MEASURING AND COMPARING CITIES’ FINANCIAL HEALTH … · 2016-05-26 · MEASURING AND COMPARING CITIES’ FINANCIAL HEALTH ACROSS EU COUNTRIES . IJPA Symposium – 7°Azienda Pubblica

E. Padovani© 5/2016

Emanuele PADOVANIDepartment of Management, University of BolognaItaly

Alexander HEICHLINGEREuropean Institute of Public AdministrationThe Netherlands and Spain

MEASURING AND COMPARING CITIES’ FINANCIAL HEALTH ACROSS EU COUNTRIES

IJPA Symposium – 7° Azienda Pubblica WSDEMS – CED4, University of Palermo

Palermo, Italy, 25-27 May 2016


WHY – Context International researchagenda

➥ Financial focus of NPM: “accounting for the cities” research agenda (Lapsley 2010)

➥ Lenders’ credit policy for city governments’ risk premium is based on disclosure and comparability (Bastida et al. 2014)

➥ Increasing % of GDP produced in metropolitan areas => role of city governments and their performance => need of comparative measurement (World Bank and United Cities and Local Government, 2008 )

➥ Financial focus of NPM: comparative public accounting (Caperchione & Mussari 2002; Caperchione & Lapsley 2011 )

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WHY – Context EU fiscal policies

➥ European Public Sector Accounting Standards (EPSAS) by early 2020 (within “Six Pack”)

➥ EPSAS task force’s call for specific attention at the regional and local level (Eurostat, 2015)

➥ International shift: different accounting systems and levelof maturity of accrual (in EU: E&Y, 2012; PwC, 2014)

Facilitating accountability of policymakers and public managers Supporting the access of financial markets Improving efficiency and effectiveness




WHAT – Objective

International research agenda EU fiscal policies

Understanding the limits, weaknesses and opportunities

Providing a standardized approach for international city government’s financial

health comparison




WHAT – The Four Dilemmas Prior research

Financial Statistics

vsFinancial Reporting

In EU, progressive harmonization process betweenthe two accounting approaches(Heald & Hodges 2015)

When accounting technologiesare transfered from one contextto another they may be altered(Kurunmäki et al. 2010)

The prevalence of one aspect or another is given by political power(Mennicken & Miller 2012) and contributes to values prioritization(Mussari 2014)

Dilemma #1



TraditionalAccounting

vsNPM-like Approach

Move of EU countries, in some cases with difficultiess, from cash to accrual (Lapsley et al. 2009; Pina et al 2009; PwC 2014)

Same new accrual accounting, different domestic standards(European Parliament 2015)

New accounting doesn’t fit with managers’ and stakeholders’ requests to take action (Young and Padovani 2012)

Dilemma #2

Poor accrual accounting as it isnot used (Pinnuck and Potter 2009; Pina et al. 2009 )



Measuresof Financial

Health in Municipalities

Dilemma #3 Several definitions: “financial

situation”, “fiscal distress”, “financial risk”, “fiscal crisis”, “fiscal strain”... “financial health”

Several dimensions

Several indicators

Several approaches of analysis(Padovani and Scorsone 2011; Pub. Fin. & Manag. 14(1) of 2014)



JurisdictionPerimeter and Consolidationof Accounts

Dilemma #4

Externalization of public servicesthrough corporatization, contracting out, public-private partnership and privatization(Torres and Pina 2002; Bovaird2004; Grossi 2007 and 2009; Reichard 2004)

Measuring and managingfinancial health of all entitiesunder the resonsibility of a city government (Grossi 2009; Brusca and Montesinos 2009)






vsNPM-like Approach





HOW – Methodology Approach

➥ Insights and lessons from a group of CFOs of six EU cities “City Economic and Financial Governance – CEFG” wanting to compare their cities’ financial health

➥ Exploratory study (Stebbins 2001; Reiter 2013; Krueger and Casey 2000)

They comlpy with different princples and rules Different perspectives of financial health Different interpretations of financial management topics Already demonstrated attitude of international comparison


HOW – Methodology Selection of cases


HOW – Methodology Managing the CEFG

➥ Subjects of open discussion for comparison/learning:

➥ Meetings & online discussions (June 2014 to December 2015)

Financial management of the key organizational units and actors Budgeting practices Accounting system implemented and used Linkages financial management <-> management control cycle

➥ Reaching conensus in a short span of time (Pollitt 2008) and with heterogeneous settings (Pollitt and Bouckaert, 2004): quasi experiment

➥ After the 2nd meeting, need to “to converge towards a common solution …” (Mussari 2014, 304) to compare financial health


Findings and Discussion The situation

Use of accrual accounting

Use of multiple accountingsystemsUse of accounting for planning and controlUse of accounting info for subsidiaries

Implemented, used and comparable in two cases only (but with different maturity)Heterogeneity; phenomenon of multiple perspective on financial performanceLong term perspective only in one city, while on average 1 to 3 yrsThe perimeter is flexible and sometimes unknown; accounting information too heterogeneous


Findings and Discussion Reaching consensus

“Financial Health Template”

Statement of Operating Performance (OP)

Capital Operations:Capital Financial Flows (CF), Capital Creation or Consumption (CC)

Financial Flows (FF)

Cash Statement and Debt:Cash Statement (CS), Pending Payments (PP), Long Term Debt (LD)











“Financial HealthKPIs”




CONCLUSIONS & IMPLICATIONS




vsNPM-like Approach




?






vsNPM-like Approach






Hybridization of accounting reporting languages

Public finance discipline rules refermostly to statistic accounting language, while financial markets require the financial reporting language






vsNPM-like Approach







Accrual accountingdoes not suffice

Public finance discipline rules refermostly to statistic accounting language, while the financial market wants the financial reporting languageManagers and politicians make decisionsand are accountable on the basis of multiple perspectives and accrualaccounting is just one






vsNPM-like Approach








Simplified and multi-time perspective butinconsistent with P&C

Public finance discipline rules refermostly to statistic accounting language, while the financial market wants the financial reporting languageManagers and politicians make decisionsand are accountable on the basis of multiple perspectives and accrualaccounting is just oneThe KPIs selected reflect a good balance between short-term and long-term; thiscontrasts with the prevailing use of acco. system for P&C (short-medium run)






vsNPM-like Approach








Simplified and multi-time perspective butinconsistent with P&C

Public finance discipline rules refermostly to statistic accounting language, while the financial market wants the financial reporting languageManagers and politicians make decisionsand are accountable on the basis of multiple perspectives and accrualaccounting is just one

Comparison limited to the legal boundaries of a city government

The KPIs selected reflect a good balance between short-term and long-term; thiscontrasts with the prevailing use of acco. system for P&C (short-medium run)

Differences in administrative contexts, typologies of subsidiaries, types of accounting used, makes any consolidationof accounts unmanageable


➥ Possibility to meet current market’s needs of comparison with current accounting systems


➥ Standardization vs harmonization

➥ International comparisons of different levels of government with the same framework?

➥ Developing datasets of financial information on city governments worldwide


www.unibo.it/faculty/emanuele.padovani

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MEASURING AND COMPARING CITIES’ FINANCIAL HEALTH … · 2016-05-26 · MEASURING AND COMPARING CITIES’ FINANCIAL HEALTH ACROSS EU COUNTRIES . IJPA Symposium – 7°Azienda Pubblica

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