Cash Mobilization

A cash budget focuses on the productivity of various revenue sources, the timing of surpluses, and the amounts likely to be available. Management must develop policies to tap and mobilize these resources to meet organizational needs. Cash mobilization falls into two functional areas: (1) acceleration of receivables and (2) control of disbursements. Receivables are those funds that come into the organization's treasury; disbursements are funds that must be paid out to vendors and others who provide services at a fee to the organization. Disbursements also include salaries and wages for the organizational staff.

Various approaches have been developed for increasing the control of cash receipts and disbursements. Private firms and corporations have provided the major impetus behind the development of these techniques. The subsequent growth of interest in cash management has precipitated the exchange of information and ideas among private firms and banking and other financial institutions. Fisher suggests that "companies that have exemplary cash management programs invariably place great emphasis on three objectives in overseeing their day-to-day money transactions. These are (1) speeding up collections, (2) controlling payables, and (3) controlling bank balances." [16]

Accelerating Collections

From the standpoint of fund availability and borrowing costs, the most effective collection system is one that minimizes the lapse between the time money is due to be received by the organization and the time the money is available for disbursement. The optimum system would be immediate wire transfer from the payee to the organization when payment is due. Given the different types of payments and necessary documentation that must be part of each payment, however, such a system is not feasible.

The flow and availability of cash to the organization can be expedited by collection systems that provide for advance billing and payment on or before receipt of goods and services. Such systems should include provision for the processing of payments separate from accounting documentation. The aggregate benefit of sound collection procedures is an increase in the productivity of cash as a working asset. Systems that bill and subsequently process documents and remittances together before to deposit retard the availability of funds to the organization.

Accelerated collection of money owed also reduces an organization's borrowing costs and enhances its ability to earn additional income. Since the 1950s, when this principle gained widespread acceptable, banks and other private firms have conscientiously developed techniques to aid corporations in collecting and processing receivables and in making funds available quickly. The techniques used to accelerate receipts include lockbox services, pre-authorized checks, and concentration banking.

Lockbox services involve the use of special post office boxes to intercept payments and accelerate deposits. A bank is authorized to collect mail directly from such boxes. Lockbox processing was initiated in 1947 by Bankers Trust of New York and First National Bank of Chicago. The major impetus for the development of this techniques, however, was provided in the mid-fifties by the Radio Corporation of America, which was seeking new approaches to speed up collections while at the same time reducing paperwork.

As applied in the public sector, the lockbox system consists of a post office box, rented in the name of the jurisdiction, to which taxpayers mail their property taxes, utility bill payments, and other remittances. The services usually provide by lockbox systems are detailed in Exhibit 1.

The necessary accounting documentation is completed following receipt of payment, using deposit information from the bank. Meanwhile, the funds received have been invested with minimal delay. An additional advantage of the lockbox system is the reduction of local government staff time devoted to the collection process. It can also lead to significant reductions in staff required for manual processing of receivables. These advantages, however, should be weighed against the charges that the bank makes for these services.

A pre-authorized check (PAC) is a signatureless demand instrument used to accelerate the collection of fixed payment types of obligations. Under this collection technique, the customer signs an authorization agreement that allows checks to be drawn against his or her account at specified, agreed upon intervals. The company typically signs and sends an indemnification agreement to the customer's bank to notify it that signatureless checks are issued against some of the bank's accounts. Following completion of the authorization and indemnification agreements, the company or its PAC service bank produces the pre-authorized checks on the specified payment dates. [17] The advantages accruing from the use of this system are listed in Exhibit 2.

The primary purpose of concentration banking is to mobilize funds from decentralized receiving locations into a central cash pool. The cash manager can then monitor only a few cash pools, thereby facilitating better cash control. Under this approach, a firm's sales offices make collections and deposit daily receipts in local banks. From this point, the money is moved either by bank wire or depository transfer checks to designated regional banks, which serve as territorial collection centers. From there, the funds are wired directly to the firm's major bank.

Under a concentration banking system in the public sector, a number of local banks may serve as depositories for the payment of property taxes, utility bills, and other periodic receipts. From these banks, the money can be moved quickly by wire to a depository bank which serves as a central collection center.

Lockbox services, pre-authorized checks, and concentration banking are all aimed at speeding up receipts and reducing the time that remittances stay in transit. The number of days saved in transit time are days that the funds can be invested in interest-yielding securities.

Controlling Disbursements

Disbursements represent the outflow of funds in the form of checks issued and cash payments made. Delaying cash outflows enables an organization to optimize earnings on available funds. Good cash management practices generally dictate that disbursements be made only when due. The timing of disbursements is a very important decision that has implications for the liquidity position of the organization.

In large organizations, the potential for great variability in the quality and form of disbursement decisions often presents a considerable challenge to the cash manager. Two approach have been devised for meeting this challenge:

(1) Centralize, to the extent practical, the management of payables, particularly those involving large dollar amounts.

(2) Establish administrative limits on the amount of disbursements particular organizational units are authorized to make within specified time periods.

The first objective is achieved through the use of a central depository account. The second objective is designed to control subsidiary working funds and is achieved through a zero balance account.

Many local governments maintain many bank accounts to cater to the jurisdiction's various obligations, and therefore, it is sometimes difficult to know how much cash is available for investment. Financial management experts have noted the advantages of consolidating various local government accounts into one central depository account. All deposits from such sources as general funds, general revenue sharing, federal and state grants, and other funds can be concentrated into this single account, thus reducing compensating balances and increasing surplus cash. The consolidation of accounts provides better control over the timing of payments, increases the effective use of excess cash, and permits the streamlining of banking relations. As Sanders and Kirk point out, the concentration of accounts:

Consolidation of accounts enables management to control and schedule the disbursement process. Decisions can then be made and carried out on the basis of sound and uniformly applied economic considerations that are in the best interest of the local jurisdiction.

Administrative limits on obligations are maintained through the effective use of zero balance accounts--concentration accounts that are maintained with a zero balance at the end of each banking day, thus affording the opportunity to maximize earnings on the float. Float is the time between when a check is written and when the check clears the payer's and the payee's banks. There are two kinds of float: deposit float and disbursement float.

Deposit float is the period between collection and the time funds are available for the payee's use or investment. Deposit float consists of mail time, processing procedures, and the time it takes for the payment to clear the sender's bank.

Disbursement float is the dollar difference between the balance on the organization's books and the amount actually in the bank. In other words, a time lag occurs after an organization writes a check: delivery time, processing time at the recipient's bank, and processing time at the organization's bank. The time lags of the disbursement float can be diagrammed and monitored. For example, if an organization writes a check on Friday, the check may not clear the organization's account until the middle of the following week. If the treasurer moves money to the checking account from either an interest-bearing account or another investment on the same day the check is written, the organization will lose interest on those funds. However, if the fund transfer is made on the day the check clears the organization's bank, those funds can remain invested, earning additional interest. Although the potential lost revenue may be insignificant for one check, the losses for a full year can be quite considerable.

A concentration account with a zero balance is perhaps the most useful tool in sound deposits management. An organization maintains a single central account, or concentration account, in addition to separate bank accounts for each major functional category. Deposits are credited to each of the accounts for record-keeping purposes. These accounts are automatically debited for the amount deposited to maintain a current balance of zero with the receipts being credited to the concentration account. As checks drawn on these functional accounts are presented for settlement, the exact amounts are automatically transferred from the concentration account to make the necessary payments. Thereafter, the accounts revert to zero balances.

Zero balance accounts eliminate the need to maintain excess amounts in disbursement accounts. They relieve the cash manager of the burden of estimating when checks will be presented for payment so and deciding to transfer money from one account to the other. Finally, such accounts permit the pooling of resources for investment purposes.

Controlling Bank Balances

Keeping a tight rein on bank balances has become increasingly popular as a principle of cash management. Organizations have come to realize that money not needed to meet operating costs or for compensating balances should be invested in interest-yielding securities. Consequently, organizations seek to avoid the accumulation of inactive cash in their accounts by: (1) using daily cash reports and/or (2) making payments through drafts.

Daily cash reports provide daily contact with the bank to monitor changes in the organization's accounts. Banks are required to submit daily summaries of collections and disbursements handled on behalf of the organization. On the basis of these reports, the treasurer decides what to do with the balances in the accounts.

Using drafts enables the float to be managed without running the risk of overdrafts or inadvertently using uncollected funds. Additionally, any legal problems involving insufficient funds are circumvented, since the drafts are not "obligations" against the issuer until they are presented for payment. Drafts differ from checks in that they are drawn not on a bank but on the issuer, and are payable by the issuer. Banks act only as agents in the clearing process, presenting the draft to the issuer for redemption. Although drafts have found wide acceptance in the financial community, a serious deterrent to their expanding use is that banks take no responsibility for the final payment of drafts once they are presented.

Constraints on Cash Mobilization

Local jurisdictions may find some of these techniques for cash acceleration and disbursement unacceptable. A jurisdiction must evaluate the possible effects on its taxpayers and clients of aggressive collection practices as well as disbursement techniques that delay payments and maximize float. The objectives of cash management must be artfully blended with the need to maintain good public relations with the vendors that serve the jurisdiction.

The use of lockbox systems and pre-authorized checks reduces the time required for a locality to handle receivables and deposit checks for collection. However, the speed with which these checks clear an individual's account has made citizens angry and has stiffened their opposition to electronic transfers.

The objective of the zero balance account is to maximize float, earning a return on funds even though technically they have been committed for the settlement of an already issued check. In some states, however, it is illegal to write a check on any account unless sufficient funds are present in that account to cover the obligation.

State laws often place other constraints on local financial management procedures. Historically, states have imposed special legal restraints and controls on local borrowing, including limits on outstanding debts and requirements for local referenda prior to the issuance of bonds. State laws may also specify the purposes for which debt may be incurred and the characteristics of debt instruments, including maturities, interest rates, and methods of sale.

State intervention in cash management procedures and processes affects the ability of local governments to mobilize cash to meet their obligations and for investment purposes. The state usually prescribes local revenue sources, limiting the legal authority of localities to exploit other potential revenue sources.

Local governments must rely largely on property taxes as the revenue source directly under their control. However, state governments control property tax collection procedures, the assessment function, and procedures for determining the penalties that may be added to delinquent accounts. These state controls are designed to facilitate uniformity in the assessment of property values and in the application of legal requirements as these relate to property taxation.

Plausible as these requirements may be, local officials complain that such regulations deny them essential control over their most vital revenue source. Because tax increases are politically dangerous, elected officials often prefer to reduce the existing level of services rather than raise taxes. However, if local authorities had responsibility over the assessment function, property could be assessed at an inflated value and then taxed at a lower rate.

Local jurisdictions also have only limited control over the collection and deposit of transfers from the state and federal governments. State administered taxes, such as general sales, gasoline, and liquor taxes, are collected by the state and then returned on a proportional basis to localities monthly or quarterly. Many federal grants are also disbursed to localities at the discretion of the state. State authorities may be insensitive to the cash needs of jurisdictions in determining disbursement schedules. If state officials decide to disburse the proceeds from sales taxes on a quarterly basis, local governments can do little to expedite the receipt of funds. They not only must forego the interest that such funds would have earned, but often must borrow funds on a short-term basis to meet the obligations that these state transfers are intended to cover.

Adequate credit must be available if any organization or local government is to survive in the short term. Lines of credit are committed by banks to make loans available subject to certain mutually agreed upon conditions. A revolving line of credit legally obligates the bank to lend funds up to a specified limit. A standby line of credit only indicates that a bank will lend money if funds are available. Lines of credit are important as a hedge against unanticipated contingencies, such as temporary financing needs and short-term cash flow shortages. The cost of maintaining a line of credit, however, ranges from three-eighths of a percent to one percent. [19] Consequently, lines of credit should not be maintained unless they are used with some frequency. Otherwise, the jurisdiction or organization will be paying for the privilege of having a line of credit that may be underutilized or unnecessary.

Strategies for Coping With Constraints

More frequent collection of property taxes may reduce the delinquency rate and improve public perception of the property tax as an acceptable form of taxation by reducing the burden of lump-sum payments. More frequent collection can also reduce administrative costs. Most states have established property tax payment periods, and taxpayers tend to wait until a few days before the deadline to mail their checks. The volume of checks to be processed during a relatively short time period usually necessitates hiring temporary workers or moving some clerical staff from other departments to the Treasurer's office to process checks. At times, the costs associated with this can be prohibitive.

The status of delinquent accounts should be reviewed and stiffer penalties imposed for continued nonpayment. More important, however, the procedures for follow-up contacts and collections should be improved.

Although localities may add interest charges to unpaid taxes until the account is settled, the allowable rate of interest, as determined by the state, is often below the prevailing market rates. In that case, the threat or actual imposition of interest charges may not be sufficient to bring about compliance with the law. For penalties to be meaningful and effect, they must be at least equal to the prevailing rate of interest.

Bills for property taxes, as well as for licenses, permits, and other services that localities provide on a fee basis, should be sent out promptly. The jurisdiction should specify on the face of the bill that beyond a certain date, late charges will be levied. At the same time, localities might offer discounts as an incentive for prompt payment of bills. The provision of self-addressed, postage-paid envelopes further encourages prompt payment of accounts. These strategies are advisable, however, only to the extent that the dollar return on the investment of early payments can be shown to equal or exceed the cost of the discount, envelopes, and postage.

Administrative rearrangements may accelerate receipt of other revenue. The local cash manager should be familiar with the disbursement schedules and funding rules for locally shared state taxes and should apply promptly for reimbursement. Since large sums of money are usually involved, one individual should be assigned the responsibility of coordinating these activities with state government agencies. The collection and deposit of such funds is automatic, well-documented, and secure because it is effectuated through wire transfers.

Smaller amounts, often paid in cash, are frequently handled by localities. By minimizing the number of collection points--consistent with the public's desire for convenience--the jurisdiction can ensure that fewer people handle receipts and that receipts are deposited promptly in the banks. During heavy property tax collection time, bank deposits may be made on an hourly basis to ensure that resources are not left idle. Caution should be exercised, however, in bringing in personnel or extending work hours. If the yield is low, the cost of overtime may exceed the return on investment. Therefore, local jurisdictions should undertake a cost-benefit analysis to determine if these measures should be adopted.

Revenue Enhancement Initiatives

The public's natural antipathy to increases in property taxes has limited the capacity of local governments to respond to changing fiscal requirements. This problem was compounded in 1986, when Congress eliminated a key source of local government revenue--general revenue sharing grants. Therefore, the need to diversify local revenue sources has become increasingly urgent. While all level of government--federal, state, and local--are afflicted with fiscal gaps, they are most acute for local government, which is the level of government most concerned with providing essential services to the general citizenry.

Tax Diversification

Tax diversification has two dimensions: diversification of the sources tax revenue and diversification of a particular tax base. In addition to the property tax, local governments should have a broad-based tax source, such as a general sales tax or a personal income tax. Both have greater revenue elasticity that the property tax--these taxes yield greater amounts of revenue as the local economy grows.

Tax diversification is difficult for local governments because in most cases, it is not within their authority to determine their sources of revenue. The adoption of a local sales tax or income tax requires state enabling legislation and most states have been reluctant to extend this authority to the local level, especially in times of fiscal austerity. The primary avenue open to local governments, therefore, is to seek ways to make existing revenue sources more productive, through efforts to stimulate economic growth, through more aggressive collection practices, and/or by increasing the tax rate.

Local governments today resist the idea of increasing taxes because of changed political priorities have emphasize "level spending." Persistent fiscal restraints in the 1980s at all levels of government resulted in statewide referenda, such as Proposition 13 in California and Proposition 2 1/2 in Massachusetts.

The most reliable source of local revenues is the property tax. The property tax is generally inelastic, however; its revenue yield does not keep pace with economic growth, in large measure because assessment practices have failed to make assessed values consistent with the true market values of real property. To maximize the yield from the property tax and to enhance its utility as a viable revenue source, the assessment function must be improved. Montgomery County, Maryland, enacted recapture tax. in 1980, designed to collect, at the time of sale or transfer of real property, revenues that would have been collected in prior years if the assessment had reflected the actual market value of the property, as demonstrated by the current selling price. The formula for the recapture tax excludes minor under-assessments (under $8,000). In the first six years, the recapture tax netted Montgomery County more than $10 million in additional revenue.

Tax Amnesty Programs

In some localities, delinquent tax bills may go unpaid and unpenalized year after year. According to a recent survey, about 16 percent of the local governments in the United States have a tax delinquency rate in excess of 10 percent. Tax evaders include individuals; firms and corporations.

While the federal government is still debating what to do about tax evasion, some states and localities have implemented programs that have yielded impressive results. These programs, known as tax amnesty programs, have been initiated in Massachusetts, Arizona, Missouri, North Dakota, Philadelphia, and New York City. The District of Columbia, which is currently in a dire financial situation, is considering an amnesty program for traffic offenders who own the city huge traffic violation fines.

The Massachusetts state legislature made tax evasion a felony, punishable by up to five years in jail and/or fines up to $10,000 for individuals and $500,000 for corporations. A period of tax amnesty was then proclaimed, from October 17, 1983 to January 17, 1984. During this period, taxpayers could settle outstanding state tax obligations without any penalty charges and without criminal prosecution for past violations. All tax returns and payments that were due before October 17, 1983, were eligible for amnesty relief.

The program gained national prominence in February, 1984, when state tax officials reported that the three-month program has netted more that $58 million in additional revenues from 40,000 to 50,000 delinquent taxpayers. Arizona's two-month amnesty in 1983 produced $6 million from 10,000 tax delinquents; Missouri's program yielded an additional $853,000; and North Dakota estimated that its program brought in approximately $150,000. The Taxpayer Automated Compliance System in New York City persuaded more than 55,000 individuals and companies to pay more than $43 million in delinquent taxes in 1983-84. The city of Philadelphia reported collecting more than $30 million in delinquent taxes. [20] Twenty other states and localities are working on similar programs.

Given the sluggish economy in the late 1970s and early 1980s, it is not surprising that tax delinquency rates in most localities were so high. In the 1990s,, with the economy booming and personal and corporate incomes rising, amnesty programs for delinquent taxes, coupled with enforcement of stiffer penalties for tax evasion in some cases, have been enacted to provide inducements for the recovery of back taxes. The argument that amnesty programs tend to encourage delinquency (since people may assume that further amnesties will be granted) does not seem to be well founded.

Tax-Exempt Property

Local jurisdictions often includes a number of tax-exempt properties owned by state and federal governments. Compensatory payment programs are designed to reimburse local governments both for the revenues lost because of the tax-exempt provisions attached to these properties and for the cost of providing services.

Washington, D.C. contains within its jurisdiction tax exempt property the value of which has been estimated to be in excess of $3 billion. Debt-ridden, overextended, and budget-busted, the District has lost its fiscal autonomy to a federal appointed Financial Control Board. The District receives only $648 million annually from the federal government in lieu of taxes. [21] Like other property, state and federal lands appreciate in value. By reassessing these properties to ensure that the assessed values are consistent with actual market values, local governments may have a basis for seeking more equitable payments in lieu of property taxation.

Increasing Use of Service Charges and Service Taxes

Municipalities and counties are increasing their dependence on current charges and utility service fees. Service charges promote revenue stability by diversifying the revenue sources of a local government and by reaching beneficiaries of local services who would otherwise escape taxation. According to Penelope Lemov:

As a result of persistently harsh fiscal times, in 1986, Florida enacted a sales tax on services, covering everything from "poodle shearing and pool cleaning to legal work, accounting, and advertising." The tax on services was expected to raise more than $1 billion annually. A year later, the Florida service taxes were repealed--assaulted by the advertising industry and abandoned by a newly-elected Governor. But many states were not humbled by Florida's experience. Hawaii, New Mexico, and South Dakota have enacted service taxes on almost everything. Many more states tax health club dues and dry-cleaning fees; some states have taxes on pest control, burglar protection systems, and nonresidential janitorial services.

Tax Exportation

Although local governments have always formulated revenue policy with an eye toward other jurisdictions, decline federal aid and taxpayer resistance have contributed to an unprecedented level of inter-local competition for tax revenues, tax base, and the exportation of the tax burden.

Tax exportation is the shifting of the local revenue burden to non-residents--a sort of "beggar thy neighbor" strategy. Tax exportation is expressed through such measures as taxes on hotel, motel, and restaurant bills, entertainment taxes, commuter taxes, airport taxes, and taxes on businesses that sell their products or services to customers outside the taxing jurisdictions. Local governments with substantial tourism (especially in the sunshine states of Florida, Arizona, and Nevada), natural resource attractions, cultural or commercial center have exploited tax exportation to the fullest.

Nuisance Taxes

A number of local governments have enacted narrowly-based taxes which generally are costly to administer and yield relatively small amounts of revenue. These include taxes on theater admission tickets, occupational taxes, and property taxes on intangibles such as stocks and bonds. Local governments often find it difficult to abandon these taxes because they provide just enough revenue to make a difference in the local operating budget. While experts have advised local governments in these situations to develop plans to gradually eliminate these taxes, local officials have remained adamant regarding their maintenance.

Tax Administration

The new reality in local financial management dictates that jurisdictions become more efficient in the administration of their taxes. In this way, the yield on the various sources of taxes under local control will be enhanced. States have begun to take advantages of the economies of scale associated with more centralized tax collection and enforcement programs. Indeed, in all states except Alaska, fiscal arrangements have been developed whereby the state governments collect local sales and incomes taxes in tandem with state taxes, funneling the local share back to the jurisdictions. Local governments have also pursued regional arrangements for the assessment, collection, and enforcement of property tax levies as a means of revenue enhancement.

Another approach is reciprocity, involving a mutual exchange of enforcement and/or collection responsibilities between jurisdictions. The District of Columbia and the neighboring states of Virginia and Maryland, for example, have an agreement whereby outstanding tickets issued for traffic-related offenses in the these jurisdictions must be paid before an individual's vehicle registration can be renewed. The District of Columbia estimates that 45 percent of its outstanding parking violations are issued to residents of Virginia and Maryland, representing more than $4 million in potential additional revenue to the city. [23]

Gaming: Gambling and Lotteries

For cash-strapped state and local governments, clawing for every dollar they can get, gambling and lotteries offer the prospect of raising significant revenues without increases taxes. In the past two decades, state lotteries have become a big business. Twenty years ago, only three states had lotteries. Today, thirty-three states and the District of Columbia have them, with a combined gross sales of $20 billion and $7.7 billion in revenues to the states.

A number of states have also authorized casino gambling as a way of broadening their revenue base. Mississippi alone has thirty casinos, scattered around the state, with revenues estimated at $120 million in 1995. [24] The gambling take is taxed at 8 percent and local governments in Mississippi can tax up to an additional 4 percent. Casinos dot the national landscape and its water byways. Casinos now outdraw the national pastime--professional baseball--as the United States experiences the greatest gaming boom in history. Colorado, Illinois, Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada, New Jersey, and South Dakota allow casino gaming on riverboats, docksides facilities, and land-based facilities. Michigan has authorized casinos on the Indian reservations within the state. Given the revenue potential of all forms of gaming--lotteries, gambling, bingo, slot machines, video games--state and localities appear to be as addicted to gambling as are the consumers.


Faced with the need to broaden their revenue base, local governments have left no stones unturned. For example, in the midst of a deficit of over $100,000, the city of Friendswood, Texas appealed to its citizens for donations. In a matter of weeks, donations poured into the city's coffers, and the deficit problem was overcome without the need to raise taxes.

The city of Oaklyn, New Jersey, had different but equally effective approach to deficit-financing. The city council had bricks designed for use in the construction of government buildings. For a donation of $35, people could have their names inscribed on the bricks; for $50, a business could have its telephone number inscribed on a brick. [25]

Curtailing Mandated Expenditures

Federal and state governments have a history of imposing costly new regulations on local political units without appropriating the necessary funds for compliance. Mandated expenditures are obligations that must be met irrespective of annual budgetary decisions. These expenditures include social security payments and retirement benefits for employees, mandated educational standards, environmental impact analyses, and many other programs required to meet federal or state guidelines. Local governments often are compelled to devote significant resources to the fulfillment of long-standing obligations in these areas.

Localities can press for fewer mandated expenditures as a way of conserving local resources. Local officials often have found ready allies in voters. In 1990, localities in Florida pushed for the passage of a state constitutional amendment, barring unfunded mandates unless such measures are approved by two-thirds of the members of the legislature. According to David Hosansky, "since the amendment became part of the Florida constitution, the legislature has imposed no big ticket unfunded mandates." [26] Since passage of the Florida law, at least sixteen states have passed laws or constitutional amendments aimed at stopping legislators from imposing costly regulations on local governments.

Some local government officials have made state and federal lawmakers aware of how much these mandates cost localities by seeking fiscal note legislation, which calls for independent cost estimates of a bill's fiscal impact. In some states, local governments have achieved partial reimbursement of state mandated costs. In other states, full responsibility for some traditional local functions have been assumed by state government. In this way, local resources that would have been devoted to these functions are freed up, thus enabling them to be devoted to other priorities, including investment in interest-yielding securities.

Commercialization Options

Local governments have the option of commercializing some services while they have previously rendered free of charge to their communities. This option is particularly viable in those areas where a distinct competitive advantage that is sustainable over time has been found within the local government. A number of municipalities have entered into contracts to extend surplus service capacity to neighboring communities (for example, potable water supply, solid waste disposal, and even fire protection). A pioneer in this field was the city of Lakewood, California. To enhance their revenue potential, some local governments have embarked on projects of selling information packages, for example, real estate databases and other locally developed data products.

Changing Mood of Taxpayers

The so-called "taxpayers revolt," which gained national attention in 1978 with California's Proposition 13, stalled after the November 1984 elections. The Voter's Choice initiative in Michigan was defeated in 1984. This initiative would have rolled back a 1983 state income tax increase, would have required a referendum for any future tax hikes, and would have forced government bodies to muster a four-fifths majority to raise licensing fees. Nevada's Question 12, calling for a two-thirds vote of state or local lawmakers and a majority of the voting public on any new state or local taxes, also was defeated. Jarvis IV, named after Howard Jarvis, the author of Proposition 13, called for state property tax rollbacks in California to 1979 levels and would have forced state and local governments to rebate roughly $103 billion in tax revenues. This proposition also would have forbidden the imposition of user fees to generate revenues beyond the actual costs of the services included under the fee. Jarvis IV was also defeated.

In 1994, there was a major push in a number of state to permit voters have the final say over tax increases. All these initiatives failed. Voters in Missouri, Montana, Oregon, and Nevada turned down the idea. [27] Apparently, the public thinks that it is poor public policy to allow specific fiscal measures and tax rates to be set in the voting booth.

Several reasons can be offered for the changing mood of the taxpaying public. First, the public in many localities has come to recognize the cause and effect relationship between the overall vitality of the local economy and the public services provided. Therefore, they are reluctant to take actions that might adversely affect economic growth. As Pamela Fessler noted in a 1987 study, "fourteen states have raised their gasoline taxes. . . . The unusually high number reflects a new sense of urgency about the deterioration of existing roads and bridges and the need for new ones." In addition to increases in gasoline taxes, a number of states have increased automobile license fees and truck registration fees. These increases are part of comprehensive highway and transportation programs, resulting from a growing realization by state officials that they have an important job to do.

Above all, many people associate the 1981 tax cuts of the Reagan administration with the ballooning federal deficits. They feel that there have already been plenty of tax cuts at the federal level that are not sustainable at lower levels of government. Thus, policy makers have been largely liberated from the mood that pervaded the early 1980s, where any fiscal policies that included a tax increase amounted to political suicide. These developments notwithstanding, the basic need still remains for continued improvement and enhancement of local cash management practices.


[1] Roger W. Hill, Jr., Cash Management Techniques (New York: American Management Association, 1970), p. 23.

[2] W.C.F. Hartley, Cash: Planning, Forecasting and Control (London: Business Books, Ltd., 1977), p. 74.

[3] J. E. Smith, Cash Flow Management (London: Woodhead Faulkner, Ltd., 1975).

[4] Rhett D. Harrell and Lisa A. Cole, Banking Relations: A Guide for Local Government (Chicago: Government Finance Research Center, Municipal Finance Officers Association, 1982), p. 44.

[5} Roger W. Hill, Jr., Cash Management Techniques, p. 31.

[6] John Wiley, "A Perspective on Public Cash Management in the 80's," Governmental Finance 10 (December 1981): 6.

[7] Kenneth Sanders and James E. Kirk, Local Government Cash Management and Investments (Columbia, SC: University of South Carolina, Bureau of Government Research and Services, 1981), p. 11.

[8] Joseph Van Fenstermaker, Cash Management: Managing the Cash Flow, Bank Balances, and Short-Term Investment of Non-Profit Institutions (Kent, OH: Kent State University Press, 1966), p. 35.

[9] Hartley, Cash: Planning, Forecasting and Control, pp. 56-57.

[10] Stuart Holland, The State as Entrepreneur (London: Weidenfeld and Nicolson, 1972), p. 214.

[11] David I. Fisher, Cash Management (New York: Conference Board, 1973), p. 14.

[12] J. E. Smith, Cash Flow Management (Cambridge, England: Woodhead-Faulkner Publishers, Ltd., 1975), p. 13.

[13] Chukwuemeka O'Cyprian Nwagwu, Cash Management in Local Governments (Blacksburg, Va.: Center for Public Administration and Policy, 1985).

[14] Aaron Wildavsky, The Politics of the Budgetary Process (Boston: Little, Brown, 1979), p. viii.

[15] For a further discussion of the cash budget, see: Sanders and Kirk, Local Government Cash Management and Investments pp. 55-58.

[16] Fisher, Cash Management, p. 25

[17] These issues are discussed in detail in Paul Beehler, Contemporary Cash Management: Principles, Practices and Perspective (New York: John Wiley & Sons, 1978), p. 44.

[18] Sanders and Kirk, Local Government Cash Management and Investments, p. 21

[19] Harrell and Cole, Banking Relations: A Guide for Local Government, p. 34.

[20] Government Finance Research Center, "Improved Tax Collection Strategies Bolster States and Cities Revenues," Resources in Review, 2, no. 6 (March 1984): 14.

[21] Unpublished paper presented by Audrey Mathews at the Conference of Minority Public Administrators, Houston, Texas, February, 1996.

[22] Penelope Lemov, "The Tax Revolt That Wasn't," Governing (January, 1995), p. 22.

[23] Municipal Finance Officers Association, Elements of Financial Management, Financial Management Series, Vol. 6 (Chicago: Municipal Finance Officers Association, 1980).

[24] "Gambling, Mississippi Style," Governing (April, 1995), p. 41.

[25] See: Governing (July, 1993), p. 32.

[26] David Hosansky, "The Other War Over Mandates," Governing (April, 1995), p. 26.

[27] Lemov, op. cit., p. 22.

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