This article describes a recent GFOA study of the organization of city finance offices across the U.S. and investigates whether integrated finance organizations are more efficient and effective.
Nearly a century ago, the model city charter of the National Municipal League recommended that local governments combine their finance functions into a single, integrated finance office. This article examines the prevalence today of a single finance office in large U.S. cities and investigates whether any obvious relationship exists between the centralization of finance activities and the efficiency and effectiveness of the finance organization.
In the spring of 2000, the GFOA Research Center conducted a study of the finance offices in the 75 largest U.S. cities. Using official government documents, the Research Center gathered data on the structure and expenditures of nearly 200 finance offices. The study made the following findings.
* Most large U.S. cities have a simple organizational structure in which one or two departments carry out the government's major finance responsibilities.
* Finance responsibilities are less centralized in the largest cities.
* The finance organizations of large U.S. cities have become more centralized in the past 15 years.
* A majority of chief financial officers report directly to the chief executive.
* Finance responsibilities are usually not performed in an office headed by an elected official.
* A single, integrated finance office is not necessarily more effective, but appears to be more efficient than multiple finance offices.
Past Research. Very few studies are available on the organization of local government finance offices. In the mid-1960s, Marshall W. Meyer conducted a GFOA study of 254 local government finance organizations. Meyer studied the centralization and decentralization of authority in finance offices. In the mid-1980s, Petersen, Watt, and Zorn conducted a GFOA study of 551 local governments. Petersen, et. al., focused on the functional responsibilities, qualifications, and compensation of chief finance officials. In the October 1987 issue of the Government Finance Review, Daniel E. O'Toole and James Marshall discussed the findings of their study of the budget offices in 358 local government jurisdictions.
Organization in Large U.S. Cities
There is much diversity in the structures of the finance organizations of large U.S. cities. However, several basic structures exist for organizing finance responsibilities. The simplest structure is the classic, integrated finance organization in which all finance activities are housed in a single department. Another structure is to divide finance responsibilities into two separate offices--typically a budget office and a finance office. A more complex structure is to divide responsibilities further into three or four separate offices responsible for broad categories of activities such as accounting, treasury, revenue collection, and budgeting. Typically, at least one of these offices is elected. Another structure is to combine finance responsibilities with general city management responsibilities to create a department of finance and administration. Some cities also give their finance offices miscellaneous non-finance responsibilities such as managing the city cafeteria and neutering dogs and cats.
Finance Organization Structural Types. To facilitate analysis, the numerous types of organizational structures were categorized into the following six structural types:
1) one finance office;
2) two non-elected finance offices;
3) one elected and one non-elected finance office;
4) three non-elected finance offices;
5) one elected and two non-elected finance offices;
6) more than two elected or three non-elected finance offices.
This typology categorizes organizational structures based on their centralization and complexity. …