Delivering Local/Municipal Services

Transcription

1 Delivering Local/Municipal Services Harry Kitchen* August 2004 Language: English Prepared for the program on: Fiscal Management For Better Governance: Learning from Each Other A Joint Program of the Ministry of Finance, China, the Canadian Agency for International Development and the World Bank Institute Web: * The speaker is a professor attrent University, Canada. This presentation was made at the International Seminar on Local Public Finance and Governance, held in Dali, Yunnan Province China, August 9-12, The seminar is one of series of events organized under the program, Fiscal Management for Better Governance. The program is directed by Dr. Anwar Shah (ashah@worldbank.org), Lead Economist and Program Leader on Public Sector Governance, World Bank Institute, 1818 H Street, NW, Washington, DC 20433, USA. For further information, please contact Chunli Shen (cshen1@worldbank.org). 1 Delivering Local/Municipal Services A Workshop on Strengthening Responsive and Accountable Local Governance in China Dali, Yunnan Province, China August 11, 2004 Harry Kitchen Economics Department,Trent University, CAN. 2 Municipal Delivery Systems Public Sector Alternatives: Local/municipal government directly Special purpose body/local govt. enterprise Private Sector Alternatives: Contracting out Franchises Grants Vouchers Volunteers Self-help organizations Public-private partnerships 3 Public Sector: Local/Municipal Responsibility Covers a range of services funded from local taxes, grants and other local revenue. Examples: local streets, roads, street lighting, fire & police protection, parks. Sometimes, responsible for services funded by user fees & prices water, sewer, public transit. Staff share legal, accounting, financial assistance & share capital equipment. Local council makes decisions for a range of services. 4

2 Local Government Enterprise Provides a marketable service or good funded by user fees or prices Examples: water, sewer, electricity, gas, public transit, and so on. Operates as a separate business entity. Governed by an independent or quasi-independent body. Has its own accounting system, work force, capital equipment. Has its own monitoring and reporting system. Some operate in competitive environment; others do not. 5 Why Are Local Government Enterprises Used? To meet legislated requirements. Tradition & history. Better decision-making because they are governed by experts rather than politicians. A way of escaping rigid controls. Used to avoid sharing tax revenues with senior governments. To provide employment More business-like in their operation. Generate fewer complaints than local government 6 Criteria for Evaluating Local Government Enterprise Efficiency Accountability Transparency Ease of Administration Equity is not a criteria for this evaluation 7 Do Local Govt. Enterprises Play A Unique Role? Short answer is no because all services could be delivered by local government. The existence of LGEs creates the following kinds of problems: Their independence often produces conflicting goals when dealing with local council. Removing their governance from local council may violate overall efficiency goals & objectives. Their existence complicates local govt. who does what? They distort local council decisions crowding out. Often are not able to benefit from economies of scale. 8

3 Governance of LGEs Governed by the local council. Would improve coordination of services. Would remove conflicts between governing units. Would improve local accountability & responsiveness. 9 Private Sector: Contracting Out Supporters argue: Contracting improves competitive environment. Contracting could be used for a range of local services easiest for those services with measurable outputs. Could create delivery zones for some services more suppliers. Contracts should based on outputs, not inputs. Contracts should be tendered as frequently as feasible. Greater flexibility for management in allocating human resources. Greater productivity and efficiency, particularly if workers are paid on an incentive basis. 10 Contracting Out (cont.d) Contracting Out (cont.d) Increased ability to hire specialized expertise when needed. Reduced turnover in staff and greater variety for the employee. Empirical evidence indicates lower costs for contracted services. No empirical evidence indicating that service quality is inferior frequent contract tendering ensures quality. Contract cities in U.S. experience) also indicate lower operating costs. 11 Critics (generally, unions & some politicians) argue that: Municipality may incur additional costs because: - time and money will be spent drafting, negotiating, and monitoring a contract. - the contractee must monitor the contractor's performance; - of compensation packages for laid off employees after services have been contracted out. employees do not identify with the company because they have multiple clients and may not give priority to the current client. 12

4 Franchise Franchise Agreement Should Include Contractor sells services directly to customers eg. solid waste. May be exclusive (one producer) or nonexclusive (many producers). If exclusive, may have to regulate prices &/or set performance standards. May be a problem if people opt out of the service negative externalities created and will not benefit from economies of scale. 13 Terms of payment for a franchise fee. Principles and practice to follow in setting prices. Standards/performance measures that must be met. a description of all financial & performance reports to be provided on a regular basis. procedures to follow in renegotiating standards and conditions in the agreement. for services where ownership of capital assets are retained by local council, the conditions for their return at the end of the agreement period. 14 Grants for Specific Services Provided to community groups for specific services. Efficient if this reduces delivery costs and improves resource use. May be inefficient & wasteful if they are given to pressure groups or for provision of a service through a special purpose body or local enterprise. Vouchers Given to recipients for specific services often for public transit & medical services. Problems with determining the cash value of the voucher. May produce diversity and a range of suppliers. May reduce costs if recipients shop around for the most cost efficient provider

5 Volunteers & Self-Help Examples: neighborhood watch & block parent programs; teacher s aids, library assistants. May reduce costs if volunteers don t have to be trained and monitored. May be costs of training & general coordination with regular staff. There may be problems if individuals terminate their involvement and local staff must take over service responsibility. Public-Private Partnerships Advantages: New sources of capital. Take advantage of private sector expertise. May lead to more innovative and efficient practices. Most have produced cost savings Public-Private Partnerships (PPPs) (cont.d) Disadvantages: Uncertainty over whether the private sector will go bankrupt. Potential loss of control to private sector. May be tradeoff of upfront capital costs for future operating costs. Questions To Answer Before Entering A PPP Can objective standards and performance measures be determined? Is competition present? Can the private provider be replaced if he/she goes out of business or its performance is below standard? Has the asset been outsourced elsewhere? Will the local government be able to monitor the contractors performance? 19 20

6 Public-Private Partnerships Questions (cont.d) What impact would a PPP have on current employees? How much opposition might there be to privatisation? Is private sector involvement in the asset legal? How much time will it take to structure and implement privatisation? Public-Private Partnerships: What Is The Role for Govt.? Price Regulation: When when there is little or no competition. Who independent regulatory agency. How: - rate or return; or - price cap regulation Public-Private Partnerships: Role for Govt.? (cont.d) Monitoring: Set performance measures Benchmarking Reporting results 23 Summary Integrate all public sector delivery under local council. Privatization through contracting out, franchises, public-private partnerships can lead to cost savings but the local government should set standards based on output, specify conditions for service delivery, and so on, through carefully drawn up contracts. Vouchers may reduce local delivery costs Volunteers & self-help may also reduce delivery costs. 24