Financial sustainability in public administration : exploring the concept of financial health

277 Pages·2017·3.69 MB·English

by  Rodríguez Bolívar, Manuel Pedro

Financial Sustainability in
Public Administration
Exploring the Concept of Financial Health
Edited by Manuel Pedro Rodríguez Bolívar
Financial Sustainability in Public Administration
Manuel Pedro Rodríguez Bolívar
Editor
Financial
Sustainability in
Public Administration
Exploring the Concept of
Financial Health
Editor
Manuel Pedro Rodríguez Bolívar
University of Granada
Granada, Spain
ISBN 978-3-319-57961-0 ISBN 978-3-319-57962-7 (eBook)
DOI 10.1007/978-3-319-57962-7
Library of Congress Control Number: 2017943476
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Foreword
In the last two decades, citizens and service recipients have required
public administrations to improve economy, efficiency and effectiveness
in services delivery, and this has been a cornerstone in financial man-
agement. This objective has been part of the New Public Management
(NPM) and the principles of good governance, leading to reforms in the
public sector around the world. Financial sustainability was of course a
fundamental premise to achieve that aim, but during the last decade,
and especially with the financial crisis, both governments and citizens
have become aware of the need to introduce some measures and tools
that support financial sustainability management. It is a prerequisite
for governments to continue delivering services at the same levels and
quality.
Public administrations have seen the need to increase the public ser-
vices provided at the same time as they have faced revenue reductions
and pressures resulting in financial difficulties. This is not new if we
take into account that in the 1980s, some US local governments, such
as New York or Cleveland, declared situations of financial distress and
some measures were necessary to recover the situation. International
organizations, such as the World Bank or the United Nations,
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vi Foreword
recommend strengthening fiscal and financial sustainability, trying to
ensure financial balances of governments. In the European Union, the
financial and economic crisis has also had its impact on the deficits and
debts of Members States, and fiscal sustainability has become one of the
main objectives of the political agenda.
In this framework, the measurement, management and control of
financial sustainability is a challenge to public administrations world-
wide. In spite of the many definitions of financial sustainability, all of
them coincide in the capacity of the entity to provide services at the
existing levels and to meet its obligations, present and future. This
means that government must be prudent with expenditures and achieve
balanced budgets. At the same time, it requires the maintenance of
financial and infrastructure capital in the long term. Governments need
to introduce long-term financial planning, and their focus cannot be on
the short term as it has been until now.
In this situation, all resources, materials and information about finan-
cial sustainability are indispensable for all concerned with the financial
management of public administrations: politicians, managers, treasur-
ers, accountants, regulators, policymakers, and other practitioners in
general. All of them will benefit from this up-to-date analysis of the
concept and proposals for its measurement, as well as from the identifi-
cation of the factors that can influence and determine it. Furthermore,
the contents of the book are also an important contribution from the
scientific point of view, and can offer interesting perspectives and con-
clusions for future research.
This book provides an answer to this shortcoming. It consists of 10
chapters from reputable authors that discuss financial sustainability in
detail from an inter-organizational and international perspective. The
book defines the concept and offers interesting contributions about
how to measure the financial sustainability of public administrations, as
well as about the determinants and factors that influence it in practice.
It takes stock of the initiatives in different contexts and organizations,
including Central Government, Local Governments, Higher Education
Institutions, and Universities. The international perspective is reflected
in chapters that focus on the European Union, England, Germany,
the Netherlands or Spain. For each of them, interesting experiences in
Foreword vii
managing and monitoring financial sustainability are presented. This
can serve as a learning process for other entities and organizations from
other countries that need to implement measures and tools to control
and improve their financial sustainability.
The initiative of putting all this material together should be
applauded, because it results in measures and tools that can support
the control and management of financial sustainability of governments.
The book offers timely and relevant information for politicians, man-
agers, accountants, regulatory bodies, policy makers, academics and
researchers.
Isabel Brusca Alijarde
Professor in Accounting and Finance
University of Zaragoza
Zaragoza, Spain
Preface
The latest global recession has had strong impacts on global economic
activity and financial sustainability of public administrations. The
financial problems to keep public services running have made scholars
and international organizations to focus on the link between financial
sustainability and accountability. Nonetheless, the financial sustain-
ability concept is a fuzzy concept based on the intergenerational equity
term but difficult to operationalize. Thus, there has been many prob-
lems to set a measure to evaluate financial sustainability in public
administrations and, nowadays, this issue remains as an unsolved ques-
tion. This is why I focused my efforts in editing a book on financial sus-
tainability with the aim at helping public managers, policymakers, and
citizenry in managing and evaluating financial sustainability of public
administrations.
The authors of the chapters in this publication have contributed
to the success of our work by the inclusion of their respective studies.
This book, consisting of 10 chapters, is divided into three parts: Prior
research in the management of public finances, theoretical underpin-
nings and methods used to calculate financial sustainability in gov-
ernments, and comparing international experiences in managing and
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x Preface
monitoring financial sustainability in governments. Also, a chapter for
introducing the book and a conclusion chapter have been written with
the aim at highlighting the relevance of the book.
In the introduction chapter, the authors explain the relevance of
analyzing financial sustainability in public administrations and the
gap of the research, opening the relevance in focusing on this issue in
the book. Later, the first part of this book has sought to analyze prior
research regarding methods used to manage public finances. Fiscal dis-
tress and financial positions have been traditionally two concepts linked
to the financial health of governments, but are these measures good for
financial sustainability of governments?
This way, the authors of Chap. 1 perform a literature review to
understand the problem of financial condition and financial sustainabil-
ity in public administration. Concretely, they try to summarize not only
the evolution of the definition and measurement of the public finances
toward the financial sustainability but also the internal and external fac-
tors that could jeopardize it following prior research and international
organizations.
Having thus analyzed prior research about financial health in govern-
ments, the second part of the book has been aimed at providing a theo-
retical framework for calculating financial sustainability in governments.
This way, authors have analyzed some of the key theoretical and practi-
cal elements to describe the financial conditions and distress of public
sector entities, like universities (Chap. 2), while also clarifying the dis-
tinctive features of financial sustainability. In addition, the next chapter
has also presented factors that could affect financial sustainability, high-
lighting possible future lines of research (Chap. 3).
In this regard, the European Union have pointed out that demographic
variables could be the relevant factors to achieve financial sustainability.
This issue has been verified in a research included in Chap. 4 of the book,
which confirms that some demographics variables could act like main
drivers or risks for financial sustainability in public administrations.
Finally, this part of the book has also included two Chaps. (5 and
6) which are addressed to analyze the role of accounting and integrated
reporting in representing the financial sustainability of governments.
This way, Chap. 5 aims at analyzing how specific accounting tools and
Preface xi
techniques can assist in the control of a local government’s financial sus-
tainability based on the governance setting adopted for service delivery,
whereas Chap. 6 aims at presenting two conceptual models -financial
sustainability and integrated reporting-, and at overlapping the constit-
uent elements in a matrix, allowing the analysis of delineation matches,
as well as the characteristics of forward-looking capital allocation.
Part III of the book analyzes the compared experiences in manag-
ing and monitoring financial sustainability in governments all over the
world. The objective of this part of the book is to learn from experi-
ence and to identify best practices in managing financial sustainability
in governments. This way, Chap. 7 explores the link between sover-
eign debt capacity and financial sustainability in central government,
whereas Chap. 8 investigates how local government’s financial sustain-
ability is influenced by the regulatory framework comparing, from
a constitutional approach, the regulatory regimes on local finances in
England, Germany, and the Netherlands. Then, Chap. 9 is focused on
Spanish public universities and their duty regarding the accomplish-
ment of objectives of financial sustainability and net debt capacity.
Finally, in the conclusions and future research section, the book
includes one chapter summarizing the findings of the contributions
published in the earlier parts of the book in order to obtain interest-
ing conclusions for theoretical contributions and future strategies in the
financial sustainability area.
Therefore, the chapters included in this book incorporate both theo-
retical and practical aspects, and serve as baseline information for future
research through which significant developments in financial sustain-
ability can be expected. This book will be of great interest to the public
managers, practitioners, policymakers, citizens, and research scientists
working in the area of financial sustainability in public administrations.
With great pleasure, we extend our sincere thanks to all our well-
qualified and internationally renowned contributors from different
countries for providing the important, authoritative, and cutting-edge
scientific information to make this book a reality. All chapters are well
supported with appropriately placed tables and figures and enriched
with up-to-date information. We are also thankful to the reviewers who
carefully read and timely reviewed the manuscript.