Professional Documents
Culture Documents
Wei 2020 Municipa Structure Matters
Wei 2020 Municipa Structure Matters
Wei 2020 Municipa Structure Matters
Abstract: Evidence for the fundamental presumption that municipal structure matters for government performance Wenchi Wei is assistant professor in
the School of Public Administration and
is smaller and weaker than many might expect. This research contributes evidence to the literature by focusing on how Policy at Renmin University of China. He
municipal structure affects government fiscal performance. Municipal structure is operationalized by constructing an holds a doctoral degree in public policy
index on a political-administrative scale based on seven essential structural characteristics. As the index score increases, and administration from the Martin School
of the University of Kentucky. His research
the municipal structure becomes less political and more administrative or professional. Theoretically, municipal focuses on public management and
structure can affect government performance by influencing managerial professionalism, managerial strategy stance, performance, public and nonprofit financial
and the relative attention of government officials to managerial accountability and efficiency. The empirical evidence management, and policy evaluation.
His research has appeared in Public
shows that municipalities adopting a structure with an imbalance toward administrative characteristics are more Administration Review, the American
likely to achieve the best fiscal conditions in cash solvency, dependence on intergovernmental revenues, and outstanding Review of Public Administration, and
debt level. Moreover, municipal structure moderates the influence of external environmental factors on government Public Finance Review, among other
journals.
fiscal conditions. Email: weiwenchi@ruc.edu.cn
M
unicipal structure is a basic institutional government; the council appoints a professional
factor that organizes local politics and manager as the chief administrative officer (CAO)
influences public policy formulation to manage administrative affairs; the mayor is
and implementation (Judd and Swanstrom 2015; the presiding officer of the council and handles
Wheeland, Palus, and Wood 2014; Zhang 2014; ceremonial duties.5
Zhang and Feiock 2010).1 Most U.S. municipalities
use either the mayor-council or the council-manager Cross-adoption of structural characteristics among
form of government.2 The critical characteristics of mayor-council and council-manager municipalities
mayor-council municipalities, as summarized by the has been prevalent since the 1950s (Choi, Feiock,
National League of Cities, include the following3: the and Bae 2013), motivating scholars to offer various
mayor is separate from the council and elected directly reclassifications of municipal form or structure
by voters; the mayor has significant administrative that recognize these modifications. One of the
and budgetary powers4; the council is elected and contributions of this research is the introduction
responsible for legislation; a professional manager is of an index on a political-administrative scale to
appointed in some mayor-council municipalities to reclassify municipal structure based on several
share limited administrative authority. The essential essential structural characteristics linked to
characteristics of council-manager municipalities managerial professionalism, separation of powers Public Administration Review,
Vol. 00, Iss. 00, pp. 1–14. © 2020 by
include the following: the council has legislative and checks and balances between officials, and local The American Society for Public Administration.
powers and retains ultimate responsibility for the electoral systems. DOI: 10.1111/puar.13183.
Notes: Cash solvency is measured by the per capita total cash and securities at the end of a fiscal year. Dependence on intergovernmental transfers is measured as the
percentage of intergovernmental revenues to total revenues. Debt level is measured as the ratio of total debt outstanding at the end of a fiscal year to general revenues.
Operating budget balance is measured by the percentage of general budget surpluses or deficits to general revenues. CGFD = Census government finance database;
DC = decennial census; ACS = American Community Survey; KRH = Krane, Rigos, and Hill (2001); ADS = Amiel, Deller, and Stallmann (2009).
to realize liquidity to fulfill short-term fiscal obligations. A higher ranges between 0 and 1, with a higher value indicating a more
value of the indicator signals healthier fiscal conditions. Second, diversified industry structure.
undue reliance on revenues from other governments impairs the
recipient governments’ fiscal autonomy and generally indicates The fiscal control variables include municipal revenue structure
weak fiscal ability. Therefore, a lower share of intergovernmental and a specified group of municipal fiscal functions. We use dummy
revenues in total revenues reflects healthier fiscal conditions. Third, variables to indicate the fiscal functions in public health, social
governments usually resort to the capital market to maintain regular services, and public schools to consider the effect of variations in
fiscal operations or fund capital projects. The ratio of total debt service responsibilities on government fiscal conditions (Krane,
outstanding at the end of a fiscal year to general revenues is an Rigos, and Hill 2001).8,9 The model includes the diversity index
applicable indicator of the level of outstanding debt. A lower value of (HHI) of municipalities’ general revenues and tax revenues to
the indicator implies healthier fiscal conditions. Lastly, the operating control for the effect of revenue diversification on government fiscal
budget balance reflects the ability of governments to collect adequate conditions.10 Lastly, local governments generally do not possess
revenues to provide general public goods and services in a certain full fiscal autonomy (McDonald and Bruce 2015; Rose 2010).
fiscal year. The operating budget balance is measured by the ratio of The institutional constraint factors controlled for in the estimation
general budget surpluses or deficits to general revenues, with a higher model include the TELs stringency index and dummy variables for
ratio indicating healthier fiscal conditions. the balanced budget requirement (BBR) and debt limit.
Inverted U-Shaped Relationship Column 6 of table 4 shows that the effects of the municipal structure
Model 2 is estimated to test hypothesis 2, producing the results index and its square are negative and positive, respectively, and
reported in columns 5–8 in panel B of table 4. Column 5 shows both are statistically significant. Governments’ dependence on
that the effects of the municipal structure index and its square intergovernmental revenues declines until the municipal structure
Table 4 Direct Effect of Municipal Structure and the Inverted U-Shaped Relationship
Panel A Direct Effect of Municipal Structure (Model 1) Panel B Inverted U-shaped Relationship Test (Model 2)
1 2 3 4 5 6 7 8
Intergov. revenue General budget Intergov. revenue General budget
VARIABLES Cash solvency Debt level Cash solvency Debt level
dependence Surplus/deficit dependence Surplus/deficit
Municipal structure index 0.0602*** −1.275*** 0.0312 0.304 0.0362* −0.869*** −0.0844** 0.476
(0.0137) (0.210) (0.0208) (0.324) (0.0197) (0.292) (0.0395) (0.491)
Municipal structure index −0.0322* 0.546* −0.155*** 0.232
squared (0.0190) (0.288) (0.0357) (0.474)
Socioeconomic factors
Population size (log) 0.230*** −0.0813 0.0591*** −0.319 0.233*** −0.128 0.0725*** −0.340
(0.0105) (0.158) (0.0197) (0.247) (0.0105) (0.157) (0.0188) (0.249)
Average household income (log) 0.285*** 0.0850 −0.203*** 1.981* 0.285*** 0.0834 −0.205*** 1.979*
(0.0402) (0.627) (0.0622) (1.073) (0.0402) (0.626) (0.0621) (1.073)
Unemployment rate −0.126*** 2.323*** −0.145*** 0.738 −0.124*** 2.297*** −0.138*** 0.727
(0.0287) (0.403) (0.0475) (0.699) (0.0287) (0.403) (0.0478) (0.699)
Fraction of residents over 65 0.262*** 0.192 −0.254*** −1.762** 0.267*** 0.108 −0.231*** −1.797**
(0.0287) (0.373) (0.0409) (0.762) (0.0289) (0.376) (0.0420) (0.768)
Local industry structure −1.399*** −1.419 0.0879 −0.669 −1.417*** −1.097 0.00378 −0.534
(0.400) (5.275) (0.505) (8.064) (0.400) (5.273) (0.509) (8.085)
Fiscal factors
Function in public health 0.0300 1.843*** −0.0268 3.387*** 0.0329 1.795*** −0.0117 3.367***
(0.0299) (0.430) (0.0402) (0.816) (0.0300) (0.433) (0.0398) (0.821)
Function in social services −0.185*** −5.496*** 0.253*** −0.669 −0.188*** −5.455*** 0.242*** −0.652
(0.0290) (0.418) (0.0386) (0.788) (0.0291) (0.420) (0.0391) (0.793)
Function in public schools 0.0955*** 2.037*** 0.0147 −2.298*** 0.0922*** 2.091*** −0.000722 −2.274***
(0.0276) (0.453) (0.0427) (0.748) (0.0276) (0.455) (0.0430) (0.744)
Structure of general revenues 0.844*** 13.52*** 0.834*** −9.294*** 0.841*** 13.57*** 0.820*** −9.277***
(0.108) (1.593) (0.179) (1.995) (0.108) (1.592) (0.178) (1.995)
Structure of tax revenues −0.110** −7.564*** 0.0142 1.762 −0.113** −7.510*** −0.00157 1.784*
(0.0465) (0.678) (0.0790) (1.076) (0.0466) (0.676) (0.0778) (1.074)
Institutional factors
BBR −0.118*** −4.106*** −0.121*** −1.934*** −0.122*** −4.040*** −0.139*** −1.906***
(0.0256) (0.357) (0.0373) (0.594) (0.0257) (0.360) (0.0385) (0.598)
Debt limit −0.146*** −2.029*** −0.0913** −0.226 −0.146*** −2.029*** −0.0917** −0.226
(0.0277) (0.419) (0.0417) (0.700) (0.0277) (0.418) (0.0415) (0.700)
TELs stringency index 0.00516*** −0.134*** −0.00255 0.0388 0.00546*** −0.139*** −0.00115 0.0367
(0.00111) (0.0169) (0.00172) (0.0272) (0.00113) (0.0173) (0.00181) (0.0276)
2006 (2001 as reference) 0.446*** −2.374*** 0.146*** 1.140* 0.444*** −2.356*** 0.141*** 1.148*
(0.0266) (0.369) (0.0471) (0.670) (0.0266) (0.369) (0.0476) (0.669)
2011 (2001 as reference) 0.676*** −2.437*** 0.302*** 1.161* 0.673*** −2.393*** 0.289*** 1.181*
(0.0280) (0.413) (0.0546) (0.659) (0.0280) (0.414) (0.0557) (0.660)
Constant 1.469** 15.15* 3.066*** −8.180 1.465** 15.19* 3.077*** −8.143
(0.634) (9.078) (0.924) (14.85) (0.633) (9.079) (0.924) (14.85)
Observations 6,758 6,750 6,579 6,785 6,758 6,750 6,579 6,785
R2 0.205 0.120 0.026 0.015 0.205 0.121 0.029 0.015
Notes: Results in panels A and B are obtained by estimating models 1 and 2, respectively. Refer to table 3 for the measurements and descriptive statistics of variables.
Robust standard errors are reported in parentheses.
***p<0.01; **p<0.05; *p<0.1.
Notes: Results are obtained by estimating model 3. Refer to table 3 for the measurements and descriptive statistics of variables. Robust standard errors are reported in
parentheses.
***p<0.01; **p<0.05; *p<0.1.
Notes: Results are obtained by estimating model 1, using the existence of the initiative and popular referendum allowing citizens to place changes of the charter, ordi-
nance, and home rule on the ballot as IVs for the municipal structure political-administrative index. Refer to table 3 for the measurements and descriptive statistics of
variables. Robust standard errors are reported in parentheses.
***p<0.01; **p<0.05; *p<0.1.
popular referendum has independent effects on government fiscal effects of the municipal structure index remain unchanged, but
conditions. the magnitudes of effects are much larger in table 6. The effect of
the municipal structure index on the level of outstanding debt in
The results of the IV estimation of model 1 using the two-stage least column 3 of table 4 is not statistically significant, but it becomes
squares approach are reported in table 6. The two IVs perform well statistically significant in column 3 of table 6. The results imply
from the statistical perspective. The Cragg-Donald Wald F-statistics that the positive effect of the administrative municipal structure on
from the weak identification test shows that the “weak instruments” government fiscal conditions may be underestimated in the original
hypothesis is statistically significantly rejected in all four regressions. estimation because the endogeneity problem.
The Hansen J-statistics from the overidentification test suggests that
the hypothesis of no correlation between the IVs and the error term Conclusion and Discussion
in the model of interest cannot be statistically significantly rejected. This research contributes to the literature by constructing an index
to reclassify municipal structure on a political-administrative scale,
The results in table 6 show that the municipal structure index theoretically addressing the mechanisms through which municipal
positively and statistically significantly affects government fiscal structure affects government performance, and obtaining empirical
conditions for the first three indicators. Compared with the evidence on the effect of municipal structure on government fiscal
results shown in columns 1 and 2 of table 4, the signs of the performance. Moreover, we take into account and use IVs to solve
Municipal Structure Matters 11
the potential endogeneity problem in the empirical analysis. The 3. The characteristics of mayor-council and council-manager municipalities are
findings show that municipalities adopting a structure with an summarized at https://www.nlc.org/forms-of-municipal-government.
imbalance toward more administrative or professional characteristics 4. Mayors’ powers may vary across municipalities, depending on the municipal charter,
are more likely to achieve the best fiscal conditions in terms of resulting in strong-mayor and weak-mayor versions of mayor-council government.
cash solvency, dependence on intergovernmental revenues, and 5. The method of electing the mayor may change over time and varies across
outstanding debt. Moreover, municipal structure moderates municipalities depending on the municipal charter. A mayor selected by the
the influence of the external environment on government fiscal council was common in the early days of the council-manager government, but
conditions. Noteworthily, the evidence in favor of the administrative it is much less common today.
municipal structure when it comes to improving government fiscal 6. Some of the socioeconomic and fiscal control variables are lagged by two years
conditions does not suggest that a more political municipal structure (see the section on data collection).
might not be equally or even more efficacious in the pursuit of other 7. Based on the classification of the Census Bureau, there are 13 categories of
important conditions or values. That possibility should be tested. industries in local economies: agriculture, forestry, fishing and hunting, and
mining; construction; manufacturing; wholesale trade; retail trade;
It is important to acknowledge the potential limitations of this transportation and warehousing, and utilities; information; finance, insurance,
study regarding the sample selection and external validity of the real estate, and rental and leasing; professional, scientific, management,
empirical findings. Following the common practice of previous administrative, and waste management services; educational, health and social
studies, we focus on the municipalities responding to the ICMA services; arts, entertainment, recreation, accommodation and food services; other
survey with populations over 2,500. External validity is therefore services (except public administration); and public administration.
restricted to that group of municipalities. The surveys have a 8. Krane, Rigos, and Hill (2001) classify municipal governments’ fiscal functions
response rate of 40 percent to 50 percent, which is higher than most using nine categories: general government; public safety; public health; public
other national surveys of local governments. However, whether works; social services; economic development; physical environment; culture and
the respondents are representative of the selected survey samples recreation; and public schools. This study controls for three of them in the model
is still a concern. The results from the mean tests between the because almost all municipalities have functions in the other six categories.
respondents and nonrespondents in each survey show that the two 9. Both public service responsibility and quality may affect government fiscal
groups are not statistically significantly different with regard to conditions. Because of data availability, this research controls for the range of
the basic socioeconomic and demographic features except for the service responsibilities but not service quality. Evaluating and comparing the
fraction of population aged 65 and above in 2001 and the average quality of public services of a large number of municipalities on a national scale
household income in 2011.12 These two variables are controlled in is an enormous challenge. One may argue that failure to control for service
the estimation models. The results from the mean tests can relieve quality in the empirical model might lead to omitted variable bias. However, we
the concern about the representativeness of the survey respondents use instrumental variables to reduce the potential endogeneity of municipal
to a great extent. structure and check the robustness of findings in the next section.
10. According to the Census Bureau, general revenues are classified as
Another limitation of sample selection stems from the self- intergovernmental revenues, total taxes, current charges, and miscellaneous
selection bias, which arises when selected samples intentionally sort general revenues. Tax revenues are composed of property tax revenues, sales tax
themselves into a certain group. Municipalities with professional revenues, license tax revenues, and other revenues.
managers may be more likely to respond to the ICMA survey. 11. The model controls for the TELs, BBR, and debt limit, which are essential
Unfortunately, we do not have data on the presence or absence state-imposed fiscal constraints on local fiscal autonomy. To further alleviate the
of professional managers in the nonrespondent municipalities. concern that some other omitted state-level laws may affect the municipal
However, according to the existing evidence that the forms structure and government fiscal conditions simultaneously, thus leading to the
or structural characteristics of municipalities are substantially endogeneity problem, we also ran the regression with state fixed effects. We got
determined by their socioeconomic and demographic features similar results to those reported in table 4 after adding state fixed effects.
(Choi, Feiock, and Bae 2013; Knoke 1982; Lineberry and Considering that state fixed effects automatically absorb the effects of the
Fowler 1967; Simmons and Simmons 2004), the statistically explanatory variables coded based on the state-level data, including government
insignificant results in the mean tests introduced above imply that functions in public health, social services, and public schools and the three factors
the respondents and nonrespondents have similar probabilities of of fiscal constraints, we report the regression results with year, but not state, fixed
having professional managers as well as other important structural effects. Note that we use instrumental variables to solve the endogeneity problem
characteristics. Therefore, the concern about a higher response rate of municipal structure in the next section, further mitigating the concern about
among municipalities with professional managers is eased. the endogeneity caused by the omitted state-level effects.
12. Based on data availability, we test the differences of means in population size,
Notes average household income, unemployment rate, fraction of residents aged 65 and
1. Many previous studies have used the terms “municipal structure” and “municipal above, and HHI of local industry structure. Because of space limitations, the results
form” interchangeably. This research uses “municipal structure” as a broader of mean tests are not reported in the article but are available from the author.
concept that includes the connotations of municipal form and other important
structural characteristics. References
2. The other three statutory municipal forms are the commission, the town Amiel, Lindsay, Steven Deller, and Judith Stallmann. 2009. The Construction of a
meeting, and the representative town meeting. These forms have been adopted Tax and Expenditure Limitation Index for the US. Staff Paper 536. Department
by a small group of municipalities, mainly located in New England. Like most of Agricultural and Applied Economics, University of Wisconsin–Madison.
previous studies, this research focuses on only mayor-council and council- https://aae.wisc.edu/pubs/sps/the-construction-of-a-tax-and/ [accessed March
manager municipalities. 19, 2020].
Supporting Information
Supplementary appendices may be found in the online version of this article at http://onlinelibrary.wiley.com/doi/10.1111/
puar.13183/full.