Measuring the Effect of Municipal Enterprises on the Budgets of Local Governments

By Paul, Gary | The Western Journal of Black Studies, Winter 1999 | Go to article overview

Measuring the Effect of Municipal Enterprises on the Budgets of Local Governments


Paul, Gary, The Western Journal of Black Studies


Introduction

Public enterprises are the business-like or proprietary interests of various governments. There are three broad categories of enterprise activities: unregulated, regulated, and mixed public and private arrangements. Convention halls, recreational facilities (tennis courts, golf courses, and swimming pools), and libraries are examples of unregulated enterprises. In many ways they are similar to unregulated private businesses but they are activities that the private sector is either unwilling or unable to provide. Regulated activities have historically included such activities as water companies, gas companies, electric companies, and mass transit systems (Aronson and Schwartz, 1981, p. 175). Regulated agencies are usually managed by independent boards or commissions established to monitor fee structures and various and sundry activities assumed by any particular enterprise. Airports, hospitals, and port and harbor facilities are examples of a third type of enterprise function. Such facilities are a hybrid of public and private arrangements.

Though the nature, management, and use of public enterprise funds vary greatly among governments, in most cases financing is similar. Operational costs are met by the application of user charges, and fees and capital costs are secured by revenue bonds as opposed to general obligation bonds which are backed by public referendum and the taxing authority of the issuing jurisdiction. (Gitjan, 1984). If user charges are insufficient to cover operation expenses the activity is subsidized with funds from the general revenue budget and when activities produce a surplus their profits can be used to subsidize some other good or service.

Not much has been written about this subject, especially at the municipal level, in spite of the fact that enterprises can and do have a significant impact on local budgets and politics. Studies have shown that is some local jurisdictions, one-half of source revenue is generated by enterprise dollars (Ammons and Dye, 1983). This research is designed to explore the political and budgetary implications of municipal enterprise functions.

Today, the chief proponents of fee-based public services are public choice scholars. They are political economist public administrators, and other scholars who apply economic reasoning and a cost calculus to political phenomena including the delivery of public services. The Public Choice School argues that public enterprises are most appropriate for providing goods and services when individual beneficiaries can be identified and consumption is for personal benefit. Public choice adherents contend that the development of enterprise functions, if prudently established and operated, can increase efficiency and equity in government. They also argue that enterprises can be a potential source of revenue for financially strapped communities dealing with the economic recession, declining populations, and demising aid from intergovernmental sources.

They are eager to point out that many public goods and services are not "pure"; they fall along a continuum of purely public or purely private. In short, many so-called public goods have private good characteristics, little spillover, individual beneficiaries, and limited availability. Public choice theorists argue that for public goods which exhibit private goods characteristics and absorb limited public resources for individual benefit, it is efficient to price or charge for their consumption (ACIR, 1987).

Public goods that most often reflect the characteristics of private goods are often referred to as toll or merit goods. These type goods are central to the public choice argument. Such goods, it is argued, offer government officials the opportunity to explore various methods of service delivery and the opportunity to make use of market or quasi-market mechanisms (pricing and/or competition). Public choice scholars make their case for user charges and public enterprises based on a concern for three issues: efficiency, equity, and revenue potential. …

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