David S. T. Matkin

METROPOLITAN GOVERNANCE : INSTITUTIONAL ROLES AND INTERJURISDICTIONAL COOPERATION

ABSTRACT: Theories of metropolitan governance tend to underemphasize the salience of jurisdictional politics and jurisdictional institutions. This paper uses a one-shot prisoner’s dilemma experiment, embedded within a questionnaire that was administered to local government officials in a metropolitan region, to evaluate how jurisdictionally based institutional roles (i.e., mayors, city-council members, executive-level administrators, department directors) affect the willingness of government officials to participate in metropolitan governance. Even though the incentives of one-shot prisoner’s dilemma games favor defection, we find government officials to be generally inclined toward participating in our proposed metropolitan governance scenario. Contrary to common views that metropolitan cooperation is an unnatural and uncomfortable environment for elected officials, we find elected executives to be particularly supportive of the proposed project. We also find that local government officials are likely to consider the expected benefits to the residents of other jurisdictions when deciding whether their government will participate in an interjurisdictional project.

Before There was Enron, There was Orange County: A Study of Local Government Financial-Oversight Committees

Recent financial scandals in some of Americas largest corporations have prompted popular speculation that a similar crisis may occur within the public sector and, therefore, that government and nonprofit organizations should be required to adopt financial oversight practices similar to those that are mandated of publicly-traded corporations in the Sarbanes-Oxley Act of 2002. One of those mandated practices — the use of financial-oversight committees — is already a common practice in public organizations, though little is known about its effectiveness. This study uses a national sample of local governments to examine whether financial-oversight committees improve financial control and strengthen stakeholder confidence in financial reporting. The findings provide preliminary support for the use of financial-oversight committees as an effective tool to improve financial accountability in local government.

Internal Control Deficiencies and Municipal Borrowing Costs

“Internal controls” refer to organizational rules and procedures used to safeguard assets and to detect fraud, waste, and abuse. This study examines the relationship between internal control deficiencies and municipal bond borrowing costs. The most severe form of internal control deficiencies (i.e., material weaknesses) is associated with higher borrowing costs for municipal bonds, between 10 and 18 basis points. Credit ratings mediate some of the effect of material weaknesses in internal controls but the indirect effect is relatively small. The effect of internal control deficiencies on borrowing costs was consistent in the time period before and after the financial crisis.

Municipal-owned utilities and demand side management

Municipal-owned utilities perform an important role in local government efforts. Municipal ownership of utility operations provides advantages in involving citizens in sustainability and energy-efficiency practices. This paper explores the variation in municipal-owned utilities investment in energy-efficiency strategies by examining how spending on energy-efficiency strategies is affected by costs, politics, and fiscal conditions, and citizen demand. Using a unique data set of the 145 municipal-owned utilities in cities with populations over 25,000, we estimate a Heckman Selection Model to test our predictions. Decisions to adopt energy-efficiency programs are associated with siting difficulties and available generation capacity. The level of energy-efficiency expenditures is associated with a city level political structure and the availability of local retail partners. The implications of these findings for theory and practice are discussed in conclusion.

In The Shadow Of Corporate Scandal: The Use Of Audit Committees In U.S. Local Governments

Recent financial scandals in the private sector have led to widespread speculation that public organizations may be susceptible to similar events of financial misconduct and should, therefore, be required to adopt similar strategies to those that are mandated of private-sector corporations under the Sarbanes-Oxley Act of 2002. This paper looks at one of those strategies by examining the use of audit committees in U.S. local governments. Specifically, this paper explores (1) why local governments have heretofore voluntarily created audit committees, (2) the perceived benefits and problems of audit committees, and (3) whether the use of audit committees is compatible with the principal-agent logic that underlies their promotion.

Actuarial Inputs and the Valuation Of Public Pension Liabilities and Contribution Requirements: A Simulation Approach: Actuarial Inputs and the Valuation of Public Pensions

This paper uses a simulated public pension system to examine the sensitivity of actuarial input changes on funding ratios and contribution requirements. We examine instantaneous and lagged effects, marginal and interactive effects, and effects under different funding conditions and demographic profiles. The findings emphasize the difficulty of conducting cross-sectional analyses of public pension systems and point to several important considerations for future research.

The Governance of Public Pensions An Institutional Framework

Prior studies of public pensions emphasize the effect of the political economy on the performance of pension systems. We argue that this approach overlooks important institutional features of pension governance and fails to account for endogenous, indirect, and lagged effects. In this article, we describe those limitations and develop an institutional framework to explain the complexity of public pension governance. We identify and discuss critical environmental conditions, formal institutions, and the causal pathways between institutions and pension performance. We also use a case study of the Florida Retirement System to illustrate the explanatory power of the institutional framework.

Recognizing and Responding to Retirement Obligations Other Postemployment Benefits in Florida Cities and Counties

With the implementation of recent accounting standards (GASB 43 and 45), local governments began reporting their liabilities and funding levels for postemployment benefits other than pensions—so-called OPEBs. In this article we pose three questions: (a) What factors affect the size of a government’s OPEB liability? (b) How did the OPEB standards affect the way governments manage their OPEB plans? and (c) What factors explain government responds to the OPEB standards? We draw data directly from audited financial reports in Florida counties and cities to examine those questions. Our results suggest that benefit policies, personnel characteristics, and actuarial cost methods are the most influential factors in determining a size of a government’s OPEB liability. Our results also provide evidence that many governments responded to the OPEB standards by reducing their benefits and changing their funding approaches. We show preliminary evidence of differences in governments that changed their policies or funding approaches with those that continued the status quo.

Actuarial Inputs and the Valuation of Public Pension Liabilities and Contribution Requirements: A Simulation Approach

This paper uses a simulated public pension system to examine the sensitivity of actuarial input changes on funding ratios and contribution requirements. We examine instantaneous and lagged effects, marginal and interactive effects, and effects under different funding conditions and demographic profiles. The findings emphasize the difficulty of conducting cross-sectional analyses of public pension systems and point to several important considerations for future research. The paper found that: • Discount rates, salary growth rates, cost methods, and mortality tables all influence funding ratios and contribution requirements. Without considering these effects, comparisons of funding ratios across pension systems will produce biased results. • The discount rate assumption is the most influential actuarial input on funding ratios and contribution requirements. We show that a plan can postpone required contributions by raising its discount rate assumption, but its funding condition deteriorates in the long run. In contrast, if a plan reduces its discount rate by one percentage point, and its investment returns continue at the level that was previously assumed, it will take approximately seven years for the funding ratio to return to its original level and an even longer time period for the ARC to return to its original level (though the exact length of time depends on investment returns and the baseline discount rate assumption). • The effects of actuarial inputs greatly depend on plan characteristics such as demographic profiles and asset levels, and also interactions with other actuarial inputs. Because of the interactive effects, it is difficult to standardize funding ratios or pension obligations by only controlling for a single actuarial input. With better data on plan characteristics (such as information on mortality tables and age distributions), simulations could be used to standardize pension liabilities. In the absence of that information, improved consistency in financial reporting (such as requiring a single cost method) is an effective way to facilitate better comparisons of financial conditions across pension plans. The policy implications of the findings are: • The valuation (or measurement) of public pension liabilities and contribution requirements is highly sensitive to the choice of several actuarial assumptions, which should be considered when assessing the financial condition of public pension systems. • The sensitivity of liability and contribution requirement valuations to actuarial assumptions and methods depends on the demographic profile of pension participants. • Making more optimistic assumptions reduces the liability and contribution valuations in the short term, but, over time, more optimistic assumptions can have substantive and harmful effects on pension liabilities and contribution requirements.

Collaborative capital budgeting in U.S. local government

This article explores collaborative capital budgeting in U.S. local governments. To date, the capital budgeting literature has focused on practices within individual governments. This leaves a gap in our understanding because a large portion of capital planning, acquisition, and maintenance occurs through collaboration between two or more local governments. Drawing on the capital budgeting and collaborative public management literature, and on illustrative cases of collaborative capital budgeting in the United States, an inductive approach is used to: (1) identify and categorize the different objectives that motivate local officials to pursue collaborative agreements, (2) examine common patterns in the types of assets involved in collaboration, and (3) discover common institutional arrangements in collaboration agreements. The research findings demonstrate significant heterogeneity in the objectives, patterns, and institutions of collaborative capital budgeting.