Efficient revenue cycle management in local governments: a driver for public value creation

In a landscape such as the current one where social inequality is becoming more and more prevalent, operating from the perspective of intergenerational equity cannot disregard the management of collective resources entrusted to the multitude of public institutions that are geared toward the creation of public value. Public entities, especially at the local level, are called upon to efficiently manage the resources at their disposal in order to meet the needs of all stakeholders.

To this end, focusing on revenue collection capability represents not only a potential strategic tool to cope with scarce resources, but also an opportunity to implement innovative experiences of good administration. Considering the municipal revenue cycle through a public management lens, without being bound by outdated ideas, can be a driver for the development of local communities and the spread of social solidarity, legality and equity. An innovation project by Tiziana Vinci, Manager of the Financial Service of the Municipality of Alcamo and alumna of the 18th edition of EMMAP, Executive Master in Management of Public Administration,  exemplifies this. Through the implementation of a change management process in revenue management, a virtuous circle is triggered in the withdrawal of resources from the community. This in turn triggers a procedure of efficient use of allocated resources, thus allowing improved response to the needs of the administered area.

The project, which quickly turned into a case study/intervention aimed at analyzing the results from both a practical and theoretical perspective, stems from the urgent need to equip local authorities with public governance mechanisms and operational tools capable of making more resources available to facilitate the provision of better services in terms of quantity and quality. This is particularly relevant in the post-pandemic period when there is a greater demand for social, health, educational, cultural, sports and recreational poverty alleviation services. The path implemented aims at the growth of public value and perceived well-being of the target communities and it is aimed at reducing the tax gap and increasing compliance with tax obligations, even in disadvantaged areas.  

The results of the project and their relevance to the debate on how to represent revenue in local government budgets were the subject of a presentation at the 40th AIDEA National Conference held last Oct. 5-6 in Salerno, Italy, as part of the Track "Public Value: Models, Experiences, Challenges and Opportunities in PAs and Spin-offs,”. It garnered positive feedback from the Italian academic community not only for the results it achieved in terms of revenue recovered, but also for the sense of possibility it restores with respect to the area in which it looked into, which was Sicily in this case. Sicily has a lower rate of revenue collection than the national average (about 5 percentage points difference in the period of 2016-2022) and a significantly lower rate of current spending through its own revenues than in mainland areas (57 percent in the islands versus an average ranging from 95 to 99 percent in southern, central and northern regions).

A number of mechanisms were implemented: economic levers (profiling of insolvent taxpayers, offsetting of debts and credits), regulatory levers(suspension of licenses in the presence of tax irregularities), technological levers (investment in a management application to support the revenue cycle monitoring activity and development of a set of monitoring indicators); organizational levers (definition of the goal of improving collection capability as a strategic objective, commitment of the political body, reorganization and digitization of the collection process with also the application of nudging techniques, creation of a trained and dedicated cross-sectoral team, collaboration according to power-influence criteria with key stakeholders); social levers (information and training activities in schools on public finance and ethics, public event for sharing the results achieved in terms of increased revenue collected and the way of allocation of recovered resources).

The combination of these levers led to the recovery of more resources, totaling 400,000 euros, to finance current spending. It also freed up investment resources previously tied up in the Doubtful Receivables Fund to the tune of 700,000 euros. The collection rate improved by 3 percentage points, ranking above the provincial and regional average. Another positive effect is the management of residual assets: the disposal rate increased from 11 percent to 17 percent, while the rate of formation of new residuals decreased by 3 percent.

For years, academia and field practice have focused on identifying techniques aimed at the timely detection of costs in order to identify "non-linear" room for maneuver in containing spending. The experience of the Alcamo municipality illustrates how innovation often consists of looking at things from a different perspective.

SDA Bocconi School of Management