An article by Olsson, a recipient of the Best Article Prize in 2018 from the International Journal of Urban and Regional Research (IJURR), presents a case of financialization of urban governance from Helsingborg, Sweden. In a context of urban fiscal policy, the term financilization refers to a greater level of involvement of financial sector capital in urban service provision–from debt instruments for public infrastructure and development projects, financial intermediation and contracts, or provision of public goods such as housing, education, or drinking water through capital infusions from the financial sector. (For additional details, see articles on urban governance financialization from Torrance (2008), Weber (2010), and Ward (2017).) While access to capital finance by local governments in the US is relatively well developed (and studied–see a detailed summary in PBF by Hildreth and Zorn (2005) about municipal financing in the US), Olsson argues that a practice of converting public lands to development projects steered by”private” firms at the local government level in Sweden runs against established approaches to “state-led housing production, which had both a productive and a redistributive purpose .“
Olsson writes that:
“…this article demonstrates how the redistributive aspect of the municipal land instrument has been dissolved under neoliberalization, and discusses why the use of this instrument is problematic from both a democratic and ethical point of view. Based on a case study in Helsingborg, the article argues that, in using public land to leverage private investment in urban development, local decision makers adopt an interest in supporting rent extraction from tenants and housing owners, while subsidizing investment costs for developers. The dual role that municipalities assume as landowner-developers and planning authorities enable them to facilitate urban development effectively, but it is also problematic because it transgresses the public– private law divide inherent to Swedish law. Assuming this dual role, municipalities place themselves in a biased position that risks undermining the legitimacy of governmental actions in general, and the planning system in particular.”
A forthcoming article in Public Budgeting & Finance by Juan Pablo Martinez Guzman (UMD) discusses performance information use in line ministries in Chile. The question whether line ministries use performance information is important because in centralized top-down governance systems they may be perceived as externally imposed and, therefore, resented. The author offers several insights from this detailed case-study based on process-tracing methodologies.
The main findings for variables that either facilitated or hindered the use of centralized performance information systems are presented in table 2.
Overall, it appears that any resentment from line ministries can be overcome by involving third party technical experts, selecting homogenous performance measures, spending sufficient effort for (quality) program structuring, and investing in human capital.
These findings are directly relevant to many other central and regional governance systems around the world that operate in top-down performance regimes. A caveat is, however, each of Chile’s four key performance indicators appear to have emerged from separate waves of performance management reforms in the country. So, the road to performance information use in line ministries in centralized governance systems can run for decades. Martinez Guzman (page 9) writes that:
“performance indicators were the first component of Chile’s performance budgeting system, initially introduced in only five institutions through a pilot plan in 1993. The use of performance indicators expanded quickly to most of Chile’s government agencies, reaching 80 percent of them by the year 1997. From 1998 to 2000, performance indicators were used to determine if institutions would be awarded economic bonuses through the PMG. Because of their linkage to the PMG, performance indicators were excluded from budgetary appendices during the years 1999 and 2000. In 2001, performance indicators were removed from the PMG and restored as budgetary appendices. Finally, in the year 2011, performance indicators were reintroduced as the basis to determine PMG’s variable remunerations, and were also kept as part of the budgetary appendices that are presented to the legislature.”
An early view article in Public Administration by Darnley et al. evaluates the relationship between external environments of public organizations and administrative intensity. The sample consists of four‐year public universities in the United States from 1998 to 2011. This period is particularly important due to, arguably, growing and excessive levels of “administrative bloat” at public universities in the United States. Such administrative intensity, the authors find, is significantly related to student outcomes.
“Administrative bloat” or intensity “generally refers to the bureaucratic component of an organization and is often measured through relative spending or number of employees.”
Public universities in the US operate in increasingly political environments that may have an impact on organizational size and complexity. External pressure variables such as party control of the state executive and legislative branches, and whether public universities operating in environments with centralized governing boards, are found to be significant covariates of two measures of administrative intensity levels: administrative costs and administrative personnel.
Darnley et al. state that: “Our main independent variables focus on factors in the external political environment. First, we hypothesize that institutions in states with more conservative political principals will face greater pressure to reduce administrative intensity, as these are often issues discussed in conservative platforms (at least in the context of the United States). As a result, we expect that institutions in more conservative states will have fewer staff and spend less on administration than those in states with more liberal political principals.”
This snapshot from Table 2 contains empirical results.
The authors further investigate an association between administrative intensity and student outcomes. Though, Darnley et al. argue that this is secondary in their study, for public universities student outcomes are critical. Their empirical results show that spending intensity is significantly related to degrees produced and student graduation rates. A snapshot from Table 3 contains these findings.
Russia has been in the news lately… A forthcoming article in Public Finance Reviewshould help us all to cut through the noise and better understand public finances in that country. Alexeev et al. (2018) evaluate the relationship between fiscal decentralization and fiscal discipline in the Russian Federation using a panel for 2005-2013, especially in the context of 2009 public finance reforms. Alexeev et al. (page 3) write that:
“The main goal of this article is to use the data from Russian regions to estimate the link between intraregional fiscal decentralization and regional budget deficits. The important advantage of using Russian regional data is that the country has a relatively large number of regions and most (although not all) of the relevant fiscal data are publicly available. Also, as we show below (the first section and table 1), there is a large variation within the relevant fiscal variables, both across regions and over time.”
With respect to fiscal centralization, the authors also note that (page 10): “Fiscally, Russia is also one of the more centralized federal countries in the world, particularly on the revenue side. All taxes are collected by the federal tax service, which then channels tax revenues into the budgets of the appropriate level of government. By law, taxes in Russia are classified into federal, regional, and municipal depending on what level of government determines the base and the rates, although it is important to note that federal legislation imposes limits on the ability of lower levels of government to modify the base and the rates of “their” taxes. All revenue from regional taxes goes into regional or municipal budgets, but some of the revenue from federal taxes accrues to the budgets of the lower levels of government. The classification of taxes, the rules with respect to rate and base determination by various levels of government, and expenditure responsibilities are contained in Russia’s Tax Code, Budget Code, and certain other federal laws.”
Three major findings stand out in particular. First, expenditure decentralization is positively related to consolidated regional budget balances. Second, those regions with relatively greater levels of transfer dependence for municipalities tend to have greater levels of budget deficits. Finally, the 2009 public finance reform has limited the ability of regional governments to assign tax revenues to their municipalities, which appears to have had a negative impact on consolidated regional budget balances.
A forthcoming article in Public Budgeting & Financeby Mikhail Ivonchyk evaluates the impact of Dodd-Frank on the nature of financial advise in the municipal debt market—both as a disciplining factor and as a mechanism of weeding out bad advice from the market–, and as a result, lower cost of borrowing for California local governments. Central features of the Dodd–Frank Wall Street and Consumer Protection 2010 Act (Dodd-Frank Act) and directly relevant to municipal borrowing in the US are the governance provisions for municipal advisers (MA). Ivonchyk (page 2) writes that:
“The Dodd–Frank Act charged the U.S. Securities and Exchange Commission (SEC) with defining “municipal advisor” and the Municipal Securities Rulemaking Board (MSRB) with creating rules governing MA activities. The initiative was intended to increase fairness and transparency in the municipal debt market. The implementation of the MA registration requirement was postponed several times to allow market participants more time to analyze and prepare for the new rule. It finally took effect on November 1, 2014, implementing the Dodd–Frank requirement that all individuals and legal entities providing debt-related advice to municipal issuers register separately with both the SEC and MSRB. Under the law, MAs now have a fiduciary duty to place issuers’ interests ahead of their own. The SEC was granted certain enforcement tools to sanction violators. As of the rule’s effective date, financial advisors can no longer serve as underwriters in the same transaction, due to the conflict of interest. The Dodd–Frank Act will likely bear significant ramifications for the municipal securities market and fundamentally change market participants’ behavior.”
author reasons that new requirements that MA’s keep records of their books and
all written communications and agreements with municipalities, as well as
details and contacts for all persons they have worked with within the past five
years—and that these files are made available to the SEC at a known address—will
ensure discipline among MAs. Moreover, to practice financial advisory
functions, MAs must register with the SEC and become subject to fiduciary
duties. Therefore, a process of weeding out the “charlatans” from the municipal
market, paired with disciplining pressures from the regulators, may lower
borrowing costs for municipal governments.
findings appear to suggest that Dodd-Frank may have worked as expected, at
least as it applies to governance of financial advisors. Ivonchyk (page 18) concludes
“The Dodd–Frank Act introduced substantial changes to the municipal securities market. Previously unregulated (but essential to municipal borrowers) financial services are now governed by the federal law. The new registration requirement and increased transparency and accountability of advisory activities were intended to weed out unqualified advisors, improve the quality of financial advice, and help municipal debt issuers raise capital more efficiently (Luby and Hildreth 2014, 96; White 2014).”
The table below presents estimates for cost savings for an average notional term bond due to Dodd-Frank.