Friday, September 25, 2015

Mexico's New Law Financial Discipline of the States and Municipalities (translated into English)

Of the Interior Ministry, with which forwards the initiative of decree Law Financial Discipline of the States and Municipalities is issued, and the Laws of Fiscal Coordination, General Public Debt are amended, and General Accounting governmental

Mexico City, August 17, 2015.


Board members of the Permanent Commission of the Congress of the Union


Present


On instructions from the President of the Republic and in exercise of the power conferred by Article 71, Section I of the Constitution of the United Mexican States, based on the provisions of Article 27, Section II, of the Organic Law the Federal Government, I would refer the initiative to decree the Law of Financial Discipline of the States and Municipalities is issued, and laws are reformed Fiscal Coordination, General Public Debt and General Government Accounting, in order that for your kind conduit, is sent to the Chamber of Deputies of the Mexican Congress.


Also, based on the provisions of Article 18 of the Federal Budget and Fiscal Responsibility, I accompany the present copies of trades numbers 312.-A-002 859 and 353.A.-0430, the Ministry of Finance and Credit public, by which sends the opinion of budgetary impact.Without further ado, I take this opportunity to reiterate the assurances of my highest consideration.


Mr. Felipe Solis Acero (heading)UndersecretaryChairman of the Board of the Chamber of Deputies of the Mexican CongressPresent


__________

Based on the Article 71, Section I of the Constitution of the United Mexican States, I would submit its worth through, before this honorable assembly, the initiative to decree the Law of Financial Discipline is issued of the States and Municipalities, and the Law of Fiscal Coordination, General Public Debt and General Government Accounting are reformed.


This initiative is submitted for consideration of that sovereignty to regulate the recent constitutional reform in financial discipline of the states and municipalities, which was published in the Official Gazette on 26 May this year.


According to the aforementioned constitutional reform, in terms of Article 73, Sections VIII, and XXIX-W, the Congress has the power to establish laws, the general rules for states, the Federal District and municipalities to incurring indebtedness; the limits and conditions under which such orders may affect government shares allocated to them to cover the loans and payment obligations that contract; the obligation to register them and publish all of their loans and payment obligations in a timely and transparent manner, in a single public record; an alert system to rate the level of indebtedness of such authorities; the possibility of granting the federal guarantee on the debt of states and municipalities; as well as the sanctions applicable to public servants who do not comply.Therefore, one of the main objectives of this initiative is to establish a regulation on fiscal responsibility to allow the states and municipalities conducted under criteria and rules to ensure a responsible and balanced management of public finances, creating favorable conditions for economic growth and stability of the financial system. Specifically, determines provisions for sustainable management of local governments for the recruitment and registration of public debt and other obligations, as well as transparency and accountability, applicable to the states and municipalities.Notably, although not present a systemic risk and the rate of growth of debt in the last two years have been contained, it has been observed that some states and municipalities have a high level of debt. In response, the Permanent Constituent considered urgent address the problem with a comprehensive approach; that is, not only taking into account the situation of these entities, but making a substantive reform definitively promote the sustainability of state and municipal finances.


Thus, it is not only necessary to establish new rules for contracting of public debt, but a new legal framework to standardize the management of public finances as a whole and the responsible use of debt as a tool to finance development. Therefore, the basis for this initiative is rooted in the principles of the Federal Budget and Fiscal Responsibility, recognizing the positive effects generated, but assuming that it may not be applicable to the states and municipalities, given the differences in competition and structure of public finances. This is consistent with the provisions of the XXIX-W infringement of Article 73 of the Constitution, which empowers the Congress to issue different laws on fiscal responsibility for all three levels of government. Therefore, the Federal Budget and Fiscal Responsibility in this area continue to govern for the Federation, while for states and municipalities govern the Law of Financial Discipline of the States and Municipalities which is subject to consideration of that sovereignty.


Briefly, this initiative seeks to achieve its objective through 5 main components:1. Rules on financial discipline, to promote the healthy development of public finances by early landowner liability;


2. Alert System, linked to nivelas debt, debt service and liquidity conditions, allowing for early detection of risk in the debt of public bodies;


3. Recruitment of funding and obligations under the principles of transparency and efficiency, so that their procurement is conducted to lower financial costs and allocating the proceeds to public investment;


4. State guaranteed debt, through which the federation, according to the constitutional authorization, granted its endorsement with the intention of supporting the states and municipalities to reduce the interest rate of its credits. This, in return for agreements generate financial discipline; Y, 

5. Unique Public Registry to register and make transparent all the obligations of local governments.In addition, as envisaged in the recent constitutional reform, there is a need to undertake a reform that not only focuses on the use and allocation of bonds and loans as a mechanism to finance development as the ultimate goal; but in the establishment of principles, criteria and standards leading to a responsible, balanced and efficient use of public resources collected by the states and municipalities exercise.

Therefore, the constitutional reform on financial discipline of the states and municipalities, and this bill are fundamental elements for building a stronger institutional framework for compliance with their responsibilities to the states and municipalities of Mexico. Also, arrange and align budgetary and financial instruments available to these levels of government, they are necessary conditions to ensure proper use and thereby achieving the objectives of the local development planning.Additionally, this initiative provides for adjusting existing provisions of the legal framework in this area. In particular, it aims to amend Article 9 of the Law of Fiscal Coordination, and the name and various provisions of the General Law on Public Debt, to harmonize the various provisions that are linked to the constitutional reform approved on financial discipline the states and municipalities.Based on the general objectives outlined above, the content of this initiative is detailed.


Act I. Financial Discipline of the States and Municipalities


The aim of this new law to ensure sustainable management of public finances of the states, the Federal District and the municipalities of the Republic. In this regard, proposed general principles in budgetary matters, debt, transparency, monitoring and accountability of the use of revenues and the exercise of public spending by states and municipalities, recognizing the difference in managing their public finances and the level of institutional development of these levels of government.The provisions include the proposed new law are as follows:


Title One: Scope and Definitions of the Law


Chapter One: General Provisions


• The law, being regulatory fractions VIII, paragraph 3o. and XXIX-W Article 73 of the Constitution in regard to the states, municipalities and public entities, is to establish the general criteria of financial discipline and fiscal responsibility for sustainable management of public finances (Article 1) .On the other hand, it specifies that public bodies of the states and municipalities must comply with the rules of financial discipline, in line with the accounting standards that apply to them.• definitions applicable under the new law are incorporated. Within the definitions, it highlights the concept of Public Investment Productive. This, considering the legal debate that has occurred in this area and today, under this law (Article 2) specific.


The April 21, 1981, was published in the Official Gazette an amendment to the Constitution through which the Permanent Constitution first introduced the term "Productive Public Investment" to refer to the purpose for which They should be earmarked bonds or loans contracted by states and municipalities.


Elucidating the concept of Public Investment Productive proved challenging in terms of legal interpretation. Although various criteria have been issued on the matter, it is considered necessary to limit this term in the legislation with a view not only to establish greater order in the public finances, but also for the public good.


To limit the scope of this concept, it is made clear that the aim is that the obligations and loans contracted by public bodies are aimed at collective interest generated, directly or indirectly, benefits for society that can boost economic growth of the respective public bodies and, where appropriate, allow the generation of revenue with which to repay the loans taken within the agreed deadlines.Based on the above, and by virtue of a teleological interpretation of the constitutional amendment referred and thesis issued by the plenum of the Supreme Court of Justice of the Nation, Productive Public Investment is defined as all expenditure for which are generated directly or indirectly, a social benefit, and intended: (i) the construction, improvement, rehabilitation and / or replacement of public property; (Ii) the acquisition of assets associated with the equipment of such public property, or (iii) the acquisition of assets for the provision of a specific public service.


An important element of this definition is that it expressly provides that the Public Investment Productive also includes the acquisition of capital goods that will be used to provide a public service, such as patrols, garbage trucks, ambulances, among others.


• the supplementary application of the Federal Law of Budget and Fiscal Responsibility Law of Fiscal Coordination and General Government Accounting Act, empowering for her performance in the administrative sphere to the Secretariat of Finance and Public Credit (Article 3) is established.Regarding the power of interpretation for administrative, by the Secretariat of Finance and Public Credit effects, it is considered necessary that the dependence of the Federal Government may issue interpretive criteria for proper implementation of the Act, taking into consideration the purpose of it, in terms of fractions VIII and XXIX-W Article 73 of the Constitution, is to establish a regulation to be implemented consistently across the states and municipalities in terms of fiscal responsibility and management of public debt.


This is even more relevant in the case of the provisions on extra law (Article 3); the regulation of federal transfers (Articles 2, section XXXVI, 5, 13, section VIII, 17 and 18); General Criteria for Economic Policy (Articles 5 and 18); procurement regulation of public-private partnerships or nullifies federal resources (articles 3, 11, 22, 27, 48 and 51) charge; the hiring of funding from the Federal District (Article 33); granting the federal government guarantee the debt obligations of the states and municipalities (Articles 34-42); System Alerts on the levels of indebtedness of states and municipalities (Articles 43-47); the Single Public Registry of Bonds and Financing (Articles 48-56); the obligations of information and transparency in the framework of the General Law on Government Accounting and in the case of federal transfers in terms of other federal laws (Articles 4, 57 and 58) and on sanctions when referring to federal resources ( Articles 59 to 63).


• On the other hand, is expected to ensure consistency between the proposed law and its obligations under the General Government Accounting Act with regard to the generation of financial information required in the three levels of government, the National Council for Harmonization Accounting shall issue the necessary accounting standards (Article 4).


Title II: Financial Discipline Rules


Chapter I: Sustainable Balance Budget and Fiscal Responsibility states


• It is established as a basic principle of financial discipline, the revenue laws initiatives and projects expenditure budgets of the states are in line with development plans and observe the following (Article 5):


a) which are prepared based on objectives, strategies, goals and performance indicators;


b) To take into account the General Criteria for Economic Policy defined by the Federation; keep consistency with national public finances and transfers and federal contributions that states will receive during the year in question;


c) projections covering a period of five years, in addition to the tax year in question, based on the forms issued by the National Council of Accounting Harmonization take place;


d) identify significant risks for public finances, accompanied by proposals for action to address them, and


e) To include the results of the public finances in the past 5 years and the fiscal year in question.This will strengthen the planning and programming of the budget of the states and their agencies and serve in the decision-making process, both the local Executive to prepare the draft budget (income-expenditure), Legislative during analysis, discussion and approval of the amendment.


It will also provide transparency and encourage accountability of the government budget of the states, and that such information should be made public.


• Recognizing that responsible lending is a tool that supports the development of institutions, the term "sustainable budget balance", both total and resources freely set. To this end, states may not contract financing from paying income source freely available beyond the ceiling of financing that results according to measurement Warning System (Articles 6 and 7).


However, it is recognized that departures may register to that balance, that is, record negative budgetary balances of resources available when the following cases occur:


a) A decrease in federal contributions regarding what was approved in the Budget of Expenditures of the Federation for the fall in Gross Domestic Product in real terms, and that fails to offset the resources of the Stabilization Fund Income Federal States;


b) Cost of reconstruction in order to cope with expenditure pressures resulting from natural disasters;


c) Costs associated with administrative improvements that generate local growth, or that contribute to reducing future spending income. In that case, you need to quantify the amount of imbalance, expose the sources of financing, actions to eliminate it, and the number of years in which the imbalance is reversed.


Note that the states and municipalities, as members of the National System of Fiscal Coordination, receive transfers from the Federation. Such transfers shall constitute revenue for the states, which in the case of shares, may be used freely or, in the case of contributions should be earmarked for specific purposes, such as education, health, infrastructure and other services public order. The proper use of these resources, ie the use thereof according to the assigned destination, it is a central part of financial discipline. In this sense, the states and municipalities must exercise freely, only the resources in respect of shares and, according to the predetermined order, the resource that has a specific destination.


In addition to the aggregated balance sheet included in the public accounts of entities and municipalities, including the concept of budget balance available resources, contributes to a better understanding of spending pressures faced by local governments. This balance is made up of disposable incomes, which can be used by the federal entity to own decision and financing, less the expenses whose financing source are such income, except Similarly, the payment of capital. The separation of the financial balance of resources is essential to specify and understand the specific spending pressures that records a local public body.


In terms of this initiative, this balance can not be negative, except for the existence of the aforementioned exceptional cases. Importantly, considering the resource earmarked by law it should only be exercised in certain areas, your balance at all times must be sustainable.


• In line with Article 126 of the Constitution, the law incorporates the principles of unity and universality of the budget, provided that only expenditures under the same or later approved by law (Article 8) may be made.


It follows from that, the increase or new spending that is approved, both in the budget discussion, and during the fiscal year, must be previously funded; ie is expressly required before approving a revenue or expenditure cuts which will cover the new expenditure.


• In our country faces recurrent contingent events generated by nature or accidental causes of damage to people and property as well as public infrastructure. Therefore, it is contemplated that the states included in its Budget of Expenditures, reserves for such damage and to take actions to prevent and mitigate its impact on state finances. Budgeted resources should be provided to a public trust, which will provide total transparency to their management (Article 9).


This does not imply, in any way, changes to the procedures established in the General Law of Civil Protection. Financial mechanisms for risk management will continue to operate according to their respective rules, serving as appropriate for the financing of such obligations not covered by local governments complement.


The resources provided must be designed, first, to finance the reconstruction works and actions of state infrastructure approved under the General Rules of the Fund for Natural Disasters, as a counterpart to the federal entity to the agreed programs of reconstruction with the Federation.To avoid excessive accumulation of resources in the trust, is expected if the balance accumulates an amount that exceeds the average cost of rebuilding the state's infrastructure over the past five years, the federal entity can use the remnant that appropriate for prevention and mitigation.


• Within local government finances, the payroll is one of the chapters of spending more pressure and more growth. That is why, as a prudent budgetary approach, it is proposed to implement a growth ceiling compute fully to this chapter of expenditure (Article 10).


Additionally, it is considered appropriate to generate a policy of greater transparency in this chapter of expenditure, through the inclusion of a specific section of the draft budget that details the concepts of spending, wage provisions to cover salary increases and the creation of places, among others elements.


• schemes of public-private partnerships are another option for Public Investment Productive and provide public services by public bodies. The financial structures of these schemes contemplated as the primary source of repayment of the public entity contracting budget. That is why the Financial Discipline Act regulates that public entities that hire or structures are to hire public-private partnerships are required to consider in their budget forecasts expenditures necessary to meet such commitments. This measure gives legal certainty to the investor supplier and therefore, helps to create better conditions to the public body (Article 11).


• Debts limit for the preceding fiscal year (Adefas), which may be up to two percent of total revenues of the public entity, since it involves the use of Adefas financing through suppliers of the entity is established federal or municipality (Article 12).


• principles of financial discipline to be observed by the states and public bodies in the exercise of public expenditure (Article 13) are set: 

a) One may commit resources against the approved budget, having previously budgetary sufficiency, by reserving resources in the specific budget programs and identifying the source of income; 
b) They may make additional to those adopted in the Expenditure Budget, only under surplus revenues, provided they have the authorization of the Ministry of Finance or equivalent expenditure; 
c) As a way of standardizing the means of evaluating projects at the local level, when they exceed more than 10 million investment units (UDI) amount, must have a cost-benefit analysis and generate a net social benefit, under reasonable assumptions. This shall not apply where such projects are intended for priority and immediate response to natural disasters.

It also foresees that each state should have an area responsible for assessing this analysis; and to integrate and manage the registration of productive public investment projects of the corresponding state. The creation of a specialized area, encourage the timely generation of state banks projects that meet a minimum standard requirements, generating a virtuous circle in the fulfillment and execution of the works.


Additionally, in the case of productive public investment projects that aim to employ under a scheme of public-private partnership, public authorities must prove, at least, an analysis of convenience to carry out the project through this scheme compared to traditional public works mechanism and an analysis of risk transfer to the private sector. Above, to ensure that the scheme used is the most efficient.


Remarkably, as do several of the transparency measures implemented through this Act, assessments should be made public through the websites of the ministries of finance or equivalent;d) Only proceed to make payments for accrued concepts effectively, provided the rates have been registered and recorded in the Expenditure Budget approved;


e) The personal service overall allocation originally approved in the Expenditure Budget may not be increased during the fiscal year. Additionally, the Ministry of Finance shall keep a record and control of expenditures made under this chapter of expenditure, in order to integrate a complete list by the Executive that allows you to better plan this category;


f) They shall take steps to rationalize current spending. Savings and savings generated by these measures, as well as those resulting from the concept of a financial cost of public debt under budget, will target first, correct the negative budget balance of available resources and subsequently to the priority programs;


g) In terms of subsidies, should identify the target population, purpose or main destination and timing of grant. The mechanics of distribution should ensure that resources are delivered to this population, and that administrative costs are reduced. Such information should be made public, via the Internet, and


h) Once the validity of the Expenditure Budget, only proceed to make payments based on the budget for the items actually accrued in the corresponding year and that has been registered in the report of accounts payable or integrating current liabilities at year-end.


• Another reasonable measure included in this law, is the fate of surplus disposable incomes. It establishes that the states should be allocated at least fifty percent to the amortization of the public debt, payment of debts from previous fiscal years, current liabilities and obligations, in which case the balance represents a decrease registered in your Public Account at the end of the immediately preceding fiscal year, as well as fund management of natural disasters and pensions.


The remainder would be earmarked for public investment projects through a fund to be set up for this purpose, so that the appropriate resources are exercised later than the immediately following year or the creation of a fund to supplement a possible declining revenue in the future (Article 14).This principle seeks to improve the sustainability of public finances and at the same time, avoid new spending with revenue not generated regularly funded.


• If during the fiscal year decrease expected income for the fiscal year, the adjustment shall perform the states (Article 15) are set.


In this regard, an order of priority is determined to make adjustments to expenditures, beginning with media spending and operating expenses, before affecting the priority programs of the government. In the latter case, there will always be taken not affect social programs.


• the obligation for the local Executive, making the estimated budgetary impact of proposed laws or decrees submitted to the local legislature, as well as provisions involving administrative costs for implementation (Article 16) is expected.


This, in order that the cost of implementing a regulation submitted to the local legislature, is identified and undoubtedly a factor for decision-making in the approval process.


Similarly, it is proposed that any bill or decree to be put to the vote in plenary of the local legislature, in its opinion should include an estimate of corresponding budgetary impact of the project.


• Finally, this chapter regulation on federal resources with specific destination, the end of the fiscal year have not been disbursed by the states and municipalities (Article 17) is expected.

Friday, September 18, 2015

Mexico spent about 0.7 % in Public Security

From El Financiero Opinion in Spanish:
http://www.elfinanciero.com.mx/opinion/seguridad.html

As we saw on Friday, we are in financial difficulties and all politicians are partly to blame. I do not think that serves to criticize anyone, but rather analyze what we want the government to spend and how we finance it. I think it's a good idea to start by what we think the government should do, to see how much it would cost, and then decide whether we are willing to pay it, reduce it or prefer obligations.


I do not think there is much doubt that the primary role of government is security, both nationally and that of their inhabitants, in which we include the administration of justice. And then we can discuss other things, from education to the entrepreneur government, but first we have to solve it, which is a current problem, not just a theoretical approach.


It is not easy to know how much should the government spend on national and public security, because much depends on what goals we seek. So I think we should make an international comparison, especially in countries where these items work well.


As you know, Latin America is the most violent continent in the world, so I'm not sure that the comparison should be between us. According to Eurostat, the average expenditure in the European Union's law enforcement round three points of GDP. Two of them are for police and the other goes to courts and detention centers.\


Something similar happens in the US, where spending is just over 2.0 percent for all this. In Mexico spent about 0.7 percent from the federal government, and perhaps half that between states and municipalities. Say a point in total, half of what developed countries spend.


On the side of national defense spending it is also difficult to define. The oil-rich countries in the Middle East, for instance, spend between 5.0 and 10 percent of its GDP in this field. It is understood, because practically have a single source of wealth, oil, and must be looked after. Out of them, spending ranges from 3.0 to 5.0 percent of GDP in countries with significant military tradition, from the United States, Russia, China and much of Western Europe to Chile, Colombia or Ecuador here in Latin America. Brazil round 1.5 percent. We, after significant increases in recent years, nearly came to 0.6 percent of GDP.


This means that while most countries allocated about 5.0 percent of GDP to national security and internal order, we just surpassed 1.3 percent-not the third party. The results are very clear: the local police have no preparation or materials, or incentives to pursue his work, no social safety net; the military can deal with organized crime, but barely, and only in certain parts of the country. They can not take whole areas, because they have enough troops. The courts in Mexico can not keep up to address issues that have, over the same ends subordinates with low wages and large discretionary space, and corruption is rampant.



In this, I think, no way out. Or we multiply by three security spending, or we can never have what they call the rule of law. Certainly not enough to spend more, but it will be impossible without it. While the anti-corruption system is driven, it is essential to proceed with the construction of better public safety, delivery and administration of justice, and social rehabilitation. There are examples in many parts of the world, there is much more efficient techniques. Foul we want to do, and we are willing to spend what it takes.

Wednesday, September 02, 2015

Come to our APSA Poster Session in San Fran Sat 8AM




Paper prepared for the 111th American Political Science Association (APSA) Annual Meeting, held in an Francisco, California, Sept 3-6, 2015.

Sustainable Financial Management of Local Capital Markets: A Cross National Comparison between China, Mexico, South Korea and the United States

Sept 4, 2015



Heidi Jane Smith
School of Policy, Government & International Affairs
SPAGIA
George Mason University


Sanghee Park
Department of Public Policy and Administration
School of Public Service
Boise State University

Liguang Liu
School of Government
Central University of Finance and Economics (CUFE)
Beijing, China




ABSTRACT

This study aims to explore what determines subnational debt levels and sovereign financial sustainability. Scholars argue that subnational fiscal capacity help local governments deliver better public services and provide public goods, which in turn helps to promote economic growth. The paper comprised of two parts: The first provides solid understanding about the characteristics of administrative structure, management of subnational government debt, and structure of debt portfolio of each country. In the second part, we test our hypotheses focused on the distinct difference in the administrative structure, fiscal capacity, and political-economic factors.  This study finds that even with distinctive levels of administrative abilities and management styles, historical legacies of how local governments operate determines how governments manage their debt policies.


Keywords: subnational government debt, local finances, administrative structure, fiscal capacity, financial management

Symposium on Behavioral Approaches to Bureaucratic Red Tape and Administrative Burden

CALL FOR PAPERS Public Administration Review Symposium Editors: Christopher Carrigan, The George Washington Universit...