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Municipal Finance: CURRENT
CHALLENGES AND
OPPORTUNITIES
Robert Weissbourd, RW Ventures, LLC
London School of EconomicsCity Reformers Group WorkshopPublic Finance and Debt — CitiesMarch 22, 2011
Overview
The Big Picture: New Governance for a New Economy
City Budgets: Challenges and Opportunities Revenues Expenditures
Summary
Government Is Broken
o Unaccountable
o Inaccessible
o Insular
o Inefficient
o Bureaucratic
o Top-downImage from The Center for Public Integrity
… and Out of Date
The dynamic, knowledge-based economy requires a new, more nimble style of governing.
Gross Domestic Product% Change Over Last 50 Years
Source: Newsweek, Manyika, Lund and Auguste, “From the Ashes,” 8.16.2010
Source: The Wall Street Journal, May 20, 1999.
Governance:
o Collaborative
o Flexible
o Open
o Innovative
o Risk-taking
o “Of the People”
o Intentional
From Government to Governance
Universities & ResearchCenters
Businesses Citizens
Non-profits
Government
Governance in the Next Economy
Build on your assets
Compete on value added – tax-value proposition
Invest strategically to encourage long-term growth
Inclusive Governance
Distinguish Two
Challenges:
Long-term structural deficits
vs.
Recessionary deficits
Year-to-Year Changes in Cities’ General Fund Revenues and Expenditures
Source: Christopher W. Hoene & Michael A. Pagano, National League of Cities, Research Brief on American Cities, October 2010
Cities in Crisis: A Look at City Budgets
Sources of Revenue
3.8%
30.5%
25.9%
5.9%
1.7%
0.5%
1.8%14.6%
15.3%
Average Sources of City Revenue
Federal GovernmentState GovernmentProperty TaxesSales Taxes Individual Income TaxesCorporate Income Taxes
Primary Sources of Revenue
Taxes
Fees
State and Federal Government
Interest, Investment Returns
Sale of Assets
Financing
Revenue Strategies
Primary Sources of Revenue Revenue Increase Strategies
Taxes • Introduce new/increased taxes• Expand tax coverage: e.g.
include services in sales tax
Fees • Improve fee collection• Introduce new fees
State and Federal Government • Currently, limited opportunities
• New Federalism• Leveraging private sector
financing
Interest, Investment Returns • Portfolio management – risk/reward
Sale of Assets • Privatize asset management• Sell excess inventory
Financing • Enhanced Bonds: BABs, securitization, etc.
• Improvement
Districts• TIF Districts
Sources of Expense
0.7%
56.9%
10.9%0.4%3.1%
1.5%
26.4%
Average City Expenditures by Character and Object
Intergovern-mental ex-penditureCurrent opera-tions Capital outlay Assistance and subsidies Interest on debt Insurance benefits and repayments
Primary Areas of Expenditure
Labor
Program Operation
Capital Outlays
Assistance and Subsidies
Debt Repayment
Intergovernmental
Primary Areas of Expenditure Expenditure Reduction Strategies
Labor • Cut benefits, wages or jobs
Program Operation • Inclusive Government/Government 2.0
• Digitalization of health records• Outsourcing
Capital Outlays • Implement availability payment-based public private partnerships
Assistance and Subsidies • Reduce inter-jurisdictional fiscal/tax competition
Debt Repayment • Refinance debt
Intergovernmental • Consolidate units of government
• Pool purchasing power• Share services with nearby
jurisdictions
Expenditure Strategies
Summary: City Financing Options
Revenue Increase Options Expenditure Reduction Options
• Introduce new/increased taxes• Expand tax coverage: e.g.
include services in sales tax• Improve fee collection• Introduce new fees• Privatize asset management• Sell excess inventory• Portfolio management –
risk/reward• Enhanced Bonds: BABs,
securitization, etc.• Improvement Districts• TIF Districts• New Federalism• Leveraging private sector
financing
• Cut benefits, wages or jobs• Inclusive
Government/Government 2.0• Program Efficiencies: e.g.
digitalization of health records• Outsourcing• Implement availability
payment-based public private partnerships
• Reduce inter-jurisdictional fiscal/tax competition
• Refinance debt• Consolidate units of
government• Pool purchasing power• Share services with nearby
jurisdictions