How effective is central enforcement? Evidence from convened committees in failing local authorities

Abstract

The recent economic slowdown has revealed weaknesses in existing fiscal arrangements and led to the reintroduction of enforcement mechanisms on local authorities within the OECD. One extreme intervention approach for municipalities in financial distress includes neutralization of the elected local leadership and its replacement with a convened committee. Yet how effective are such enforcement methods in the stabilization of local authorities? We present, for the first time, a complete empirical examination of how neutralization affects the financial performance of failing local authorities, as measured by municipal spending, revenue and fiscal balance. We apply the difference-in-differences methodology using data on 77 Israeli municipalities during 2000–2011 to answer this question. We find a sizeable effect of convened committees on the financial performance of local authorities, including an 11% reduction in municipal labor costs, a 6% reduction in current deficits and a 40% reduction in municipal debt. We also find some evidence for an increase in local tax collection. The fall in debt is partly due to an increase in targeted government transfers and may reflect increased political trust. We discuss the results in light of possible tensions between the neutralization approach and local democracy and conclude that while convened committees improve the financial performance of local authorities, they should be reserved for extreme municipal crises.

Merging, disaggregating and clustering local authorities: do structural reforms affect perceptions about local governance and democracy?

“…Together with the Ministry of Interior, since the 2000s these ministries have adopted a strict approach toward local finances, especially toward municipalities that are less sound and marked by underperformance. However, they have granted more autonomy to a small group of local authorities demonstrating good performance (Reingewertz & Beeri, 2018).…”

“…In 2003, the government declared that local deficits would no longer be covered automatically. Thus, in 2004, many local authorities faced a financial crisis: 76% of local authorities operated under deficits, over 50% activated recovery plans and 21% held back the wages of thousands of employees for months (Beeri & Yuval, 2013;Reingewertz & Beeri, 2018).…”

Enhancing Local Service Effectiveness Through Purpose-Oriented Networks: The Role of Network Leadership and Structure

“…In local government studies, the characteristics of the community as the context are of great importance (Beeri, Uster & Vigoda-Gadot, 2019). The consideration of socioeconomic and demographic characteristics such as the educational level of the community and its average income have become widespread in explaining the provision of both local goods and services at the local level (Beeri et al, 2018;De Borger & Kerstens, 1996;Loikkanen & Susiluoto, 2005;Milligan, Moretti & Oreopoulos, 2004). In fact, research has shown that the community's SES affects the local leader's capacity to govern (Howlett & Ramesh, 2015).…”

Lack of reform in Israeli local government and its impact on modern developments in public management

“…Furthermore, four of these mergers were eventually dissolved. The resulting lack of trust in the local governments prompted senior government officials to abandon any hope of implementing this policy (Drew, Razin, and Andrews 2019;Reingewertz and Beeri 2018).…”

“…The central government, particularly the Ministry of Finance and the Ministry of the Interior, have traditionally taken a centralist and conservative view towards local authorities, both in routine times and during crises, sometimes even to the point of regarding the local economy as a threat to national economic stability (Beeri and Razin 2015;Blank 1994). Since the first decade of the 2000s, these ministries have become even stricter in how they deal with local financial crises (Beeri 2013;Reingewertz and Beeri 2018).…”