Regional Financial Management with Knowledge Based Management

There is a strong relationship between fiscal decentralization with devolusi (Manor, 1999; Humes IV, 1991; MacKintosh & Roy, 1999; Fiscal Policy Resource Center, 2001). Fiscal decentralization, which means that the government submit a superior influence over budget decisions and subordinate to the government expenditure, there should didahului by political decentralization. Decentralization without fiscal decentralization and political decentralization difficult to realize the sincere, truly able to reflect the interests and aspirations of the region. fiscal decentralization requires the existence of accountability to the community and institutions in the region rather than to superiors outside the area.

Instead, devolusi also requires the existence of fiscal decentralization to sustain self-reliance of local governments in regulating and managing the functions of diembannya. There are three resources that should be able to run by the local government to achieve its intended purpose, namely the management and top financial officer, and the political support.
The ability of local governments to provide public services is highly dependent on financial capability (Humes IV, 1991, 235). Without money, local governments can not pay employees, supplies and equipment, and various contract services, and so forth. Fiscal decentralization and devolusi looks like two different sides of a coin the same currency so that fiscal decentralization requires the devolusi, and likewise vice versa. In this framework devolusi, the fiscal decentralization associated with the two main things, namely autonomy in deciding the area of expenditure in order to hold public services and meet public needs, and self-reliance in the area have income to pay for the expenditure (Norton, 1994: 71-2; Smith, 1985: 99-109). Financial management in the areas of effective management associated with essentially two things are the income and expenditure areas.
The ability of the region in providing services to the community is very dependent on the ability of funding. In many countries, financial resources of this area is always a polemic because there are differences in the distribution of income between the regions with the central government. Areas feel that the source of the funds that it has inadequate and accused the central government are reluctant to share revenues. If this happens, the condition is not conducive to the revitalization of local governance. Therefore, it is necessary to first understand the various types of local income sources. Humes IV (1991: 236-7) revealed that, in principle, financial resources that have three regions, namely: locally raised revenue (Origin Region Revenue ), transferred or Assigned income (Transfer of Central Government), and loans (loans).
Original Regional Income is income that is determined and collected locally. This type of income should be the main source of income for the area. There are three categories that fall into this type of income that includes local taxes, levies and fines, the company earnings and the region. Local tax is seen by many as the main type of the area. Generally, the central government determine tax which can be adopted by local governments. In many countries, legislation also set limits for the levies and provide power to the central government to review.

How to tax collection at the local level in various countries differ from one another. However, there are several criteria that can be footing the local tax evaluation of this (Norton, 1994: 73-4). The criteria are: equity, collectability, efficiency, taxes should be met by beneficiaries of services, a tax's Behavioral effects, buoyancy or elasticity, immobility of the tax base, and perceptibility and accountability, as well as compatibility with other taxes. Based on the criteria of this tax can be collected from the community.
To two categories of income tax is the original cost (fee), penalties (fines), and the license (license). Source of income is tied to the willingness to pay for a service that feel. Local government levy on the cost of various services and licenses provided. Examples of entry to this category is the right to sell beverages, food, entertainment, to run a bicycle, motor vehicles, to use city facilities or parks, fishing, selling, and so forth. Voluntary donations are also possible as a source of local income.
Third category of income is the original area of the utility companies and local (earnings from public utilities and Enterprises). Company revenue through the imposition costs (user charges) for services that given. There are several things that must be considered in determining the amount of the cost of this, namely: equity, revenue stability, Flexibility, ease of administration, and public acceptance (Pierce & Rust, 1991: 394-5). In principle, this charge plays the role of fiscal and regulatory form of revenue collection and manage service requests with curb violations that often occur in the public services that are free of charge. Regulatory functions is very important through this charge as one of the steps to avoid catastrophe with (tragedy of the commons) without the use of the free public goods. (see Hardin, 1968; Ostrom, 1990).

There are four forms of regional management companies which usually operate to perform the functions above, ie, the form: a single community, joint ownership, or multipurpose special district, and independent authority (Pierce & Rust, 1991: 407-9). Various forms of this type of service reflects, environmental regulations, and the sweep and scope of the market. Effective management of the company depends on this direction and control operations under a single administrator to run the functions of the management instructions defined by the authorities.
In the last few times, many local governments increasingly depend on increased funding or assistance to be transferred by the central government. This phenomenon triggered by political economy. The causes can be seen from the various tasks that we are provided by the central government to regions, or increasing revenue through the central tax revenue and the other, and the increasing lack of local resources to meet the increasing needs of public service. Income transfers include: sharing, assistance and direct budget allocations.
For the results (revenue sharing) refers to the funds collected on behalf of local government and transferred to him. The central government usually collect taxes (in some cases, local governments can also do this). Given to a certain percentage of the area in general, nationally defined, and in some cases the local government may request additional percentage. With this tax is divided on the basis both by origin and by formula (which takes into account various factors such as population, area, donated services and needs). Formulation of this is usually the result of political negotiations, and local governments strive to obtain the most beneficial formula.
Assistance (Grants) is usually also the main source of income for local governments in many countries (Bird, 2000; Humes IV, 1991; Wilson & Game, 1994; Shah, 1994). The term of the grants is also often used subsidies or subventions. There are three main reasons for the use of this type of assistance (Humes IV, 1991: 239) namely: to increase local income sources, and to meet the needs of over-or income from a limited area, and to improve the program and put in certain controls for the program.

In addition to these three reasons, Wilson & Games (1994: 144-5) said two of the fundamental reasons for this assistance, namely: compensation and persuasi. Compensation given that local governments can provide basic services to meet the particular interests of the community. Persuasi motif can be seen as central to the desire to control or influence some aspects of the area. Help can be used to increase expenditure in a particular service, for example, or to emphasize the minimum standards, or support the council to implement central government policies insiatif, and in general to drive so that the regions do not turn to the other. At the core of this goal can be achieved through various types of assistance that can be divided in the form of: first, non-matching transfers that can be divided in the form of a specific (conditional) block grant and (unconditional) grant; second, matching the transfer can be divided into open-ended matching grants and closed-ended matching grants, and the third is the deficit grants (although the last one is no longer recommended). This distinction, as expressed by both Devas (1988) and Davey (1988).
Form of income transfer is the third direct budget allocation (direct budget allocations). In communist countries, the local government is an integral part of the national government, and anggarannyapun is an integral part of the national budget. Actual funds that have not such a transfer but the allocation between the intra-government organizations. The provision of such funds in ways that provide opportunities for limited administrative decision of the local government.
Lending (Borrowing or DSL) is the third source of funding for local governments and is an alternative way to finance the capital investment area (Humes IV, 1991; Norton, 1994; World Development Report, 1988). This investment can be used to finance the development of roads, bridges, dams, multipurpose buildings, water facilities, and others that are difficult to be fulfilled by local governments through existing sources of income. This loan can also be done by the local government to close the budget deficit.

Decentralization of fiscal authority is also concerning the decentralization of decision-making about the expenditure of the government in order to meet the needs of the community (expenditure assignment). World Bank (1988) reveal that the authority is required so that local governments were able to conduct a public expenditure management right, which has the following characteristics: (a) he is able to adequately control the overall income and expenditure, and (b) the right to allocate resources to the public in various sectors and programs, and (c) ensure that government agencies operate as efficiently as possible (Bird, 2000: 5).
Local income used to defray the expenses. Meanwhile, the need for the expenditure must be met by local income. See behind the reciprocal relationship between the two aspects, the fiscal decentralization can not ignore or emphasize one aspect only. Aspects as important as income is pengeluran area. This expenditure must be made by various regions in order to finance the activities or functions which the responsibilities. There are five roles that must be played by government in managing the affairs of all kinds of authority, or (Premchand, 1999: 57-64). Roles include the role of service provider, as a service buyer, as the body of the fund, as coordinator of public service provision, and as a regulator. Implementation of all options or role requires funds to be issued by local governments.

In practice, the role of various governments in the provision of public services can take place in the top two categories in the form as expressed by Norton (1994: 67-70), namely: direct and indirect Provision or delegated management of service. The first category in fact put the government as direct provider of public services with a range of variations such as the provision by government agencies, the state company, partnership or other body that is directly under the control and funded by the government. Category to put the two on the fact the government as regulator (regulator) while public services can be done by private, public, or other voluntary agencies. The usual way in the second category are: concessions, contracting out, regulation and so forth.
To finance the government's role and form of provision that must be held by the government may need to be translated in the budget area. Type of expenditure in the budget area can be divided into the two, namely current expenditure or also known as revenue expenditure and capital expenditure (Wilson & Game, 1994: 134). Current expenditure is the daily expenditure of local governments is needed to ensure that the public service still in progress. Expenditures include: salaries and wages of employees, school books, office equipment, and so forth. Capital expenditure is expenditure that results in a long-term assets. This expenditure is often expensive, but the benefits after the fiscal year running. An example of this is the purchase of land, construction and road building, major equipment such as cars, machinery, computers and so forth.

Main considerations that must be observed by both central and local government is not all of the better public services are all held in one of these levels of government. Certain public services better organized by the central government while the other held by the local government. with the consideration of this ease of determining the expenditure of public service which is better in desentralisir.
Shah (1994) revealed some of these considerations, such as: the provision of efficient public services, efficiency, fiscal, regional equity (horizontal), the role distributif the public sector, the provision of goods semi-private, with preservation of internal market, economic stabilization, and power expenditure. All these considerations are the basis for the pelimpahan responsibility of public service to a particular area. Study, Shah (1994), Norton (1994), Bird (2000) have revealed that the type of public service by almost all regions, there are species in which either by central or local government, and there is also a type of public service by the central government .

The tendency to mendesentralisir expenditure is based on the subsidiarity principle (Fiscal Policy Resource Center, 2001). This principle suggests that government services should be provided at the lowest level of government that is able to provide public goods and services efficiently. This principle is successful in the situation when the region where the power of the government felt the uniform limits of the government at every level of government. Subsidiarity principle is suggested three types of activity that is best when held by the central government, namely:
(1) the provision of public goods and services that benefit the nation as a whole,
(2) policy redistribusi income or social,
(3) the government activity that includes SPILLOVER eksternalitas or between regions.
Based on this principle, the government subnasional will not be effective in the policy redistribusi income because: first, the nature of natural subnational the government can not complete the income differences between regions, and second, households and companies will move from the rich jurisdiction involved in the distribution of income. In addition, it can be seen that the government will produce subnasional level of public service that is not efficient if the benefit or cost SPILLOVER.

Outside of the third type of activity, this principle is suggested to run by the government, especially the lowest subnasional. Responsibility expenditure (expenditure responsibility) this can be a responsibility to provide, pay, and certain government functions meregulasi of authority. However, not all types of public services can be better managed by a particular jurisdiction is possible only because of the occurrence of cooperation between local governments to hold it in an efficient, effective, and responsive to the needs and interests of each community.

In a very advanced country, the loan can be obtained through banks or the private sector. In developing countries, local governments difficult to obtain access to sources of capital, or if they can do the level of interest rates are difficult to reach tribe. As a result, local governments in developing countries, especially in rural areas, it is difficult to obtain capital development so that the development of small capital. Because this is the case, you can set up a central credit institution provides loans to local governments in order to obtain capital construction. These institutions can be (mainly) controlled by the central government, by local governments, or by both.
Study, Norton (1994) reveal that some methods of loans held in European countries. Methods are:
(1) loan funds from internal sources (internal funds).
(2) loan measure (temporary borrowing) from the money market (money market).
(3) bonds (bonds issues).
(4) Expenditure shares (stock issues).
(5) lease (lease arrangements).

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