The financial condition of municipal government budgets is strained due to reduced revenue collection and increased expenditure. Taxes have gone up constantly and have outdone any inadequate adjustments in income for taxpayers. Municipal financing is certain by simply rising valuations and rates to be charged. Fiscal budget distress in the municipals, some have sought to increase taxes and reduce services offered like pension befits to be reduced. The paper will focus on California municipal. California has 10 major cities that are Los Angeles, San Diego, San Jose, San Francisco, Fresno, Sacramento, Long Beach, Oakland, Bakersfield and Anaheim. The population of all cities is estimated to be 20,000 inhabitants. The races in California include White, African American, American Indian, Asian, Native Hawaiian Pacific Islander, Alaska Native tribes, Hispanic and other mixed races.
In the last three years, the major revenue in California includes taxes, revenue from the sale of bonds and the federal government. The General Fund is made up of personal income taxes, sales and use taxes, and corporate income taxes. In the last three years, the municipal expenditure is on the raise. In the year 2012-2013, the recorded expenditures were $ 96.6 billion, in 2013-2014, the expenditure record was $ 98.5 billion and in 2016-2015, the expenditures were $ 106.8 billion. The major expenditures are education which takes 42% of the budget, health and human services which take 29%, higher education spend 11%, correction and rehabilitation spends 9%, natural resources 6% and others. The other expenditure consists of customer service, housing, transportation, tax relief, and environmental protection agency which spend less than1% of the budget.
The challenges municipal governments are experiencing are directly and indirectly related to the fiscal crisis. These include management of the budgetary demands of reduced revenues, increased service demands and the expenditures of unfunded state and federal mandates (Martin, 2015). To fully meeting the demands of substructure and its allied expenditures, the municipal management needs to understand and address barriers for shared service agreements or voluntary mergers. The ongoing fiscal budget problems are related to pensions, and balancing economic opportunities with environmental risks. To address these budget deficits, the administration need to consider ways into which they can easily implement changes into the municipal. They are required to changes to current laws or administration options in order to achieve the desired result. The strategy decisions provide improved proficiency, stability, welfare, transparency, probability and equity for municipal government. It should also be well-known that policies utilized for a specific encounter are sometimes employed for other tasks in the future.
To manage the economic crisis, it mainly involves conformist budget options where tax is increased, services offered are reduced, and the grouping of tax increases and reduces. However, the use of these conformist decisions during a fiscal crisis, may particularly distress the community which result to a downward spiral of demand for services increase, tax rates and service fees often increase (Martin, 2015). These outcomes reduce the rate of improvement and revenue advancement. The discrepancy between revenues and expenditures finally leads to a decrease in essential services like education, health services and housing. Due to these challenges, municipals seek to have alternative financing suggesting more flexible funding models where by: –
- Financing terms and structures allow for both expected and unexpected change.
- Giving payment schedules to taxpayers and gives an option to pay per use trackers and other forms of allocation.
- To introduce operating leases to move asset financing from the capital budget to the operating budget and off balance sheet transactions to improve ratios for future borrowing.
Martin, I. W. (2015). Not Just Pensions: The Social Origins of Municipal Bankruptcy in California.