Exploring the Relationship between Operational and Financial Indicators: The Case of Water and Sewer Utilities

ABSTRACT

There is debate in the literature on whether or not general management principles are applicable to the study and practice of public administration. This research responds by exploring how local officials manage the performance of public services with private good characteristics, where general management principles could be embraced for service delivery. The relationship between operational and financial indicators is explored within the functional areas of water and sewer, with the hypothesis that operational outcomes impact financial outcomes similar to private enterprises. Because the findings do not support this hypothesis, the authors conclude that general management principles may not be applicable to all forms of administration given that public cannot be removed from the management of public services even with private good characteristics.

KEYWORDS:

• Local government
• operational and financial indicators
• performance management
• water and sewer systems

Notes

¹ Resource flow represents the inflows and outflows of economic resources as shown on the annual operating statement. Resource stock represents stocks of assets, liabilities, and net assets as shown on the annual balance sheet.

² The cities of Asheville and Burlington do not participate in the functional area of sewer services; therefore, data are not available. The county controls this functional area in Asheville, while Burlington voluntary chooses not to participate in this functional area.

³ While the relationship between wastewater overflows per 100 miles of main line pipe and net assets ratio is not statistically significant at the 95% confidence level, it is extremely close with a correlation of −0.61.

⁴ Regardless of the difference in the sample sizes, approximately 5 out of the 96 correlations would be considered random with a confidence internal of 95% (96 × .05 = 4.8).

⁵ See Shadi Eskaf’s white paper on “Small water systems with financial difficulties are more likely to violate EPA regulations” at www.efc.unc.edu for more information on stressed systems.