Concepts and practices in local government finance

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Introduction

Local governments have various policies that they establish and implement to manage their areas of jurisdiction. Public policies addressing the environmental aspects are among the common local government policies. They seek to minimize environmental impacts. Concurrently, they promote life quality in the concerned areas. Precisely, environmental policies enhance management of activities executed by residents.

The general aims of environmental policies incorporate monitoring the environment, creation of environmental awareness, and controlling human activities (Anderson, 2011). The environmental policies usually touch on environmental issues such as air, water, management of waste, and ecosystem preservation among others. Once the local government develops a policy, it has to find ways of funding and sustaining the implementation of the policy for the benefit of the community.

This paper focuses on a public policy regarding waste management and environmental protection, sources of the local authority’s revenues, and the funding options for the implementation of the policy.

In addition to this, it discusses the effects of public policy on revenue collection, the economic conditions that affect the revenue projections and the ways of formulating public policies that are in agreement with community’s values. The overall objective of the paper is to display the operations of the local governments in relation to policy and revenue collection and use.

Sources of Revenue

Usually, local governments have to fund the establishment and implementation of public policies. Thus, it is necessary to understand sources of their revenues. Expenditures of the local government are divided into two categories (capital and current expenditures). The capital expenditures are mainly financed by the central government. The current expenditure is that which involve the daily operations of the authority and is financed from various sources.

The charges that local governments make for goods and services that they provide is one source of their revenue. The local governments usually provide a variety of services such as waste collection, water provision, housing and parking space for vehicles. They have powers to levy charges for these goods and services even though the national government may at times set the price (Ebel & Petersen, 2012).

The other source of revenue for the local governments is rates that they levy. The rates are usually levied yearly and local governments have significant control over them. The occupiers of properties that are for commercial use are the ones who pay the rates levied by the local governments. However, an agent for the central government usually determines the value of the property for which the rate is to be levied.

The third source of revenue for the local governments is specific state grants. These are given to the local authorities by the central government so that they may offer certain services such as road maintenance, education and health. Fourthly, the Local Government Fund is the other source of revenue for the local authorities.

The local government fund was established by the Local Government Act of 1998. The act determined that the incomes from motor tax and contributions from the exchequer finance the Local Government Fund (Ebel & Petersen, 2012). The concerned fund allows local authorities to pay for their daily courses, repair local roads, and sponsor local initiatives.

Concurrently, local authorities attain their revenues through Community Fund, a scheme also referred as community initiative program. The local authority has powers to establish a community fund to enable it finance community initiatives that involve issues such as the environment, recreational activities, and projects that benefit the community as a whole. The concerned entities and volunteers can contribute to the Community Fund upon ratification.

This is a critical provision when considered critically. It is important to understand various provisions regarding this context in the realms of public policies and their respective significance. The elected individuals to the local authority are the people to determine whether to establish the community fund after carrying out an extensive consultation with the locals.

The Local Fund is usually dependent on the annual contribution of each household and business for a given number of years for the sole purpose of making a given community initiative successful. The projects details, contribution amounts and period of contributions are usually clearly set in the local fund establishment agreement. Charges bestowed on non-principal private residences equally contribute to the mentioned revenues.

Concurrently, it is crucial to note that the Local Government (Charges) Act 2009 has allowed the concerned local authorities to source funds from non principal private residences. The proceeds from this are then used by the local authority for the provision of services. It is crucial to understand these provisions in the context of revenue collection and use.

Most local governments need reliable source of funds in order to establish and implement public policies that govern the wellbeing of their subjects. It is critical to understand this provisions as indicated earlier. Generally, the efficiency of any local government depends on proper management, adequate funds, and corporation from the society.

Funding Options for Environmental Waste Management Policy in my Area of Residence

The local governments have to decide on how to fund their policies since there are various sources of revenue. The waste management policy is a local initiative of the authority and the concerned residents. The idea was to promote and sustain a clean environment to help prevent disease and enable high quality life. Additionally, the area has various resources like a lake that attracts tourists thus there was a need to maintain clean environment to promote tourism.

The local authority devised various ways of ensuring that waste was effectively managed. One way was that the authority supplied each household with plastic bags to put waste material in and then the bags were later collected by the authority’s trucks. The other way was the installation of dust bins on the streets. Additionally, any individual who was seen making the environment dirty was fined in a court.

The local government can obtained grants from the state to finance the concerned waste management policy (Moak & Hillhouse, 1999). The grant can then be used to purchase necessary items that can enable easy implementation of the policy. It can be used to purchase capital goods such as garbage trucks and can also be used to pay the wages of the workers. The other funding option for the waste management policy could be the establishment of a local government fund.

As noted earlier, the Local Government Act of 1998 established the local government fund, and the act determined that the proceeds from motor tax and contributions from the exchequer as the sources of fund for the local government fund. The Fund can easily enable a local authority to finance the waste management policy since it has powers to determine the use of the fund.

Finally, the local authority can fund a waste management policy through the establishment of a community initiative scheme. Firstly, the local authority can hold consultations with the residents during which it must inform them of the prospected benefits of the concerned policy. After that, the policy can be formulated and the funding methods sourced (contributions of the households and businesses). The success of the policy will thus depend on the ability of the residents to contribute and their cooperation.

The society, local enterprises, community corporations, and volunteers can then donate to the Community Fund upon establishment and ratification. The elected individuals to the local authority are the people to determine whether to establish the community fund after carrying out an extensive consultation with the locals.

The Local Fund is usually dependent on the annual contribution of each household and business for a given number of years for the sole purpose of making a given community initiative successful. The projects details, contribution amounts and period of contributions are usually clearly set in the local fund establishment agreement. Lastly, charges for non-principal classified residences also constitute the possible source of revenue for local authorities.

Restrictions That Could Be Placed On the Revenues

There are certain restrictions that have been placed on the local authority’s abilities to raise revenues. These restrictions have either been placed by the central government or by policies formulated by the authority. The restrictions usually require the local authorities to abide by some state imposed limitations and also on how the authority can obtain revenue from the residents (Bowman & Kearney, 2012).

In addition to restrictions on how much the authorities can collect by the state, there are other restrictions. The central government limits the use of excess amounts collected by directing the local authorities to return them to the tax payers. Additionally, referendums held by local authorities that seek more funds from the public are controlled. It is crucial to endorse appropriate restrictions on the concerned revenues in order to enhance accountability and other relevant financial provisions.

One way through which restrictions are placed on revenue collection is through the imposition of rate capping. The minister for the local governments can determine a rate above which the local authorities cannot pass without consultations. The local government minister can encourage the improvement of service quality provision by the local government without increasing the amounts that they charge the residents.

The rate pegging is also made to avoid the exploitation of the residents by the local authorities. Without proper control of the authorities’ powers to raise revenue through taxes and fees, there are possibilities of the authorities to have outrageous increases in the rates that they charge. The pegging of rates that can be charged has considerable effects on the authorities’ abilities to raise revenue. It mainly affects the local authorities that are smaller and those that have few individuals who are rate payers.

These smaller councils can apply for special rate variations. Rate pegging, however, has positive influence on some of the local authorities. It motivates some authorities to thoroughly review other ways through which they can raise revenue. It also motivates them to improve their operational efficiency and makes them to plan their activities.

The other restriction on the revenue that local authorities collect relates to profits. The local authorities are not expected to make profits from provisions of waste management services. The local government act of 1993 allows the local authorities to charge and recover only amounts that enable them to provide the waste management service.

This means that the charges for the service are merely a zero cost recovery activity (Granof & Khumawala 2011). The local government’s abilities to raise revenue are also restricted by legislations that determine fees and charges. The local authorities have to advertise the fees and charges that they propose days before implementations.

The legislations also require the local authorities to advertise the pricing policies for the fees and charges. The restrictions on upward adjustments of fees and charges include compulsory advertisements and acceptance of the proposed increases by the locals.

Additionally, there are restrictions put on the use of revenues. Revenues collected by the local authorities are usually divided into general funds, capital funds, special revenue funds, and debt service funds (Granof & Khumawala, 2011).

The activities whose funds are not usually accounted for are financed by the general funds. The special funds are however for very specific purposes and sources. The local authorities use the capital funds for acquiring capital goods such as garbage trucks while the debts service funds are for enabling the authorities repay long term loans.

Concurrently, there are restrictions placed on the use of these funds even though they are part of revenue that the local governments collect. The rules restricting the use of these funds can either be placed by the central government or its agencies. The minister for local government for example can put restriction on the use of the funds. The rules restricting their use can also be placed by external agents for example banks and other creditors and by contributors.

The policies that govern the revenue policies can also have clauses that restrict the use of these funds. The provisions of the constitutions of the local authorities can also restrict the use of the revenue that the local authorities collect. Finally, foreign parties, for example grant providers, can restrict the use of the revenue that the local authorities have obtained from them. The reasons why they may restrict the use can be varied for example if they feel that the funds are not being properly used.

Public Policy Decisions Effects on the Receipt of Revenues

Revenues that the local governments collect are greatly affected by public policy decisions. The policy decisions made are likely to increase or reduce the amount of revenues collected. Policies that seek to increase the amounts of money supply in the economy such as increasing taxation have the effect of increasing the amount of revenue collected.

On the other hand, policies such as tax reduction aiming at reducing money supply have the effect of reducing the amount of revenue that is collected (Weaver, 2011). A public policy that leads in to increase of personal after tax income per person has the effect of increasing the revenue that is collected per person. The local authorities with higher populations are likely to benefit highly from such policies as they have more people to pay taxes. An example of such a policy is one that seeks to increase the minimum wage of the workers.

Additionally, the amount of revenue collected is influenced by public policies that affect businesses in the realms of sales/incomes. Public policies that require local authorities to provide sewerage, water, and sanitation services have the effects of increasing the amounts of revenue that the authorities collect (Menifield, 2011).

This is because the authorities will have higher expenditures per person and thus have higher charges per person for the purpose of raising revenue. The other policies that affect the amount of revenue that is collected relate to population and population growth. The amount of revenue that is collected is affected with policy decisions that affect the size of the population. The amount of revenue that is collected increases with increase in the size of population and decreases with decrease in population.

However, the amount of revenue paid per person decreases with the increase in population and increases with the decrease in population. Therefore public policies that seek to decrease the size of the population have the effect of increasing the amount of revenue payable per person and decreasing the amount of revenue collected by the local government. Additionally, revenue collected increases when the rate of population growth increases.

Economic Conditions That Affect Revenue Projections

There are various economic conditions affecting revenue projections made by local authorities. High economic growth rates resulting in high gross domestic product (GDP) growth can enable high revenue collection (Gans, 2011). Thus high rates of growth in the country that trickle down to the local residents can enable the local authorities to collect high revenues.

This means that increases in growth rate have the potential to affect the projections that the local authorities make. The other economic condition that has influence in the revenue projections made by local authorities is inflation. High inflation influences the growth of the gross domestic product negatively since it affects demand negatively. The increase in inflation and slow growth rate thus affect the projections that are made.

The other economic condition that affects the projections made on revenue collection is consumer uncertainty. Consumer uncertainty is usually caused by factors such as unemployment, inflation, and decline in confidence of the consumers. Lack of consumer confidence greatly affects the local governments and central government’s ability to make accurate projections of revenue amounts to be collected (Gans, 2011).

Finally, unemployment is the other economic condition that greatly affects the projections of revenue. Acute unemployment and low wages have the effect of slowing business thereby reducing profits. Consequently, the amount of revenue that the local authorities can get from the businesses is reduced. The size of the population who are contributors to local government revenue also greatly reduces when unemployment levels is high. This therefore shows that unemployment has effect on the revenue projections that are made.

Revenue Policy that Aligns With Community Values

Revenue policies that align with the values of the community should be adopted. The local government should aim at promoting the overall wellbeing of the community (Dollery & Robotti, 2008). Thus, it must establish machineries and policies that enable effective operations of the authority.

There are principles that should guide local authorities in making revenue policies. The principles should enable the local authorities to develop policies that are in agreement with the values of the community. The effective management of finances and evaluation of projects and priority setting are principles that the local authorities must consider. The finances must be properly managed since they are contributions from the public.

The projects that are more important to the community should be the first ones that the local authority implements. The local authorities should also identify the true costs of service delivery so as to develop an effective revenue policy that aligns with the values of the community. In case the local authority does not identify the true costs of service delivery, there is likelihood for the revenue policy developed to be exploitative.

The revenue policy that the local authority develops should also incorporate accountability and responsibility clauses (UNHSP, 2007). These would ensure that the revenue collected from the public is not misappropriated by officials from the local authorities. The clauses will also enable the local authorities to curb corruption.

Additionally, the local authorities must advertise their proposed rates, fees and prices for the services that they offer. These will enable the residents to accept or challenge the set rates. The advertisement of the proposals by the local authorities also enables transparency and openness in the use of the revenue collected. Consequently, this further enables the prevention of corruption within the local authorities.

The application of these principles with the aim of developing a revenue policy that aligns with the values of the community is usually challenging. The challenges in their implementation may arise from various issues such as the qualifications of the administrators and inadequacy of resources.

Conclusion

Policies that local authorities implement differ considerably. They touch on various issues including environment, health, and development. Environmental policies that the local governments implement usually seek to improve the living standards. They also minimize impacts of human activities on the environment. These policies are financed by the revenues collected and managed by local authorities.

The local authorities get revenue from various sources such as charges and fees charged on service provisions. Local authorities can also get revenues from rates levied on businesses operating within their jurisdiction. The other source of revenue for the councils is government grants. Other sources incorporate local government fund and the community fund.

The waste management policy, that seeks to promote and sustain a clean environment and help prevent diseases, can be financed through various methods. Government grants and the establishment of a local government fund are some of the ways through which the policy can be funded. Finally, the establishment of a community initiative scheme is the other way through which the policy can be funded.

However, there are usually certain restrictions on the amount of revenue that the local authorities can collect. These restrictions usually require the local authorities to abide by some state imposed limitations and also on how the authority can obtain revenue from the residents.

The amounts of revenue that can be collected by the local authorities are also affected by policies made. This paper discussed some of the economic conditions that affect revenue projections. Economic conditions noted to influence revenue projections include economic growth rate, inflation, unemployment, and consumer confidence.

Additionally, it looked into the principles that can guide the local authorities in developing revenue policies that align with community values. The effective management of finances, proper determination of service prices, and accountability in the use of revenue are some of the principles relevant in this context. Others include the advertisement of proposed rates and prevention of corruption.

References

Anderson, J. (2011). Public policymaking: An introduction. Boston, MA: Cengage.

Bowman, A. & Kearney, R. (2012). State and local government: The essentials. Boston, MA: Wadsworth Cengage Learning.

Dollery, B. & Robotti, L. (2008). The theory and practice of local government reform. Cheltenham: Edward Elgar.

Ebel, R. & Petersen, J. (2012). The Oxford handbook of state and local government finance. New York, NY: Oxford University Press.

Gans, J. (2011). Principles of economics. South Melbourne: Cengage Learning.

Granof, M. & Khumawala, S. (2011). Government and not-for-profit accounting: Concepts and practices. Hoboken, NJ: John Wiley & Sons

Menifield, C. (2011). Comparative public budgeting: A global perspective. Sudbury, MA: Jones and Bartlett Publishers.

Moak, L. & Hillhouse, A. (1999). Concepts and practices in local government finance: – Reprinting. London: Routledge.

UNHSP (United Nations Human Settlements Programme). (2007). Financial management for local government. London: Earthscan.

Weaver, F. (2011). Economic literacy: Basic economics with an attitude. Lanham, MD: Rowman & Littlefield Publishers.

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