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Managing Fiscal Strain in Major American Cities: Understanding Retrenchment in the Public Sector.

This book is a timely treatise on how cities react to the increasing retrenchment actions which must be taken to respond to periods of fiscal stress. The book is a good reference work on how governments evolve into fiscal stress and through it using various retrenchment strategies. The author offers two hypotheses regarding the retrenchment process. First, it is a confused process, and second, it frequently reflects the perceptions of the chief executive officer. It is organized into four areas: the evolution of fiscal decline, management techniques, a discussion of the "garbage can" model of retrenchment and considerations of what happens to the public-policy process during retrenchment.

The first chapter is devoted to the causes and consequences of urban fiscal strength. Despite the prolonged economic strength of the 1980s, state and local deficits have deepened, primarily due to the severe reduction in federal aid. The author discusses three traditional models (socio-economic decline, political and bureaucratic expansion) and the bad internal management theory to explain the reasons which are causal in fiscal stress. He concludes that the various studies on the cause and consequence of fiscal stress provide no answers regarding how cities manage revenue declines.

Chapters 2 through 4 discuss the various management strategies for dealing with fiscal stress, in order of precedence. The impetus of forcing managers to implement these strategies is normally a decline in revenue. The three primary traditional strategies are to enhance revenues, to improve productivity and to cut services. Revenue strategies include drawing down on fund balance, raising taxes, imposing or increasing user charges and/or other forms of nonproperty taxation, and various forms of private-sector financing (impact fees or special assessments). Productivity improvement, the next strategy employed, involves a number of programs to improve procedures, work skills, managerial abilities, motivation and technology. Other productivity strategies include alternate service delivery through contracting out, transfer of some services to other governments, use of citizen volunteers, joint operations with other providers and regionalization. The final strategy is to cut services, which follows three basic sequential patterns: deny and delay, stretch and resist, and cut and smooth. These three techniques depend on the severity of the fiscal stress. Due to the repercussions from affected interest groups, reductions in service are always the last resort. The first effort is to manipulate existing services, issue short-term debt to bridge the revenue shortfall, and defer capital and maintenance expenditures. Second are the stretch and resist efforts, which include reducing personnel, using volunteers and raising fees. Finally, after all else has failed come the layoffs, closings, terminations and transfers.

The next two chapters deal with various theories of retrenchment and the author's attempt to identify a rational comprehensive model which describes a sequential set of management responses. The author describes the incrementalism in which the "iron triangle" of bureaucrats, politicans and client groups constantly negotiate for resources. He observes that retrenchment is fundamentally an internal process that is executive dominated, but that the form of government can affect the success of retrenchment efforts. He discusses at great length the "garbage can" model as one of the most sophisticated. In that model, responses to fiscal strength is akin to organized anarchy in which decision makers respond initially through oversight, then avoidance and finally resolution. The presence of professional financial management and sophisticated financial systems is critical to the success of managing fiscal stress.

One chapter is devoted to a description of the research design and various data sources currently available to test his "garbage can" model. The basic design was cross-sectional, whereby data were gathered in 1983 from a large number of cities with different socioeconomic and political characteristics at a single point in time. Local officials were asked to respond to a list of 32 revenue and expenditure strategies and 11 financial problems. They also were asked to indicate the extent to which they use various management innovation techniques that focus on improving efficiency and financial management. Secondary data consisted of socioeconomic characteristics, financial information and the structure of the government. Other factors considered to affect retrenchment strategies included environmental conditions, interest group pressure, spending preferences, administrative reform, administrative perceptions, administrative sophistication and financial strain.

The final three chapters deal with the policy ramifications of retrenchment. The author observes that there are five basic approaches to retrenchment, two revenue (defer and borrow, productivity) and three expenditures (reduce spending, improve productivity and contract out). The use of financial management strategies in retrenchment can be structured or unstructured. Generally, the choice of policies remains unstructured. Frequently, the inability of political factors to play a dominant role in retrenchment makes the process more subject to administrative influence than to socioeconomic factors. Administrative perceptions and the sophistication of financial management and systems are often significant predictors of success. He concludes that the fiscal retrenchment is a classic case of the "garbage can" model of decision making.

To many an experienced municipal manager or finance director what is discussed in the book will not be news. They have lived through fiscal stress, applied one of more of the strategies discussed and may even have been an example of the "garbage can" model of response to fiscal stress. Although an interesting reference work, this book will not provide much in the way of practical advice or retrenchment strategies to deal with fiscal stress.

Available for $35 from Greenwood Press, Inc., 88 Post Road West, Box 5007, Westport, CT 06881 (203/226-3571).
COPYRIGHT 1991 Government Finance Officers Association
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Urban, Andrew F.
Publication:Government Finance Review
Article Type:Book Review
Date:Dec 1, 1991
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