Abstract
Local governments in Bulgaria have stable property rights regulated by the Constitution (1991) and the Municipal Property Act (1996). Municipalities own and use different types of assets to provide public services to local communities, but the effectiveness of local financial management is a controversial and topical issue. This chapter aims to analyze the financial performance of 18 large municipal companies for the period 2006-2020 by applying the Z-Score model. The results show that most municipal companies achieve profitability while providing a wide range of public services, such as water supply and sanitation, garbage collection, maintenance of urban infrastructure, management of municipal markets, construction supervision, investor and technical control, property management, geodetic services, and security services. At the same time, the municipal companies that provide district heating and urban transport and operate the municipal sports complexes are in poor financial condition and need appropriate measures to improve their financial performance.
TopBackground
Commercial companies are considered the backbone of the economy. Alongside private enterprises, there are some enterprises owned by local authorities that are set up to provide various public services and generate income for local communities. Although economic activities are seen as the domain of the private sector, municipal enterprises are expected to engage in three types of activities, as follows: (1) activities that are beneficial to society but not profitable for private companies, (2) activities that are profitable but private companies fail to perform them, and (3) activities related to the so-called natural monopoly. In theory, the main purposes of municipal enterprises should be to provide essential public services, improve social welfare and promote the development of the local economy, but in practice, municipal enterprises can also strive for economic efficiency by delivering goods and services on a cost-effective basis, thereby generating significant revenue for local budgets. Furthermore, after the liberalization of markets for public service provision, the pressure on local public enterprises to demonstrate their performance in financial and nonfinancial terms has increased. To some extent, expectations and demands on public enterprises are even higher because of their public ownership and mission to protect the public interest (Greiling & Grub, 2015).
Key Terms in this Chapter
Effectiveness: The ability to be successful and achieve desired results. The extent to which the intended objectives are achieved.
Public services: Services offered by the government that help all members of the community.
Municipal Company: A business owned by a local government that provides services and usually generates revenue for the local community.
Z-Score Model: A model designed to assess the financial stability of various types of companies based on a combination of financial ratios.
local government: The lowest tier of public administration within a particular sovereign state.
Profitability: The ability of the business to generate a high return on investment.
Public utilities: Government-owned and operated enterprises that provide public goods and services considered essential to the community, such as water, sewage, natural gas, electricity, heating, solid waste disposal, transportation, etc.
Local Financial Management: The practice of managing local government finances in a way that enables it to be successful and compliant with regulations. It is aimed at optimizing the financial and economic benefits for the local community.