How High Should They Jump? An Empirical Method for Setting Municipal Financial Ratio Performance Benchmarks

Author(s)
Drew, Joseph
Dollery, Brian E
Publication Date
2016
Abstract
Heightened concerns regarding the financial sustainability of local councils have resulted in an increasing reliance by municipal regulators on financial ratio performance benchmarking. However, these benchmarks are often assigned without explicit justification and despite a paucity of empirical evidence. Furthermore, regulators typically allocate a single performance benchmark across an entire local government system despite the fact that individual councils may face entirely different operating environments. Failure to take account of the environmental challenges facing councils can result in inappropriate or unattainable performance benchmarks that may give rise to unintended consequences, such as the well-documented threshold effects. To address this problem, we develop an empirical method for allocating performance benchmarks with respect to the current level of performance and environmental constraints facing individual local authorities. We demonstrate this technique in a case study using data drawn from New South Wales local authority operating ratios.
Citation
Australian Journal of Public Administration, 75(1), p. 53-64
ISSN
1467-8500
0313-6647
Link
Publisher
John Wiley & Sons, Inc
Title
How High Should They Jump? An Empirical Method for Setting Municipal Financial Ratio Performance Benchmarks
Type of document
Journal Article
Entity Type
Publication

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