Fiscal Constraints as Impediment to the Ability of Municipal Governments to Offer Public Services - Essay Example

Student’s Name Instructor’s Name Course Date Introduction The great recession and the housing crisis in the USA have yielded substantial fiscal pressure on municipalities. The federal government’s decision of cutting financial aid to municipalities and local governments coupled with the decline in bases for property tax have turned the provision of basic services into a big hurdle for local governments (Chernick et al. 1). Despite the decline in the revenues generated from property tax, it is evident that property tax is still the greatest source of revenues for municipal authorities. However, increasing foreclosures and declining property tax has elicited the need for diversifying sources of taxes in order to enable the municipal authorities to provide basic services to residents. Locally raised sources and intergovernmental sources are the other sources of city revenue besides property tax. The overreliance of municipal authorities on property tax suffices to be the problem that has incapacitated the authorities from gaining access to a large pool of financial resources necessary to provide basic amenities. The aim of the paper is to analyze the problem and identify alternative solutions that municipal authorities could adopt to solve the situation. The Municipal Finance Crisis Reduced access to revenue, limited borrowing capacity and tax and expenditure limitations are the three primary fiscal constraints that impede the effective delivery of services by municipal authorities in the U.S. and other countries across the globe (Stallmann 62). Eliminating the municipal infrastructure deficit in the U.S. requires massive support from the federal, territorial, and provincial governments. This also necessitates improved management of the infrastructure as well as additional fiscal tools in the municipality. It is clear that the current fiscal constraints have impeded the ability of municipal authorities to support the national economy and serve communities. However, municipal governments should be capable of delivering municipal services and ensuring the existence of suitable conditions that attract investments and talented individuals into the communities. Performance budgeting is one of the milestones required in improving the performance of municipal governments in the delivery of public services (Robinson and James 5). In order to enhance their competence to deliver services and provide favorable business environments for investors, municipal governments need access to adequate revenue streams. In essence, the revenue streams should be stable and predictable besides being able to correspond to their responsibilities including the ones offloaded by central governments. Causes of the Fiscal Constraints in Municipalities Prior to the understanding of the challenge posed by fiscal crisis in municipal governments, it is necessary to understand the causes of the challenges. Excessive reliance on revenues generated from property taxes suffices to be the major contributor to the fiscal crisis that troubles municipal governments (Schlachter et al. 3). For a long time, municipal governments have considered property taxes to be their main source of revenues. Apart from user fees, it is evident that municipal have limited other sources of revenue. In the United States, property taxes account for approximately 30% of the total revenue generated by municipal governments. In other countries such as Canada, property taxes account for approximately half the total revenue generated by the municipal authorities. Property taxes have turned out to be significantly inequitable and regressive. Overreliance on property taxes has yielded adverse effects such as urban sprawl as authorities strive to increase the revenue stream. The decision of central governments to offload responsibilities has also fueled the fiscal crisis evident in municipal governments. In response to federal deficit cutting, territorial and provincial governments offloaded some of their responsibilities to municipal governments (Marcel 10). However, offloading the responsibilities could not have impacted negatively on the financial position of municipal authorities if territorial and provincial authorities had granted municipal governments sufficient resources to meet the responsibilities. Offloading responsibilities without providing resources had an immense contribution to the fiscal crisis witnessed among municipal governments. Municipal authorities are responsible for the delivery of a number of programs such as housing, immigration, public security, emergency preparedness, public health, and the environment. However, municipal governments have to deal with the challenge of underfunding or lack of funding in its endeavor to deliver the programs. Therefore, enhanced support and coordination with other government orders is imperative to the ability of municipal authorities to implement the programs effectively. The last contributing force towards the fiscal crisis witnessed among municipal governments is reduced financial transfers from other government orders. Municipal governments have been stable over the years despite the increasing demands on local governments. Moreover, revenue breakdowns from the different sources of revenue have exhibited relative stability in the last decade. On the other hand, taxpayers have continued to demand accountability on the use of their money from governments (Curristine at al. 161). The three main sources of revenue for municipal governments include property taxes, taxes on goods, and services, and user fees. Development fees and lot levies also form part of the taxes on goods and services. However, transfers realized from other government orders underwent a massive decline in the last decline implying an increase in the burden of local authorities to finance its responsibilities. Sources of Revenue for Local Governments In 2014, the total revenue raised by local governments in the U.S. was in excess of $1.5 trillion. Out of the total revenue, sales, local property, and other taxes accounted for 41% of the total revenue ($624 billion). Transfers accounted for 36.3% of the total revenue. Property taxes, sales taxes, and individual income taxes accounted for 29.8%, 6.9%, and 2.0% respectively. Charges and miscellaneous and other taxes accounted for 22.6% and 2.4% of the total taxes respectively. Transfers from state governments accounted for 32% of the total revenue generated by local governments. State transfers also include indirect federal funds. The federal government was the source of the 4% remainder of the funds (TPC 1). Real property taxes include parcel and property value taxes and grants in lieu of taxes. Provincial and federal governments do not pay taxes directly. Instead, they pay grants in lieu of taxes on specific properties. Municipal governments also impose charges and fees on services. Some of the charges include the imposition of fees on governmental facilities, fees on services such as sewer and water, and fees associated with regulatory activities such as permitting and inspecting. Municipal governments also impose charges on development services in support of infrastructure costs required in the servicing of future developments. This includes charges on development costs, agreements on development works, latecomer agreements, and acquisition of parkland. Grants and transfers from other governments include both unconditional and conditional grants (Alao and Alao 27). Conditional transfers include certain restrictions that specify the use of the funds for a specific project or use. On the other hand, unrestricted transfers do not have restrictions. As a result, it is the responsibility governments to decide the use of the funds. Balancing Revenue Generation with Service Delivery As mentioned earlier, revenues comprise of tolls, forfeitures, rents, penalties, fees, rates, taxes, and other sources of revenue to municipal governments. Revenue control is a critical aspect in the successful generation of revenue. It entails ensuring the timely collection of revenue to enable the use of the revenue in financing critical services within the municipality. In the quest to strike a balance between revenue generation and service delivery, it is essential that municipal authorities should match strategies with the objective of collecting revenues. This entails the initial role of identifying strategies necessary to achieve the desired outcomes. Strategies serve as the driver or means of achieving the target objectives and goals. As a result, effective strategy development would enable municipal governments to develop resources in the respective functional areas such as manufacturing, marketing, revenue service among others. For instance, income generation is the objective or goal of municipal governments. In order to attain the goal, the authorities identify strategies that enable the attainment of the goal. The strategies include the imposition of taxes and charges on personal income, registration of business premises, adverts, registration and licensing of motor vehicles, tax clearance, and taxes on company income (Bartle et al. 628). To attain the balance, municipal authorities have to align the roles of its employees with the anticipated performance objectives. The approach entails the specification of the means of matching capabilities with existing opportunities in the quest to attain the anticipated objectives. On the part of municipal governments, it is imperative to identify foolproof plans that are relevant to the current needs. In the quest to attain the milestone, municipal authorities have to concentrate on a specific problem area such as insecurity that impedes its ability or the ability of residents to carry out their functions with ease. Tax imposition and collection of taxes and other charges involve interactions between agents of municipal authorities and the individuals that seek clearance. Therefore, it is essential that municipal governments should focus on the time taken to process tax-compliance certificates among other tax charges. Striking the balance between revenue generation and service delivery also entails addressing the needs of the employees in the municipal governments. Just as it is the case with other profit-oriented organizations, municipal governments should motivate its staff to enable them to provide effective services to residents. Timely payments, salary increments, and promotions are some of the incentives that motivate workers to deliver effective services. As a result, it would be useless for municipal authorities to focus on collecting revenue and forget to compensate its employees properly since the Council staffs would exhibit reluctance towards carrying out their roles. Staff members also require empowerment to help in identifying effective ways of improving performance. In essence, striking the balance between service delivery and revenue generation in municipal authorities requires the consideration of three fundamental points. Firstly, municipal authorities should plan the available resources to identify the need for additional resources needed to carry out their responsibilities (Alao et al. 27). The specific resources that need planning include personnel and mobility. Municipal governments should also identify effective frameworks for revenue collection that comprise of both internal and external coverage to maximize the process of collecting revenue. Incidences, where the individuals loot some of the generated revenue, have elicited the need for identifying a safeguarding framework that safeguards the collected revenue thereby ensuring that it reaches the designated account to finance planned projects. Innovation plays a critical role in revolutionizing the way of doing things from the traditional approach to modern ways aimed at enhancing the efficiency of the operations of the company. In the quest to improve the efficiency of the operations of municipal authorities, the authorities should use innovation to reduce the costs that it incurs in carrying out its operations. Some of the specific ways of managing public finances is the payment of mileage to staffs rather than allocating official cars to employees (Alao and Alao 28). Mileage cars would limit the utility of government finances in fueling the cars as compared to instances where the government allocates official cars to the employees. In the quest to reduce office space rent, municipal authorities can also adopt virtual communications. The use of just-in-time inventory systems is significance in the avoidance of storage costs. Instead of using group health insurance, municipal authorities can also give insurance allowances to its employees. Eliminating redundancy wastages is also possible with more networking. In the quest to reduce collection costs, municipal authorities can also use networking to cut costs on ghost workers and overstated bills (Alao and Alao 29). Even though the strategies are mainly meant for profit-oriented organizations, the public sector should also implement cost-cutting measures to enhance the efficiency of their operations and meet other developmental objectives for the interests of the residents. Public Service Delivery in the Modern era Municipal governments should adopt a customer-centric approach in delivering public services to residents within the municipality. The reference point of the customer-centric approach is the need to provide services that meet customer needs. In the case of municipal authorities, residents are the customers. Global trends have revolutionized public service delivery thereby requiring the integration between public sector agencies and leveraging on technology where appropriate. In order to develop new models of delivering public services, municipal authorities could also use expertise from the private sector when deemed necessary. The recent trends in the delivery of public services include increasing customer expectations, global competition for investments, budgetary constraints, programs of reforming the public sector, and the changing demographic trends. In essence, the effective delivery of public services depends on five key enablers: customer centricity, the creation of a connected government, capacity building, delivering the promise, and continuous improvement through innovation (PwC 3). Conclusion Fiscal constraints have turned out to be the greatest impediment to the ability of municipal governments to offer public services. The three causes of fiscal constraints include excessive reliance on revenues generated by property tax, the decision of the federal government to offload responsibilities and reduced transfers from the federal and provincial governments. The fiscal crisis has made it difficult for municipal authorities to offer critical services to residents. The sources of revenue for municipal authorities include property taxes, sales tax, and other taxes such as forfeitures. Striking the balance between revenue generation and service delivery requires the adoption of a customer-centric approach to service delivery. The approach requires municipal governments to invest the collected revenue in projects that meet the needs of residents using modern technological innovations, cooperation with other public sectors, and expertise from the private sector when necessary. Works Cited Alao, Esther Monisola, and David Oladimeji Alao. 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