What is systemic investment planning

Summary IKW 125 - Stable Financial Management in Municipalities

Administrative reform proposals

 

Public Goals (Smart)

The global financial crisis is causing an economic crisis and thus a budget crisis at all government levels, from the EU to the individual member states, the regions or federal states to the municipalities. The manifold problems from the 'exploitation of natural resources, of humans and animals to the pressing hardship and unemployment lead the world to the fact that we stand on the edge of the abyss and look into the dizzying depths of a catastrophic crisis.
The municipalities in particular are at the grassroots level and know best the needs of the population from young to old and know that the solution is not just to save even more, but that the municipalities need instruments for effective and economical budget management and that not only the profit-oriented market, but also political-economic goals must be pursued. The focus of the consideration is therefore not only on employment and competition-oriented goals, but also on public-economic success categories, namely the following public goals:

  • Financial equilibrium with proof of coverage success (balanced budget) and coverage history (final coverage of expenses, especially debt servicing through regular income).
  • Expediency and effectiveness as economic and socio-economic goals are the primary goals of the public sector.
  • Thrift and economic efficiency serve the purpose of achieving the public objective of increasing welfare.

The causes of the crisis are systemic and lie in the loss of ethical values, egoism, greed, greed and abuse of power, which inflated a virtual “shadow financial economy” without a real background and pushed the public service into the background. The pressure for savings and privatization grew steadily. The profit-oriented arithmetic unit of the Doppik is forced, although this actually caused the catastrophe. The calculation style depends on the objectives pursued, which differ fundamentally in the public sector from the private sector. What is needed is a needs-oriented, multi-dimensional public accounting system that optimally corresponds to economic, financial and business management goals and ensures a consistent interface between finance, economics and business management. The oppressive financial needs of the public sector cannot be solved by speculation with derivatives that is not permitted under public law. The public sector should be prohibited from speculating in principle. The banks should not have been allowed to offer such transactions, but rather had to comply with their duty to provide information and warnings.

The budget crisis is due to the disregard of the economic principle of performance and consideration through the payment of taxes and fees. Rather, the evaded taxes are parked in tax havens, used for speculative financial transactions and only then made available to debtor countries to cover outflows only if the general public acts as guarantor and payer.
This means that governments are increasingly losing their ability to shape politics, and dependency is increasing. The main cause of the crisis is therefore a systemic disharmony in the distribution of finances, production factors, resources, income and wealth.

By passing laws and ordinances, the municipalities are increasingly financially burdened, which is why the financial effects should be determined in the context of a follow-up cost calculation. This is indispensable for maintaining the budget balance because of the consultation mechanism and the stability pact agreed between the federal government, the federal states and the municipalities. Practice shows, however, that the subsequent charges are not precisely determined and the municipalities are not reimbursed for the financial expenses. Consultation bodies are not convened, which means that procedures are protracted and there is a risk that the stability objectives will not be achieved.

Ways out of the financial crisis (Müller)

The following problem areas are identified as the cause of the financial crisis in the municipalities:

  • Municipalities have no legislative competence and therefore no right to determine taxes
  • Erosion of community taxes, such as the loss of beverage taxes and slumps in local taxes in times of recession
  • Dependence on the federal tax revenue shares in economic and legal terms (tax reforms)
  • Unjust transfer system through state levies for hospitals, social assistance and care, which lead to a transfer minus at the expense of the communities
  • Redistribution through the "back door" by shifting burdens to municipalities through laws during the financial equalization period

Solution approaches:

  • Implementation of the task-oriented financial equalization and consolidation of responsibility for tasks and expenses
  • Task unbundling and reduction of transfer payments to the federal states
  • Reduction of the number of municipalities and avoidance of duplication of magistrates and district authorities
  • Transfer of tasks to regions with their own statute and consolidation of local parishes into regional parishes, amalgamation of parishes while preserving the identity and the place name
  • Strengthening the regions and services of general interest
  • Financing of the municipalities by the Federal Finance Agency
  • Financing of the communal infrastructure through temporary, earmarked fees
  • Reorganization of hospital financing and transfer of social and hospital agendas to the federal states
  • Reform of the property tax and update of the unit values

Administrative and structural reforms for municipalities (Wimmer)

The following reform approaches could contribute to solving the financial problems of many municipalities:

  • Distribution of tasks through internal reforms and merging of functions
  • Loose collaboration (cooperation) through agreements, clubs and associations; additional administrative levels and inefficient processes should be avoided
  • Close cooperation within the framework of administrative communities and bundling of competencies
  • Common roof by a community association or a regional community, whereby the local communities are retained
  • Merger of a voluntary nature or compulsory, which, however, must be objectively justified
  • A reform of transfer payments between federal states and municipalities is urgently required

Instruments to stabilize the municipal financial sector

 

Basics of cost and performance accounting (Maimer)

A central element for the control of the municipality and its operations is the cost and performance accounting, which is to be derived from the cameral budget and the introduction of which is recommended across the board. The cost type calculation is based on the items according to VRV and is to be supplemented by imputed depreciation and interest, which requires an asset calculation. The cost centers represent the place where costs arise, cost unit accounting assigns the costs to the products and services, and the level of cost coverage is determined as part of the income statement for the period. The reporting system is to be designed according to requirements and provides the basis for control using key figures.

Medium-term finance and investment plan (Biwald)

The focus is on securing a sustainable budget balance, which is determined by four parameters: Public savings to finance investments and follow-up charges, debt servicing and maintaining the substance of public assets on the basis of the estimate and invoice cross-section according to VRV.

The expenditure side of the municipalities cannot be influenced at around a third of the current expenditure because of the transfer payments for hospitals, social assistance and the state levy and increases significantly more than the share of tax revenue. The medium-term financial planning and the introduction of liability ceilings and possible sanctions are not able to solve this fundamental problem of the municipalities. Integrated planning by the “KDZ-Praxisplaner” takes place in several phases, from the recording of investments and the follow-up costs, through the determination of the need for consolidation, the development of reserves and debts, to coordination with the requirements of the Stability Pact with regard to spending brakes and the debt repayment rate. The medium-term financial and investment planning must be adjusted annually and geared towards a period of up to 10 years. The annual budget must be derived from the medium-term planning and form the basis for a uniform, multi-dimensional key figure system.

Key figures for the estimate and invoice cross-section (Köfel)

The starting point and valuable basis for assessing the economic situation of a municipality is the "cross-section" according to VRV, consisting of ongoing management, asset management and financial transactions, from which key figures can be developed as part of a "KDZ quick test", namely earnings and self-financing power, Debt and financial ability to finance investments and debt servicing from own earning power.
Further key figures are the debt duration (duration of the repayment of debts without making new investments), the debt service ratio (share of the levies that have to be spent on debt servicing) and the ratio of the free financial peak (current transaction minus ongoing repayments in relation to current income ). Point values ​​are determined from the key figures, which lead to a rating, which enables a comprehensive assessment of the municipal budget at a glance as part of a graphic.

Administrative management not without controlling (Tropper-Malz)

Functioning controlling in public administration is not possible without the interaction of politics and administration. The controlling loop takes place in five phases:

  1. Objective and analysis of the influencing factors including the concept and mission
  2. Action and resource planning in two steps: medium-term planning and short-term planning with budgeting and action planning
  3. Realization / implementation by the administration
  4. Control and management based on the deviation analysis with predictive control in the controlling process within the framework of the strategic and operational control of the effects achieved
  5. Information supply based on cost and performance accounting and key figures with reporting to the political and administrative managers

The comprehensive and holistic use of controlling in the Austrian municipalities is currently not recognizable. Around 50% of the municipalities over 5,000 inhabitants do not yet have any controlling activities. In addition to the benefits of operational controlling, those of strategic controlling should also be recognized and implemented holistically.

Demand-oriented reporting (Kemptner)

In addition to the financial perspective, municipal accounting is also focused on the control of business success, which is why the consumption of resources must be determined and a complete record of assets and debts including provisions must be made, which is currently not carried out in a comprehensive manner. It would be desirable to establish a connection by deriving the income statement from the asset statement. Using practical examples, it is shown which differences arise in the information content from cameral and resource-oriented accounting. Based on this, an informative reporting system tailored to the respective recipient of the report should be set up.

Borrowing and no speculation

 

Municipal financial management (bricklayer)

Financial management includes financing, investment and cash management. Financing is offered and concluded with a fixed or variable interest rate. Variable interest rates relate to an indicator of the money market that is redefined after each roll date. Fixed interest rates are linked to an indicator on the capital market; early termination is only possible under certain conditions. As part of the strategic annual planning, the portfolio is analyzed and the interest on the assets and liabilities side is determined.
The loan is repaid in capital installments (linear repayment with falling interest), flat rates (annuity with increasing repayment and falling interest) and final repayment with ongoing interest payment.
When it comes to investments, the “magic triangle” security, liquidity and profitability are decisive. Municipalities are subject to the 25% capital gains tax obligation within their jurisdiction.

Swap 4175 - "Yes, are you allowed to do that?" (Stieger)

Derivatives are not an approach to solving a city's financial problems. In this specific case, Bawag has broken all legal limits in dealing with a municipality. The legal question has to be clarified as to whether the swap transaction was legally concluded at all, especially since it would not have been allowed from a budgetary and community law perspective. The establishment of an absolute ban on speculation for public local authorities could most effectively prevent such transactions.

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