Last Updated on 03/23/2023 by Sophia
Factors Influencing Local Authority Investment
Setting an investment strategy is a challenging task for local authorities, as there are
factors that influence the decision to be made. The government's current affairs are becoming
complex each day, leading to demand for the public administration to have the necessary skills to
manage their budget (Kemp, 2014). Before choosing an investment, a proper budget has to be
planned and enough resources set aside to invest. The process of budgeting can take plenty of
time as recurrent expenditure has to be catered for before allocating investment any money. After
allocating money to investments, planning is essential (Bogui, 2008). There are four major
factors to consider as they influence the decision to be made on the choice of investment. These
factors include political involvement, social and demographic changes, economic factors, and
intergovernmental and legal affairs. These factors impact directly on the investment and cannot
be ignored during planning.
During budget planning and allocation of resources, city authorities, county managers,
and their legislative boards are highly involved. The political class is used to seek information
from their people on allocating the budget and the investments they need to be carried out
(Bogui, 2008). They have the power from their people to oppose a budget, and therefore, they
must be involved in the planning process. Understanding how citizens see their government is
given high priority, and more of the budget is being used for this purpose (Kemp, 2014). The
involvement of citizens is achieved through various ways such as surveys, forums, interactions
on websites, and town hall meetings (Bahl & Bird, 2018). The political status of a country also
determines the growth of any investment to be established. When there is political chaos within a
city or county, the local authorities cannot plan for any investments. However, the existence of
peace and harmony investments can be initiated and thrive well.
The economic environment of an area significantly influences the budgeting priorities for
the local governments. There are economic cycles within any given economy which dictates the
position of the economy (International City/County Management Association, 2012). During
economic downturns, there is a decline in revenue collected from sales and income taxes.
Therefore, this is not the best time for the local authority to invest. Recessions also impact all the
levels of government as the economy is hit hard. There is little or no aid for the local government
during a recession, and therefore no investments should be carried out. Another economic factor
is inflation, which creates uncertainty and, therefore, difficult to plan for investments (Bahl &
Bird, 2018). Local governments have to ensure that inflation is at the lowest and there are
minimal chances of it going up soon. Interest rates are economic factors to consider as any
changes may affect the budget for the investment. When the interest rates are high, the budget
must be adjusted, and more funding be added (Kemp, 2014). The last economic factor is a
competition between the local governments, and this leads to changes in taxation, and it can
negatively impact the budget for the investment.
Social and Demographic Changes
There are three social and demographic aspects that impact the budget when they are
changed. These include age distribution, personal income, and population (Bogui, 2008). Any
investment that the local government wishes to undertake must be in consideration of the
population it is going to impact on. The size of the investment, such as a school or a hospital, is
determined by the population it is going to assist. Therefore, the size of the population
significantly influences the investment to be carried out by the authorities (International
City/County Management Association, 2012). Local governments are supposed to analyze their
population to determine the distribution of age. This helps to determine the size of each age
group and its needs. This influences the budgeting for investments such as recreational facilities,
public schools, public health, and the safety of the public (Bahl & Bird, 2018). Personal income
determines the demands of the people from the local government. The high income earning
neighborhood will demand more quality services and thus influence the budgeting of resources
(Kemp, 2014). Therefore, the local authorities' budgeting for investment depends on the income
of the people within a community.
Intergovernmental and Legal Affairs
There are three major ways that local budgets are influenced, and they include a
combined effect, budgetary balance, and mandates. For the combined effect, there are regulations
that forbid the local government from obtaining revenue for budgeting from some sources. Also,
local authorities are forbidden from increasing taxes to a particular level. There are services that
are required while others are forbidden (Bogui, 2008). All these restrictions result in hindrances
when budgeting for any investments. The authorities must ensure that they adhere to the laws so
that there are no complications when implementing their local jurisdictions' investments. The
local government must have a budgetary balance. This means that the current revenue must be
equal to the current expenditure. Therefore, when budgeting for an investment, it should not go
beyond the current revenue (International City/County Management Association, 2012). If it is
above the revenue, there is a possibility of the investment not being completed and thus lead to
waste of public finances unless aid from external sources is available. There are different levels
of government which follow specific procedures in requiring that a service is carried out. The
federal and state government enforces mandates on local governments, and this could influence
investments (Bahl & Bird, 2018). Therefore, local governments must consider the mandates
given before executing any budgets.
Local authorities are involved in developing investment strategies. However, the planning
is influenced by four major factors, which include economic aspects, social and demographic
changes, political involvement, and intergovernmental and legal issues. All these factors must be
put into consideration as they may impact the planning and execution of an investment
Bahl, R., & Bird, R. M. (2018). Fiscal decentralization and local finance in developing
countries. Edward Elgar Publishing.
Bogui, F. (2008). Handbook of governmental accounting. CRC Press.
International City/County Management Association. (2012). Management policies in local
government finance. International City County Management Assn.
Kemp, R. L. (2014). Managing America's cities: A handbook for local government productivity.