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RESEARCH PROJECT 6

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Research on problems on public funds investing in local governments

Shekima Jacob

South University

Problems on public funds investing in local governments

Public funds are monies that are generated by the government to provide goods and services to the public. The government generates the funds through ways which as well involves the public in the generation process. Some of these ways include taxes, leasing government properties, revenues acquired from selling and auctioning government’s properties. Public funds include a range of benefits that are delivered to people on a low-income bracket. However, these benefits do not include benefits that are based on national insurance contributions.

General Purpose Statement

The general statement of this topic is to define and state the problems that are encountered in investing public funds in local government. Investment of public funds is expected to give benefits to the public, which is the main function of the investments that the government makes. However, there are different challenges that the government encounters in doing the process. Local government is expected to operate effectively and within the constraints that are created by the economic environment (Coronado, 2003). Therefore, it can be noted that local authorities have the responsibility of balancing first world levels services which are affordable to the public, which has been the most challenging responsibility for the local government.

As such, the government is seeking models of service delivery which can effectively deliver what the public wants. However, they first must evaluate and assess what affects their costs. As such, the local government considers elements such as productivity and efficiency that the projects will have through the shared services. Local Government Funding Agency is one of the bodies of the local government that evaluates projects that the local government is willing to invest the public funds, for public interests (Reinikka, 2002).

The main of these models is to increase the power, influence, and the profile of the individuals who head the councils. Besides, these models change the way the government interacts with other entities that are involved in the investment of the public funds.

Challenges in public funds investment

Public funds must be invested in the most appropriate manner that serves the public with the optimum output. However, challenges such as changes in structure, services, and financing create risks for public entities if they are not well integrated into the investment process. The implications of changes tend to be unbearable for the local government to evaluate and invest in different projects. The reason is because some of the projects might need technical expertise to deal with the project, or the quoted amount for a given project might be proportional to a number of public funds that is intended for the project.

Also in times of fiscal restraint, the local government tend to have a tough time in considering which entities to use when investing the public funds. Therefore, the central agencies need to work to ensure that the government programs and policies are understood and get a maximum leverage. As such, this will call for strong engagement of local government with central agencies to work. However, if the bond between this two entities is weak, local government will not have the capability of retaining its independence, provides useful insight about risks, assurance about progress in managing the risks, and advice on how to get cost-effective results.

Literature Review

With progressing transparency of investment structure and activity flexibility, arguments for significant boosting investment in social and physical infrastructure to achieve sustained growth rest on high returns to investment in capital-scarce environments, and the pressing deficiencies in local areas. Historically, it has been observed that weaknesses in public funds result in low returns to public and private sectors. These low returns arise because of poor selection and implementation of the projects (Arrow, 2014). This is due to limited information and resources that are needed to execute the actual project, wastage and leakage of resources, and weak technical expertise. Private investments in the government sector are most often lower because of lack of complimentary assets and public inputs.

Also, the significant scaling up of the public fund's investment in a weak institutional environment runs the risk of potentially undermining the growth benefits and the prospects for debt and fiscal sustainability.

Ethical issues in public funds investment

Ethical issues are also known as the socially responsible investment. It is the part and parcel of the trends that relate to environmental and social awareness in the society. Therefore, there is several issues that might consider an investment to be unethical. Investing public funds in projects that have negative impacts to the public might be termed as an unethical investment because of the harmful consequences it can cause. Some of the ethical issues that might arise in the project include fraud, underutilization of public funds, and bribery (Heshmati, 2005). Fraud is one of the most forms of theft of public funds in the local government. Such theft can range from trivial to a more serious one such as stealing millions of dollars from the public funds. Underutilization of public funds is also another unethical approach which makes the use of public funds in an inappropriate manner.

References

Arrow, K. J., & Lind, R. C. (2014). Uncertainty and the evaluation of public investment decisions. Journal of Natural Resources Policy Research, 6(1), 29-44.

Coronado, J. L., Engen, E. M., & Knight, B. (2003). Public funds and private capital markets: the investment practices and performance of state and local pension funds. National Tax Journal, 579-594.

Lööf, H., & Heshmati, A. (2005). The impact of public funds on private R&D investment: new evidence from a firm level innovation study. MTT Discussion Papers, 3.

Reinikka, R., & Svensson, J. (2002). Explaining leakage of public funds.