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Theory of budgeting for collaboration by David Mitchell and Kurt Thurmaier from Northern Illinois university.
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David Mitchell and Kurt Thurmaier Northern Illinois University Division of Public Administration
Presented at the Public Management Research Conference Maxwell School of Syracuse University June 2-4, 2011
The last decade of general public administration scholarship has been energized with studies that extend the inter-organizational conception of public service delivery to programmatic relationships between government agencies and nongovernmental organizations (NGOs) and public-private partnerships in public collaborative networks (Osborne and Gaebler, 1992; Gore, 1993; Cothran, 1993; Robinson, 2000). Network theory, long at home in sociology, has leaped across the academic boundary into public management in an explosion of scholarship on public management networks, network management, the role of public managers in networks, and collaborative partnerships between public agencies and NGOs to deliver public services, especially social services (Sonenblum, Kirlin, and Ries, 1977; Morgan and Hirlinger, 1991; Bartle and Swayze, 1997; O’Toole, 1997). This shift in the larger public administration literature has yet to be seen in significant ways in the scholarship on public budgeting and financial management. Notwithstanding recent scholarly efforts (Cohen and Eimicke, 2008; Zeemering, 2008; Rubin, 2006; Keating and Frumkin, 2003; Halachmi, 2005; Rethemeyer and Hatmaker 2008; Ruffin 2010), there is scant research on how public collaborative networks are financed, how financial accountability works (or does not work) in these networks, and how public organizations budget for collaboration. Themes of financing public organizations, financial accountability, and budgeting process and outcomes need to be extended to the context of collaboration and community outcomes to enrich our understanding of public management networks and their benefits and costs.
Literature Review Traditional Conceptions of Budgeting The budget has long served as an instrument to achieve political and administrative goals. Schick (1966) provides a chronological and heuristic dimension to the study of public budgeting and financial management in his seminal article on the stages of budget reform. He argues budgeting is a field that was developed with an emphasis on controlling government spending, moved to an era that emphasized using the budget and budget process as an executive management tool, and in the mid 1960s had newfound emphasis in planning for multiyear expenditure programs with the advent of complicated weapons systems and entitlement welfare programs. Since that time, Thurmaier and Gosling (1997) have added policy as a fourth function of budgeting as they detail the rapid conversion during the 1980s and early 1990s of three state budget offices from a control orientation to a dominant policy orientation. Together, these four functions have guided public budgetary theory discussions (table 1). Each function has its root in broader public administration theory. Control of bureaucracy theory guides the control function of budgeting, described as bureaucratic compliance with the law or with the preferences of lawmakers and elected executives (Frederickson and Smith, 2003). Budgeting for control was initiated as part of the Progressive movement to allow elected officials to tighten the purse-strings of the bureaucracy in an effort to reduce waste and corruption (Buck, 1934; Kahn, 1997). Bureaucratic expenditures are effectively controlled by the legislature through programmed rigid line-item appropriations that carried the force of law, heavily emphasizing accountability and transparency.
Table 1
Alternatively, budgeting for management recognizes that the executive and management principles needs to play a greater role in budgeting, in step with the early public management efforts. Efficiency measures borne from scientific management (Taylor, 1912) were utilized in budgeting, and budgeting became part of the famous PODSCORB acronym to describe Gulick’s (1937) notion of public management. Budgeting for planning uses systems theory (Easton, 1965) to shift focus to system outputs, long-term planning, and programmed spending. The planning function of budgeting relies heavily on economic decisionmaking grounded in decision theory and rational choice theory (Frederickson and Smith, 2003).
Functions Budget Process Budget Document Financial Management Tie to PA Theory Control Line-ItemBudgeting
ExecutiveBudgeting
Objects-Of-Expenditure Budget
ObjectAccounting Procurement(accountability)
Political Controlof Bureaucracy
Management Evaluation ofAgency Performance StrengthenedExecutive Budgeting
Activity Budget(including work program andperformance standards)
Activity-BasedCosting CentralizedProcurement (efficiency)
ScientificManagement Early PublicManagement
Planning Economic andSystems Analysis
Multi-YearBudgeting EntitlementBudgeting
Program Budget Program CostAccounting Systems Theory Decision Theory Rational ChoiceTheory
Policy Base Reallocation LegislativeInvolvement
PriorityStatement Debt, Deficit, andCash Management Rational ChoiceTheory Political Controlof Bureaucracy
Milward (2001) articulate this by defining three levels of evaluation within such a network: community, network, and agency (participant). If a network can be evaluated at these three levels, there must be distinct interests at each level. In addition, the individuals participating in the network may have personal interests in collaboration, such as skill development, career advancement, and networking. With such an immense confluence of interests and voluntary membership, a public collaborative network must work toward goal alignment in order to achieve the desired network and community outcomes. However, the agency participants may view participation in terms of a principal-agent or contractual perspective. Conflict may ensue if the participant and network goals are not aligned in terms of desired services and cost. The implication is that the collaborative function of budgeting must be viewed through at least two lenses: the participant calculation of whether to participate (i.e., return on investment); and the network process to obtain participant resources, and expend them in a manner consistent with participant expectations and shared goals. Budgeting for collaboration has significant impact upon the accountability aspect of budgeting. A fundamental consideration for collaboration is that a third-party service provider adds another link to the democratic accountability chain, further distancing citizens from street-level decisionmaking (Cohen and Eimicke, 2008). Participation in a public collaborative network may fall victim to the dysfunctions highlighted by principal- agent theory, such as shirking and moral hazard (Posner, 2009). To maintain accountability, elected officials should take interest in the terms of collaborative participation, establish performance and cost targets, and review performance to ensure compliance; whether this actually occurs is still an unexplained empirical question
(Zeemering, 2008). In addition, Rethemeyer and Hatmaker (2008) identify the existence of fiscal networks within collaborative structures that are interdependent, but distinct from, the policy networks and service delivery networks found in the structures. Consequently, fiscal decisionmaking could be made independent from policymaker input, unless there is an established accountability mechanism. However, accountability in public collaborative networks can be bolstered in three ways. First, the network and participants’ budget documents can be a tool for accountability via transparency if collaborative agreements (including the scope, duration, cost, and performance requirements) are reported individually within the budget document (Rubin, 2006). Second, Agranoff (2007), while conceding the voluntary nature of collaborative participation, illustrates that resource sharing creates an interdependence that breeds mutual accountability. Third, when trust is built through networks and past success, transaction costs can be minimized as monitoring and compliance needs are reduced (Thurmaier and Wood, 2002; Lackey, Freshwater, and Rupasingha 2002). Thus, trust-based “relational contracting” allows partners to reduce transaction costs and incorporate ambiguity in terms that may be the key to addressing larger, programmatic issues (Thurmaier and Chen 2009). In short, trust lowers barriers that can become potential accountability issues. All three arguments can be seen as effective counters to accountability concerns in public collaboration. Beyond accountability, the ability to determine the complete cost of collaborative activity also impacts both participant organizations and the collaborative network organization. The advantages and pitfalls of “network-based costing” are similar to those found with the more traditional activity-based costing. Beyond contractual terms,
Conceptual Framework We require a basic conceptual framework of interactions to better understand the relationships between a participant government and the collaborative network. The framework can best be described as a cycle of interaction between the government, the network, and the agency’s constituents. First, the participant government (hereafter, participant) provides resources to the network with the agreement that the network provide a cost-effective service relative to the capacity of the government.^1
However, there are opportunities for dysfunction within the collaborative cycle. First, what if this service provided by the network does not match the government’s desires? Or, what if the service is not well received by the constituents? Thus, feedback mechanisms are necessary to gauge the cost-effectiveness of the service; both at the government level (to ensure compliance with promised deliverables and cost) and the linkage between government and its constituents (to ensure constituent satisfaction). Then, the government would communicate the negative feedback to the network. The result would then be a reform in service provision to match the government’s preferences, if not the government would have to decide whether to terminate the relationship. However, an additional concern is raised within this adapted framework: Who speaks for the government when providing negative feedback, or crafting the initial agreement? The government is certainly not a unitary entity, but composed of individual actors organized
Second, the network provides the cost-effective service to the government’s constituents. Third, the government receives positive feedback from the constituents indicating satisfaction with the network-provided service.
(^1) We define this as the best product in terms of matching consumer preferences relative to its cost. This is a simplifying assumption to narrow the scope of interactions to those that are explicitly fiscal in nature.
toward a common mission. As the literature shows, elected officials, chief administrative officers, and departmental staff all have interaction with collaborative networks. But upon what interests do they base cost-effectiveness: the community (or the public interest), the viability of the network, the parochial interests of the government, or even personal considerations? How is this standard set for the government, and who ensures the proper interests are represented when interfacing with the network? These questions are difficult to discern, and to date have not been adequately explored.
Research Design The research question will be examined in two phases: 1) a content analysis of budget documents (the focus of this paper), and 2) a survey instrument that varies by respondent type (elected official, CAO, staff liaison to network, and network board member). We investigate three collaborative networks in different fields operating in the Chicagoland region, a small-n study with a convenience sample, consistent with exploratory research. The study incorporates not only the three network organizations, but also their government collaborators that agree to participate. The total sample of networked organizations is three, while the sample of government collaborators is estimated at 63. Most of the government collaborators are local government, although some special districts and a county government are included. The networked organizations were solicited via e-mail, with phone follow-ups as necessary. The budget document analysis is a test of transparency, as advocated by Rubin (2006), and focuses on the following questions:
Table 2. Descriptive Summary of Public Collaborative Networks GIS Consortium Northwest Central Dispatch System
McHenry County Council of Governments Service (^) Information SystemGeographic services
Police, fire, andEMS 9-1-1 and dispatch
Lobbying, research,mutual aid purchasing, best-networks, joint clearinghouse,practices networking Primary Counties Served
Lake, Cook Cook McHenry Year Founded^2000 1972 No. of Members^17 12 Member Mean Population
26,295 42,513 23, No. of FTE Employees
14.5 92 2 Cost Allocation Method
No. of AssignedFTEs No. of Service Callsand Dispatches Assessed Valuation Population and Board Composition from each member^ One staff member organization
CAO of eachmember organization official from nine^ Chief elected organizationsmember
Each of the network organizations are discussed in more detail below.
Description of Public Collaborative Networks GIS Consortium The GIS Consortium (Consortium) is a collaboration of 17 suburban municipalities located north and west of Chicago (primarily in southern Lake and northern Cook counties) to form a coordinated Geographic Information System. The membership ranges in population from a minimum of 7,038 to a maximum of 64,784, with mean member population of 26,295. The Consortium does not fully provide GIS services to its members—it capitalizes on the efficiency power of joint purchasing to
establish contracts for staffing, infrastructure, mapping, and surveying. Each member then utilizes the contracts to “purchase” the level of service necessary annually for the respective organization. Currently, the Consortium has procured 9.5 full-time employee equivalents as GIS specialists that are assigned to the members based on requested need, with 5 full-time employees providing shared GIS administration. Shared capital and administrative costs are allocated amongst the members based on percentage of pooled staff utilized. Membership is voluntary and has grown from four founding municipalities in 2000 to seventeen in 2010. The Consortium is governed by a board consisting of a staff member from each of the municipalities (typically from the CAO’s office, Public Works Department, or the Information Technology Department).
Northwest Central Dispatch System The Northwest Central Dispatch System (NWCDS) provides a fully consolidated emergency communications system for twelve adjacent local governments (nine municipalities, two police departments, and one fire protection district) located northwest of Chicago (primarily in northwestern Cook County). The membership ranges in population from a minimum of 7,649 to a maximum of 75,101, with mean member population of 42,513. NWCDS answers about 274,000 emergency telephone calls per year and dispatches about 222,000 police calls and 52,000 fire/EMS calls. Membership has steadily increased from three founding municipalities in 1972 to 12 in 2009. Currently, the authorized staffing levels are 71 Telecommunicators, 2 Alarm Operators, 7 Operations Managers, and 12 Administrative staff. Net costs (exclusive of those funded by telephone and wireless
budgets have not yet translated over to those of public collaborative networks. Each of the three network budgets are evaluated by four criteria: narrative, explanation of budgetary process, performance targets/results, and explanation of cost allocation. Evidence meeting the first three criteria (narrative, budgetary process, and performance data) is non-existent in the budgets studied. All three network budgets provided are in spreadsheet format, with reference to past and future year budgeted amounts—two provide previous year actual spending as well. In all three budgets, no narrative is provided to explain fluctuations in spending and/or revenue, tie amounts to organization priorities, or explain short- and long-term organizational issues. None of the budgets provide any explanation of the budgetary process followed to propose, discuss, and approve the budget. Likewise, none of the three network budgets studied contain any performance targets or prior-year results. Based on this review, we conclude that none of the network budget documents satisfy the first three criteria listed above. However, the network budgets illustrate some attempts to satisfy the final criterion—explanation of cost allocation. The GIS Consortium budget provides a spreadsheet illustrating the cost allocation by FTEs utilized by the member. As background information, each member requests a certain amount of GIS Specialist FTE for the respective organization’s needs (ranging from 0.2 FTE to 1.0 FTE). The shared costs of the GIS Consortium are then allocated by the organization’s amount of FTE in proportion to the overall FTE count. The logic of this allocation is provided within the spreadsheet, but there is not any narrative text to explain the cost allocation as provided here. The same can be said of the Northwest Central Dispatch System budget document; however, this budget also provides comparison of the allocation to the previous fiscal
year. The McHenry County Council of Governments budget document does not provide any textual or numeric description of the cost allocation, electing to lump contributions from members into one revenue line. Thus, two of the budget documents include an attempt to illustrate the cost allocation, but without any narrative explanation for ease of reading. From this review, one can conclude the network budgets studied fall short of the traits found in a model budgetary document. There is no evidence of budgetary narrative, explanation of budgetary process, or performance data—all of which can help bolster accountability and transparency. Some evidence of explanation of cost allocation exists, but without the desired narrative to explain the allocation and the decisionmaking process to arrive at the allocation. In sum, the network budgets in our sample do not meet the criteria necessary to make them effective instruments of accountability and transparency. Member Budgets A systematic analysis of the member budgets in the three public management networks indicates a low level of transparency and accountability with respect to collaborative budgeting. Examples of collaborative budgeting issues from sample budgets reveals that most members do not provide their taxpayers and other residents with information about the costs of collaborating in networks. As expected, this was particularly true of the small villages that have a simple budget generally. The example below, from Johnsburg’s FY budget, is typical (table 3). There is a line item for DUES and within that line item is an amount for the McHenry County Council of Governments. But how much is paid for that membership (or any membership) is unknown to the reader. Presumably the council
Table 4. Example of Collaboration Budget Line Items 11600 Dues/ Subscriptions Municipal Clerks of Lake County/McHenry $ Lake County Partners - -- McHenry County Municipal League - -- Lake County Municipal League 1, Illinois Municipal League Illinois GFOA 800195 Sam's Club 35 National Arbor Day Foundation 15 Island Lake Area Chamber of Commerce National Fire Protection 100150 Quinlan publishing – BPLB 100 International association for Electrical Inspectors
McHenry County Council of Governments 1, International code council Publications, Books, Notary (^100100) Total $4, Source: Island Lake, Illinois FY 2011 Budget The Woodstock Budget for membership dues (table 5) does little more than list the different costs associated with each membership, but the budget is presented in the budget document PDF downloadable from the city’s website. So it is readily available for citizens to identify without a special request to the administration. In addition, there is some narrative that includes an interesting line “the City Manager’s membership in ICMA and ILCMA, as stipulated in the Manager’s Employment Agreement” (in italics below) to indicate that the cost is not discretionary.
Table 5. Line Item Budget with Brief Narrative, Collaboration Costs. 01 - 01 - 4 - 454 Dues & Subscriptions $11, FY08/09 Actual: $11, FY09/10 Actual: $10, FY10/11 Budget: FY10/11 Projected: $11,000$11,
The City’s membership in the Illinois Municipal League (IML) and the McHenry County Council of Governments (MCCG), as well as the City Manager’s membership in ICMA and ILCMA, as stipulated in the Manager’s Employment Agreement McHenry County Historical Society memberships are also accounted for here. In, are appropriated in this account. Chamber of Commerce, and addition, subscriptions are paid from this account. A summary of expenses follows: Illinois Municipal League $ Illinois City Manager’s Association (ILCMA) $1,500$ McHenry County Council of Governments (McCOG) $6, International City Management Association (ICMA) $1, Woodstock Chamber of Commerce & Industry McHenry County Historical Society $1,100$ Clerk’s Association $ Subscriptions $ $11, Source: Woodstock, Illinois FY2011 Budget
A transparent presentation of the costs of collaboration will reveal the costs in a line item, and will provide narrative that describes the benefit of the costs. The Crystal Lake budget (figure 1) does not itemize how much the city spends on the COG membership in the dues and subscription line in the executive department budget (p. 37) in the PDF downloadable from the city’s website. However, much later in the document (p 69), the discussion of the Building Division, 2009/2010 Accomplishments describes a commitment of the city for a mutual aid agreement negotiated within the framework of
