Talking Numbers? Analyzing the Presence of Financial Information in Councilors’ Speech During the Budget Debate in Flemish Municipal Councils

ABSTRACT

This article provides new empirical evidence about Flemish municipal councilors’ use of financial information in the yearly budget debate. Since councilors generally do not handle information according to “standard use models,” we adopt an innovative method of data collection by scrutinizing their speech for the presence of financial information during the budget debate in Flemish municipalities. The incorporation of financial information in councilors’ contributions to the debate is conceptualized as a particular form of observable use of financial information. We quantitatively assess the presence of both budgetary and accrual financial information using a scoring technique taken from the management accounting literature. Additionally, we analyze whether various political and financial circumstances affect politicians’ mentioning of this information in their deliberations. Our results reveal a strong prevalence of budgetary information in councilors’ speech. This is influenced by both political conditions and the financial position of the municipality.

ACKNOWLEDGEMENTS

The authors would like to thank both anonymous reviewers, the participants of the 2013 EGPA SIG II on performance, and Jan Van Helden and Carine Smolders for their helpful comments on previous versions of this article.

Notes

The term “use” could imply that somehow the financial information influences decisions or actions taken. This aspect falls outside the scope of this article. However, to our knowledge, there is no adequate synonym for “use” and by using the term we mean the aspect of use referring to the fact that councilors (previously) assimilate the information and integrate it in their speech during the budget debate, regardless of its impact on the following decisions. Thus, use is defined as “talking about.” To our knowledge, two studies addressed this particular aspect of use (Moynihan 2006; Ter Bogt, van Helden, and Van der Kolk forthcoming), also referring to it as “actual use.”

The executive board of the council consists of the mayor and the aldermen. The other elected members are called councilors. For example, in a municipality of 25,000 inhabitants, there are 29 councilors and an executive board of mayors and six aldermen.

Although our research is focused on non-executive local elected representatives (councilors), we start our argumentation by describing the specific use pattern of politicians in general, as it strongly differs from other user groups.

There are also major differences between application of concepts in private “businesslike” environments and in the public sector, respectively.

72% of councils in our dataset are coalitions of two or more parties.

Unemployment policy and inhabitants’ income level, for example, is not in the realm of action of cities and municipalities. These policy areas are controlled by the federal government. Some aspects, such as activation of unemployed people, are regional matters. The same holds true for inhabitants’ income level (Bastida, Benito, and Guillamón 2009).

The quantitative nature of the budget itself is obviously very conducive to the presence of financial information in councilors’ contributions (see, e.g., Frisco and Stalebrink 2008). Finance directors identify financial reporting as the most useful (after accountability to audit offices) tool for elaborating on the budget for the next period. German councilors approve the budget and instruct the administration based on financial reports (Adam and Behm 2006).

The authors have extensive working experience in local government.

By focusing on the official budget debate in municipal councils, we exclude the preceding negotiations, party meetings, or special financial and budget committee sessions. Raudla (2012) concluded that, in Estonia, financial performance was not discussed at meetings of the budget committee. Similarly to Flemish municipalities, the Estonian committee only had an advisory role. Moreover, the installation of a financial or budget committee is not mandatory in Flanders; the number of participants is limited; the meetings are not public and are limited in time. The presence of a municipal financial committee does not significantly impact on the occurrence of financial information in the debate (this was tested in a Oneway Anova, F.0,781, p. 0,38).

Party group leaders are elected councilors who lead others from their faction in the municipal assembly. Their standing is strong in countries where there is strong partisan fragmentation such as in the Low Countries. They hold a unique position as the linchpin between the legislative and executive levels.

Balance sheet and operating statements are derived from the budgetary document through a complex reconcilement system with economic and functional coding.

These official public documents are a reliable, neutral, and objective reproduction of the councils’ meetings. The city manager is responsible for the correctness of the notification.

The stratification was done by random sampling within the 16 clusters defined in the Belfius study (a generally used detailed clustering of municipalities comprising some 150 socio-economic factors; Belfius 2013).

Our interviewees are neutral observers of the budget debate in the sense that they are civil servants with expertise in local budgeting. Two interviewees are city managers responsible for the council's minutes and are always present during its meetings. One interviewee worked in the cabinet of the Ministry of Interior Affairs and another worked for the Flemish Home Office. The fifth interviewee is an expert for the Association of Municipalities and Cities.

The budget proposal was approved unanimously in only one of 121 debates studied.

Result of one sample t-test (means) (t = 8,186, p.0,000).

Given that our dependent variable is a typical over-dispersed count variable, we performed a negative binominal regression with log link (see, e.g., Hilbe 2011). Alternatives, such as Poisson regression models, did not fit our data because the variance exceeds the mean (Kutner et al. 2005). Due to the limited number of cases with value zero (7), we did not apply the zero inflated variant of the negative binominal regression model. The omnibus test, testing the model as a whole using the likelihood ratio chi², demonstrates that our model is significant (p = 0.000). Analyses of the raw and likelihood residuals shows that the assumptions to perform negative binominal regression are fulfilled.

Our measure has internal consistency (Cronbach Alpha = 0.74 for the 14 items).

Concerning the selection of variables under study, we opted for a selection of a few specific variables because of high correlations between different political (% of votes, share of seats, number of majority parties, % votes largest party) and financial variables (municipalities’ incomes and expenses, debt rate, investment rate). In order to assess the robustness of our results, we conducted sensitivity tests with alternative variables. Firstly, we performed the analysis on solely the budgetary items as dependent variable. Our results remained unchanged. Secondly, we substituted some political and financial variables by alternative measures. Property tax rate was replaced by the actual tax revenue (value in € for 2011) (p = 0.019). As for the political variables, the dummy coalition/majority was substituted by the number of parties in majority (p = 0.032) and by the total number of parties in the council (p = 0.021). Our results remained stable throughout the robustness analyses. For reasons of completeness, some variables referring to the economic situation in the municipality (unemployment and inhabitants’ income level) were added. Unemployment was not significant (p = 0.79) and the mean inhabitant's income level was significant (p = 0.071), but correlates with the tax rate.

Additional information

Notes on contributors

Bénédicte Buylen

Bénédicte Buylen ([email protected]), research and teaching assistant at Ghent University (2009–2014). In November 2014 she obtained a PhD about modernizing local government and its impact on Flemish politicians.

Johan Christiaens

Johan Christiaens ([email protected]) is Professor of Public Sector Accounting, also at Ghent University.