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Can more citizen engagement increase city revenues?

Submitted by scc staff on October 23, 2015

By Barbara Thornton

Does more citizen engagement really lead to higher tax revenue for a city?  The answer:  it depends.

In cities with a clear process that allows citizens to participate in shaping the budget allocations, local tax revenue collection increases, more funds are channeled to citizens’ top priority services and citizen satisfaction with city services is measurably higher, according to Inter American Development  Bank (IADB) research.

These desirable outcomes are at risk, however, if there are too many other new civic initiatives competing with the introduction of this “participatory budgeting” process and if implementation of the process is not adequately supported by training and technical assistance for the city staff.   Saturating different reforms such as administrative, fiscal and political decentralization together with participatory budgeting appears to diminish the potential that the latter can have when implemented in already-mature decentralized local governments.  Dedicating staff to the support of the process increases the likelihood of success.

These are the findings of a recent report -- Does Participatory Budgeting Improve Decentralized Public Service Delivery? -- prepared by the IABD.  Contrary to popular thinking, grass roots community organizing was not significant in this outcome.  The key factor in success is the robustness of the city’s institutional setting.

A process for achievable success
What works for cities that want to increase civic engagement, increase citizen satisfaction and increase tax revenue?  Based on this study, one of the very few rigorous experimental studies on this topic, the formula for success is achievable. 

The following pattern of citizen engagement around the budget process worked to create measureable improvements in tax collection and satisfaction scores.

  • The yearly cycle is initiated with a community meeting where citizens express their demands and priorities for public service delivery. These priorities are registered through specially designed report cards.
  • After processing this information, local authorities and citizen delegates generate an initial budgetary proposal, which is presented and discussed in a second community meeting. In this meeting, further discussions are conducted to ensure an appropriate reflection of citizens’ priorities in the budget.
  • Using the feedback obtained from both community meetings, local authorities and citizen delegates formulate a final budget that needs to be approved by the local council in a third community meeting or budgetary hearing.
  • After budget approval, a fourth community meeting is organized to delineate the Service Improvement  Action Plan associated with the approved budget.
  • Citizen delegates and local authorities monitor the execution of the budget using the performance management indicators contained in the Service Improvement Action Plan and a monitoring community meeting is organized halfway through the annual budget execution.
  • Another community meeting is organized at the end of the annual budget execution in order to report the progress to citizens. Then the annual cycle starts again.

Impressive results
How significant is the difference to the city, using structured methods of citizen participation supported by staff dedicated to the process?  The research found annual local tax revenue collection per capita increased by $37.34 (or 78% with respect to the control group mean), the level of preference matching between citizens and authorities by 29% with respect to the control group mean, annual public expenditures per capita in the top priority services for citizens by $29.8 (or 177% with respect to the control group mean) and the level of public services satisfaction index by 0.37 standard deviations with respect to the control group zero mean.

But consider the source
All very impressive.  But what does it really mean for city managers seeking more tax revenue and happier citizens?  Consider the source. 

To find a large scale data base that could support this participatory budgeting analysis in an academically rigorous way, the investigators went to Russia.  In 2006 Russia instituted a new law pushing revenue control down to the municipal (“settlement”) level with less control from the regional (“district”) level.  They selected three Russian regions (Adygea, Penza and Perm).  Penza had a longer history, roughly a decade, with the local democratic process of municipal level decision making.  In the other two regions, citizens were absorbing the lessons of local control in addition to participatory management.  These two regions fared less well than the region where there was more experience in local control, where the municipal level managers and elected officials had more history in making budgetary decisions.

While this study was greeted enthusiastically by policy makers and progressive academics, and does suggest benefits for city managers, the real story here may be more about how to extract meaning for decision makers from the work of academicians.  Let the conversation continue.

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Barbara Thorntonfounder and CEO of Asset Stewardship, consults on and writes about finance, operations and infrastructure issues, with a particular expertise in the adoption of digital infrastructure, facing 21st century municipalities.  She brings over 20 years of professional experience, degrees in city planning and business administration and special training in software, social media and in strategic facilitation.