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How High Should They Jump? An Empirical Method for Setting Municipal Financial Ratio Performance Benchmarks
Author(s) -
Drew Joseph,
Dollery Brian
Publication year - 2016
Publication title -
australian journal of public administration
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.524
H-Index - 41
eISSN - 1467-8500
pISSN - 0313-6647
DOI - 10.1111/1467-8500.12152
Subject(s) - benchmarking , benchmark (surveying) , local government , jump , unintended consequences , empirical research , flexibility (engineering) , business , empirical evidence , finance , economics , public economics , accounting , environmental economics , computer science , public administration , political science , statistics , marketing , mathematics , management , philosophy , physics , geodesy , epistemology , quantum mechanics , law , geography
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.