Cost Accounting in Local Government

Government as a Business

When the authors of Proposition 4 in 1979 were writing the ballot measure it was based on the idea that government should act more like a business.  For them, this meant that government should know what its full costs were, including things like overhead and asset replacement, just like a business would.  These were the basics from business school that just didn’t quite make it the school of public administration at that time.  This was also a day when local government had much more flexibility over taxes and could make up for any shortfall by increasing the tax rate.  With the limits of Proposition 13 imposed the year before, the authors knew that this idea’s day had come.

Now here we are almost 40 years later.  Does this idea still have merit?  Obviously, there are many ways in which government is not like a business.  The most important one being that a government can’t decide to drop a loss leader, like say, Police Investigations or Fire Suppression, because it is not pulling its weight financially.  Also, private businesses don’t have the cost and effort that goes along with transparency.  The monthly board meetings of even publicly-held corporations are not open to the public, and don’t even get me started on public access to the records of a private business.

But there are other pieces that I believe have held the test of time.  A government has a Board of Directors and a Chief Executive Officer.  A government is a large public corporation that owns assets and provides services to its customers.  If these assets, especially its infrastructure, are not properly detailed and managed, it will have a large impact on how it is able to provide services to its customers.  Also, even though government does not work with a profit motive, many of its services, from Recreation programs to bus services, must be able to work within market pressures.  A Board and a CEO that does not manage these things well will soon be looking for another job.

What was true then, and is certainly still true now, is that good information is key to a well-run business, as well as a well-run government.  Without good information, any organization is soon flailing around in the dark.  While a business may go out of business, a government can instead soon find itself in the limbo of bankruptcy.

What is also true is that a government that does a better job of managing and using information will have an edge over its competitors, in this case, other governments.  It goes a long way to making a City a desirable place to live and work. And that makes for a good annual report to shareholders (residents).

Now, about those stock options.

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