Topic 1 Flashcards
What is Financial Administration, Fiscal Administration, or Public Finance?
- Government Budgeting – Federal, State, Local
- Revenue Policy – Taxes and fees, tax administration
- Governmental accounting
- Debt Policy and Management
- Procurement
Why should public administrators understand public budgeting and finance?
• They must make choices about resource utilization and allocation
• Directly and indirectly, they are spending the public’s money
o Administrators have to justify spending to constituents, legislatures, and other executives
o They can go to jail for misuse
• Financial management reflects an understanding of how the organization works
• Crises often have financial underpinnings or financial consequences
Difference between public finance and private finance? (what is public)
• It comes down to objectives of the organization
______ seek to increase the value of the firm (shareholder wealth) through the allocation and control of resources; main goal is to increase profits
Businesses
Public organizations use similar analytic, technical, and managerial tools to allocate and control resources, but face different constraints and objectives
Governments may tax to increase resources
Ownership is not clearly defined—many different “shareholders” with very different preferences
No pricing mechanism – the value of government services is not easy to quantify or reflected in a single measure (like sales, profits, or stock price)
Governments deal with citizens both directly and through elected representatives
Governments have coercive powers - the unique power to tax, regulate, and punish
the ability to operate over the long term without reducing the standards of life below those currently enjoyed
fiscal sustainability
Without a legal system of ____ ____ and enforce contracts a free market exchange would be nearly impossible
property rights
____ ____ occur when goods are not supplied, or are under-supplied, in a private (efficient) market.
Market failures
Public goods are defined by two attribute of the good
Non-rivalry and excludability
_____ occurs when the benefits of the service can only be shared so that a given quantity of the service can be enjoyed by additional people with no reduction in benefit to the existing population.
Nonrivalry
______ occurs when the benefits cannot be easily limited to those who have paid for the services.
Excludability
National defense, fresh air, street lights are examples of:
Pure public goods (nonrivalrous/non-excludable)
Turnpikes, toll bridges, concerts are examples of:
Toll good (nonrivalrous/excludable)
Food, clothing, TVs are examples of:
Pure private good (rivalrous/excludable)
Aquifers, fishing grounds are examples of:
Common-Pool Resources (rivalrous/nonexcludable)
_______ a cost or benefit that affects a third party not involved in a transaction of consumption or production
• Negative—exhaust fumes from a car
• Positive—decreased likelihood of infection from a someone else getting a vaccination
• Positive externalities are underproduced and negative ones are overproduced
• Governments regularly subsidize or tax to try and correct these market failures
Externalities
Governments often intervene in markets where consumers have incomplete information about products or services. Examples include new drugs, hazardous products, financial disclosures, and food safety
Imperfect information
_____ a process by which persons with the greatest probability of obtaining benefits seek to obtain insurance and conceal info about their adverse conditions.
Adverse selection
______ a problem when those with insurance have an incentive to cause the insured event to happen or to be less diligent in averting the insured event (skydiving). People are more risky.
Moral Hazard
With ______, only one entity controls the market, so consumers must pay a higher price for lower-quality goods
monopolies
________ prohibits business activities that the government deems anti-competitive
Sherman Antitrust of 1890
Federal aid to state and local governments is on the decline. In 1979, federal aid represented 17.6 percent of local government revenue; by 2010, less than ___.
5%
____ _____ have assumed greater responsibility for providing public services. Terrorism preparedness and highway construction
Local governments
Since 1970 the use of public-private partnerships to produce and deliver public services has increased. Two dimensions of joint agreements are:
The customer being served and the bearer of financial risk.
Contracting, outsourcing, mixed delivery, and partnership
Typology of Public-Private Ventures
narrowly defined as an agreement in which the unit of government itself is the initial customer and the financial risks are borne by the contractor. If the contractor fails to deliver the local government bears no financial risk.
Contracting
a unit of government selecting a vendor to provide service that the unit of government normally could provide to its residents. The customers are persons or orgs other than the unit of government itself, and again financial risk is not shared.
Outsourcing
as financial risks increase, local governments may use joint ventures as a way to share the risk of financial loss. Mixed delivery occurs when the local government itself is the customer but the financial risk (or return) is shared with the partner to the agreement.
• Tax abatement or other economic development ventures
Mixed Delivery
when the customers are outside the local government and the agreement involves shared financial risk, the relationship is a true partnership in which the risks and rewards are shared.
Partnership
- Tax Competition
* Overlapping Governments
Increased Intergovernmental Competition
_____ __ ______ restrict the growth of government revenues or spending by either capping them at fixed dollar amount or limiting their growth rate to match increases in population, inflation, personal income, or some combination of those factors
Tax and expenditure limitations (TELs)
Three principal economic events at the regional, national, and international levels affect local budgets
cynical shifts, sectoral shifts, and population movement
Cyclical shifts in the economy brought on by ____, inflation, and expansion
recession
Sectoral shifts brought on by changes in _____ ___ _____ ____. Away from manufacturing to service based economy
technology and economic development
Population movement across regions or national borders brought on by changes in _____ and technology
job markets
Governments derive their revenues using one of three legal powers
taxing, proprietary, and regulatory
governments also possess constitutional powers to own and operate – even at a profit – various enterprises
proprietary
Income based, consumption based, and wealth based are examples of:
taxing
earned and unearned income
income based
collected as part of sales transaction
consumption based
constitute a class of levies that fall on the value of assets
wealth based
according to the value. Requires more effort by government to establish tax base value
Property or ad valorem
Taxes against a thing, ex. Motor fuels tax levied per gallon
In rem
Proprietary activities give rise to fees-for-service as opposed to taxes. Service fees are _____ in which government provides a good or service in exchange for a fee.
quid-pro-quo
______ (police powers)governments collect a fee to cover the costs of regulating an activity. Ex. Permits, inspections, certify - Generally fee not to exceed that cost
Regulatory
Factors Influencing local financial decisions
Political, economical, social, legal environment
Definition of balance is less clear in practice than in may appearing 44 state the governor must submit a balanced budget, but only 35 states have controls in place to avoid a _____ at the end of the year
deficit
Balanced budgets for local governments tend to require the budget submission to be balanced, but not end of the ____
year
