Academic journal article Public Administration Quarterly

Relationship between Organizational and Structural Characteristics and Local Authorities Fiscal Health

Academic journal article Public Administration Quarterly

Relationship between Organizational and Structural Characteristics and Local Authorities Fiscal Health

Article excerpt

ABSTRACT

This study explores the fiscal health of local authorities in Israel as a function of three factors: demographic characteristics; residents' socioeconomic status; and perceived organizational reputation. The results showed that each factor was independent to its prediction of the fiscal health of the local authorities examined. When the three factors entered together in the equation, they explained 51.2% of the variance in the fiscal health of the local authorities.

Arab-Druze authorities were found to have inferior fiscal health in relation to Jewish local authorities. A high correlation between residents' socioeconomic status and fiscal health was also found. Finally, it was demonstrated that perceived favorable organizational reputation and fiscal health are highly associated. The results may lead us to a better understanding of why so many Israeli local authorities have been in an inferior financial position compared to others. The findings call for further investigation of the differences between Arab-Druze and Jewish local authorities. The study urges local authority heads to invest their efforts in creating a solid and favorable organizational reputation.

INTRODUCTION

The local government in Western countries plays a significant role in the affairs of the country, community, and individual.1 The local government has influence in many aspects of residents' lives through its increased activities in accordance with the central government. The rate of local government expenditure from the total public expenditure has been continuously growing (Goldsmith and Newton, 1988; Leach, Stewart, and Walsh, 1994; Sharpe, 1988). In Israel, the average expenditure per local authority in the regular (ordinary) budget has grown from NIS 79.4 million in 1996 to NIS 88.6 million in 1997 to NIS 97.3 in 1998. Growth has increased in the expenditure of the non-ordinary (developing) budget as well, rising from NIS 59.1 million in 1996 and NIS 70.8 million in 1997 to NIS 85.2 million in 1998 (Ministry of Interior, 1998, 1999).

One of the important themes is how well local authorities perform. In several Western countries, the local government displays an inferior fiscal health with a budgetary deficit that may lead to a state of insolvency. The case of the City of Bridgeport, Connecticut, exemplified this situation in its filing for bankruptcy as a result of its insolvency derived from a budgetary deficit (Lewis, 1994). In Israel, many local authorities have ongoing fiscal stress, putting some in a position of severe crisis. The accumulated deficit in the Israeli local government's ordinary budget has increased from approximately NIS 3.9 billion to 4.3 billion and 5.2 billion in 1996, 1997, and 1998, respectively. This inferior state of finance reveals its inability to supply highstandard municipal services in terms of both quality and quantity.

Studies typically address local authorities as political entities drawing on political approaches and focusing on political issues. In so doing, they do not grant the appropriate attention to perceiving local authorities as organizational units which are charged to meet well-defined purposes. The present study aims to bridge this gap and argues that, while local authorities are indeed very much political entities, they are also organizational units charged to meet well-defined purposes. This study explores the variance in local authorities' fiscal health in Israel by taking such an integrated approach which considers more structural and organizational factors. In particular, the study explores the influence of three factors on local authorities' fiscal health: demographic characteristics, residents' socioeconomic status, and perceived organizational reputation.

BACKGROUND

Israeli Local Authorities Fiscal Health

The Israeli local government is in a critical fiscal stress and some may call it a financial crisis (e.g., Carmeli and Cohen, 2001). …

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