageous for them in the short run but are benefi cial to them and to the entire community in the long run. Interactive dynamics that foster trust and reciprocity are the founda- tion for successful collective action among these diverse actors in the community (Robertson and Tang 1995; Tang and Tang 2014).

In addition to the micro-situational variables, individuals coping with CPR dilemmas are also aff ected by a broader set of contextual variables related to the underlying institutional environments. After decades of research about the impact of institutional rules on CPR management, Ostrom came to the conclusion that specifi c rules associated with success or failure vary across diff erent contexts, and it will be futile to try to pinpoint specifi c rules that are infallibly associated with successful cases (Ostrom 2010, 652). Instead, a more viable approach is to move up a level of generality by focus- ing on the broad “design principles” that may inform choices of institutional rules under diverse circumstances. Yet, as pointed out by Cox, Arnold, and Tomas (2010) and acknowledged by Ostrom, design principles may also risk being treated by practitioners as rigid blueprints for imposing uniform institutional rules on diverse settings. To counteract such possible misunderstandings, Ostrom proposes that “one can translate the design principles into a series of questions that could be asked when thinking about improv- ing the sustainability of a common-pool resource system” (2005, 271). Th us, we examine next how the three cases may help answer Ostrom’s questions on institutional design.

1. Well-defi ned boundaries. “How can we better defi ne the bound- aries of this resource, and of the individuals who are using it, so as to make clear who is authorized to harvest and where harvesting is

authorized?” (Ostrom 2005, 271). A critical issue regarding the fi scal commons is not just who has a share of the revenue pool but also who has control (or entitlement) over which portion of it. In Los Angeles County, the board of supervisors, working with the chief executive, maintained control of the entire budget, allowing it the fl exibility to make adjustments to expenditures according to pro- jections on revenues and needs of the county.

Th e arrangement also enabled the board and the chief executive to negotiate credibly with diff erent stakeholders in the county when making those adjustments. In San Bernardino City, the city charter guaranteed public safety offi cers automatic raises based on formu- lae that are incompatible with the local economic reality. Th ese guaranteed entitlements created major diffi culties, especially during economic downturns, for adjusting expenditures according to avail- able revenue streams. San Bernardino County had a long tradition of allocating fi nancial resources along district boundaries; this tradi- tion created incentives for each supervisor to focus on protecting the fi scal share for his or her district while neglecting priority setting across districts. One strategy adopted to turn around the county’s fi scal condition has been to break down this “silo” arrangement by giving the CEO’s offi ce greater authority in setting priorities across departments and geographic districts.

2. Proportional equivalence between benefi ts and costs. “How can we clarify the relationship between the benefi ts received and the

notes) and long-term borrowing, county supervisors face eff ective constraints on overextending fi scal resources. In addition, the statu- tory requirements for reporting created a regular transparency to the board, to professional staff , and to the bond market that served as sanctions against overappropriations. In San Bernardino City, mistrust between key elected offi cials makes it diffi cult for them to reach credible compromises and enforce them. Entrenched positions of the public safety unions also make it diffi cult to reach and enforce deals to maintain the city’s long-term fi nancial health. No eff ective community-based civic groups exist to hold city offi cials account- able for their fi scal mistakes. In San Bernardino County, the new budgetary process has become more transparent and involves par- ticipation from a wide variety of actors from both inside and outside the county government. Elected offi cials and department heads are now more likely to face both formal and informal sanctions for infl ated budgetary requests.

Th is three-case comparison, by itself, cannot ascertain Ostrom’s six micro-situational variables as either necessary or suffi cient condi- tions for successful resolution of CPR dilemmas. Yet these six variables can serve as useful heuristics for identifying the relevant interactive dynamics among stakeholders in local fi scal governance situations, with Los Angeles illustrating a best-case scenario in con- trast to the dismal situation in San Bernardino City, and the case of San Bernardino County illustrating possible strategies for reshaping interactive dynamics to avert potential fi scal disasters. Overall, the cases show that the interactive dynamics between elected offi cials and senior appointed staff s are always the key. Th ey need not have identical interests, but their willingness to work with each other is a critical precondition for success. Reputable and professional chief executives play an important role in leading and maintaining a budgetary process that takes into account a broad range of interests in the entire com- munity from a long-term perspective. To be successful, executives have to be empowered by the elected offi cials to present the juris- diction’s fi scal realities, both short and long term, regardless of political consequences. A transparent and forward-looking budgetary process is also essential for encouraging all stakeholders in the community to consider the long term when making fi scal decisions. For public administra- tion professionals who are fortunate to be working in a jurisdiction in which all the favorable micro-situational conditions are in place, their main task would be to make sure that those conditions and arrangements are properly maintained. If not, the critical task is to identify what is lacking and what can be done to reframe the collec- tive action dynamics among key stakeholders in the community.

Most important, this micro-situational perspective helps analysts and practitioners understand government fi scal decisions as more than simply static or internal budgetary control problems, but as dynamic processes requiring coordinated eff orts among a multitude of actors in the local community and including at least elected representatives, appointed executives, career civil servants, union leaders, community leaders, and the public (Wang et al. 2012). Th e micro-situational perspective identifi es that context matters, but that context is not immutable. Diff erent actors all have their respec- tive roles and sources of infl uence within the local jurisdiction;

A critical issue regarding the fi scal commons is not just

who has a share of the revenue pool but also who has control (or entitlement) over which

portion of it.

800 Public Administration Review • November | December 2014

which was plagued by dysfunctional confl icts among elected offi - cials. A new majority in the San Bernardino County board allowed for the hiring of a professional executive to take steps to correct past fi scal mistakes, but the long-term prospect for success hinges on whether future council members will continue to be motivated to work with each other to monitor the fi scal commons.

5. Graduated sanctions. “What are the sanctions we are author- izing and can they be adjusted so that someone who makes an error or a small rule infraction is suffi ciently warned so as to ensure longer-term compliance without our trying to impose unrealistic sanctions?” (Ostrom 2005, 271). Th ere are at least two related questions here. One concerns potential sanctions for elected offi cials making irresponsible fi scal decisions, and the other concerns disci- pline imposed on career offi cials. In Los Angeles County, supervi- sors usually had long tenure, but they were still subject to potential electoral challenges. Because the county also had a large portfolio of bond issues, fi nancial missteps could easily trigger punitive actions by the fi nancial market. County supervisors were well aware of the long-term headache they had to suff er by making fi scal mistakes. Being empowered by the board, the chief executive was able to develop and sustain a budgetary process in which department heads faced tangible sanctions (both formal and informal) for submitting infl ated budgetary requests. In San Bernardino City, mistrust among entrenched elected offi cials made it diffi cult for them to reach cred- ible compromises and enforce them. Th ere were no strong elector- ate and civic community to hold the elected offi cials accountable for their fi nancial mistakes. With their fi nancial interests protected by the charter, public safety offi cials faced little risk in resisting demands for fi nancial concessions. In San Bernardino County, there have been known corrupt practices among elected and nonelected offi cials, indicating lapses in the county’s political accountability system. Yet a new majority of the board provided the impetus for hiring a new chief executive who tried to put in place a budgetary process that sanctioned against infl ated budgetary requests from both elected offi cials and department heads.

6. Confl ict-resolution mechanisms. “What local and regional mechanisms exist to resolve confl icts arising over the use of this resource?” (Ostrom 2005, 271). In a local jurisdiction, the elected council/board is ultimately the arena in which confl icts over the fi s- cal commons are resolved. In this regard, an open, deliberative, and accountable council/board is important. But many fi nancial con- fl icts cannot be resolved simply by a majority vote in the council/ board. For example, whether employee unions are willing to accept cutbacks to their salaries and benefi ts often depends on whether the elected offi cials and chief executives are known to have good work- ing relationships and whether they can be trusted to conduct good- faith negotiations and to keep promises made in those negotiations. Apparently, these kinds of confl ict resolution mechanisms were well in place in Los Angeles City but not in San Bernardino City, while San Bernardino County was in the process of strengthening such mechanisms.

7. Minimal recognition of rights. “Are there functional or creative eff orts by local appropriators to craft eff ective stewardship mecha- nisms for local resources that should be recognized?” (Ostrom 2005, 271). As mentioned earlier, the state of California has a long tradi- tion of supporting self-governance of local jurisdictions. At least for

contributions to the costs of sustaining this system?” (Ostrom 2005, 271). In sizable local jurisdictions, the fi scal commons is huge, involving billions of dollars in annual revenues and expenditures. In order to convince all stakeholders to contribute to sustaining the fi scal commons, credible information is needed to help stakehold- ers understand realistic revenue projections and competing priori- ties. Los Angeles County benefi ted from a transparent budgetary process that was based on a single point of coordination, consistent fl ow of information across departments, and the board of supervi- sors’ regular involvement in considering relevant information and options. San Bernardino City, in contrast, showed a total absence of transparency and collaboration among key institutional actors in its budgetary process, epitomized by the July 2012 council meeting in which the city attorney and the mayor accused each other for not knowing the city’s true fi nancial condition. Th e turnaround eff ort in San Bernardino County was premised on developing an integrated fi nancial tracking system across all departments, with a 10-year expenditure forecast in each budget presented to the board.

3. Collective choice arrangements. “How can we enhance the par- ticipation of those involved in making key decisions about this sys- tem?” (Ostrom 2005, 271). Th ere are many potential stakeholders for the fi scal commons; a structured and orderly process is needed to aggregate inputs and consider options. In Los Angeles County, long- serving supervisors had a long-term view about the county and were willing to work closely with the chief executive in making tough fi nancial decisions on a regular basis. Th ere was open communica- tion among board members, the chief executive, and department heads; budgetary discussions regularly included communications with stakeholders and networks of partnerships across the county. In San Bernardino City, deep-rooted confl icts among the city attor- ney, mayor, and council members precluded open communication and orderly participation among key decision makers in the city. A largely disenfranchised electorate also failed to hold these key deci- sion makers accountable for their fi scal mistakes. In San Bernardino County, part of the turnaround strategy included strategic planning processes involving county offi cials, city offi cials, civic leaders, and regional planning agency offi cials. Hired on a fi ve-year employment contract and protected by a supermajority in the council, the new CEO was empowered to build on a broad-based strategic planning initiative and to develop a more structured way for department heads to participate in budgetary processes.

4. Monitoring. “Who is monitoring this system and do they face appropriate incentives given the challenge of monitoring?” (Ostrom 2005, 271). In the context of California, where local self-governance is a valued tradition, the democratically elected council/board bears the ultimate responsibility for monitoring the fi scal com- mons within its jurisdiction. Members of the council/board do not have to share the same preferences and priorities, but they need to be willing to acquire fi scal fl uency and to work with each other in upholding their fi duciary responsibilities. Th ey are more likely to be willing to do so if they expect to serve the jurisdiction for the long term and the local electorate and other watchdog groups are active in holding the elected representatives accountable. To be an eff ective fi nancial monitor, the council/board members need to be supported by professional managers who are willing to serve the council/board with integrity and without fear. Th ese conditions are largely fulfi lled in Los Angeles County but mostly missing in San Bernardino City,

Using Common-Pool Resource Principles to Design Local Government Fiscal Sustainability 801

elected offi cials and professional managers for making fi scal mistakes. A key to fi scal sustain- ability is to draw on sound design principles (but not rigid blueprints) to develop a set of self-enforcing institutions and organizational practices in which participants are motivated to help support the same rules that constrain

their claims on the common revenue pool, with an understanding that doing so will be in their long-term interest (Greif 2006; Tang 2012).

Conclusion By viewing local government fi scal sustainability as a CPR problem, this article has examined a set of micro-situational variables that explain the success or failure of participants in developing the trust and reciprocity needed to overcome the social dilemmas inherent in many fi scal and budgetary decisions. Our analysis shows that the six micro-situational variables can serve as useful heuristics for analyzing how diff erent interactive dynamics may lead to successful

or failure in managing the local fi scal com- mons. Th e analysis also shows the importance of seeing local fi scal decisions not just as internal budgetary control issues but also as collective action problems among a diverse set of stakeholders. Institutional designs that facilitate transparency, coordinated eff orts, accountability, and confl ict resolution among diverse stakeholders are key to resolving fi scal commons dilemmas.

Th is article contributes to the CPR literature by showing a new approach to in-depth case comparison that links two sets of context—micro-situational variables and design principles—into a consolidated diagnostic analysis (Cox, Arnold, and Tomas 2010; Young 2002). Th e article can also be seen as a fi rst step toward developing a comprehensive research agenda for studying fi scal sustainability issues from a CPR perspective. Chapman (2008), for example, outlines a number of possible revenue, expenditure, and administrative “solutions” to fi scal sustainability challenges faced by state and local governments. Logical next steps in Chapman’s analysis would be to defi ne more precisely the diff erent types of CPR problems related to these revenue, expenditure, and admin- istrative “solutions,” to develop a more systematic method of identifying cases that face similar types of CPR problems, and to examine how variations in context aff ect the relevant micro- situational variables. In addition, the tension of the electorate (Korey 2011), with higher expectations for services (i.e., increased demand) while simultaneously wanting reduced property, sales, and other taxes (i.e., decreased supply), needs to be researched in the context of the CPR framework. Th e best practices identi- fi ed in these and related cases (Pisano and Callahan 2013a) need to be tested within the CPR framework across a wide range of jurisdictions.

Fiscal sustainability will remain an ongoing topic, with the projected “fi scal gap” faced by local jurisdictions continuing to widen in the coming decades (GAO 2013; Goldberg and Neiman 2014; Pisano 2013). Closing the gap will require some combination of expenditure reduction, revenue increase, and, more important, modifi cations of

the three jurisdictions covered in this study, state recognition of rights for crafting steward- ship mechanisms for the local fi scal commons appears to be well established. In recent years, however, there have been attempts by the state government to implement statewide policy reform, such as the elimination of local redevelopment agencies, which may have long-term negative fi scal impacts on local jurisdictions. Th ese issues are beyond the scope of this article, but one may note that it is not necessarily a lack of rec- ognition of rights but actions by higher-level governments that may create additional stresses on the local fi scal commons and would test local jurisdictions’ capacity for handling them.

8. Nested enterprise. “How can we create a multi-layer, polyc- entric system that can be dynamic, adaptive, and eff ective over time?” (Ostrom 2005, 271). In governing the local fi scal commons, the budgetary process is the focal point for collaboration among stakeholders. Yet as illustrated in the three cases, the budgetary system does not operate in isolation. To be an eff ective tool for fi scal sustainability, the budg- etary process must be nested within a political environment in which elected offi cials, none- lected offi cials, civic leaders, and the electorate all contribute to supporting transparency, accountability, and collaboration.

Seen from the fi ndings corresponding to these eight questions, it is apparent that none of the three usual factors discussed in the public fi nance literature—ex ante fi scal rules, electoral rules, the budget process—can fully explain by itself the conditions for fi scal sustainability. Many endogenous factors are in play. For example, a city charter in San Bernardino City that guarantees salary raises for public safety employees does not make sense from the perspective of responsible budgeting, but the adoption of such a charter provision refl ects the city’s underlying politics. Fiscal sustainability is ultimately premised on local political processes that encourage stakeholders to look beyond their immedi- ate self-interests and to support fi scal decisions that protect their own long-term interests as well as the long-term well-being of the community.

Sound design principles for defi ning fi scal decision rights, infor- mation availability, monitoring, sanctioning, collective choice, and confl ict resolution mechanisms can guide the development of appropriate institutional arrangements, both formal and informal, that fi t the particular circumstances of a local jurisdiction. A well- coordinated budgetary process is essential for avoiding commons dilemmas in fi scal decision making. Yet such a budgetary process is not viable unless it is supported by other related transactions in the community that reinforce mutual expectations for trust and reciprocity among all the key stakeholders. As shown in our analysis, it is important that the elected council maintains control of the entire budget and empowers professional managers to negoti- ate credibly with diff erent stakeholders; credible information with realistic revenue and expenditure projections is made available to all stakeholders; there is a transparent budgetary process with a coor- dinated and consistent fl ow of information across departments and stakeholder groups; and established mechanisms exist to sanction

In governing the local fi scal commons, the budgetary

process is the focal point for col- laboration among stakeholders.

Institutional designs that facili- tate transparency, coordinated

eff orts, accountability, and con- fl ict resolution among diverse

stakeholders are key to resolving fi scal commons dilemmas.

802 Public Administration Review • November | December 2014

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Acknowledgments Research for this article was supported by generous grants for three years from the John Randolph Haynes and Dora Haynes Foundation. We gratefully acknowledge the partnership with our colleagues at the National Civic League—Gloria Rubio-Cortes, Michael McGrath, and Sarah Lipscomb—in conducting the case research and preparing this article. We thank many scholars and practitioners who commented on previous drafts of this article in writing and during expert panel discussions. We also thank the editors and anonymous reviewers for their valuable comments and suggestions.

Note 1. See also Ostrom (2010, 653) for a slightly modifi ed list.

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