URBS 615—Professional Seminar
Tools of Government Ch.
3: Government Corporations & GSEs
Defining the Tool
These tools are either part of government or an
instrumentality of government that are created to carry out a public
purpose.
- Criteria: Based on Harry Truman’s 1948 criteria
for creating government corporations, they should be
- Of a
business nature
- Revenue-producing
and potentially self-sustaining
- Involve
a large number of business-type transactions with the public
- Require
a greater flexibility than the customary type of appropriations budget
ordinarily permits
- Government Corporation: A government agency, owned &
controlled by the government, but established as a separate corporate
entity legally distinct from the rest of the government (of which it is a
part)—sort of a “wholly owned subsidiary.”
Examples: Port authority,
housing authority
- Generally
not suitable for “sovereign” functions
- “Off
the books”—not subject to appropriation and budget limitations of the
rest of the unit of government
- Should
have a single administrator, rather than a board of directors (absence of
shareholders defeats the accountability of a board of directors)
- Needs
influential constituency to demand high performance of public purpose,
but not so influential as to undercut reasonable accountability
- Likely
to focus on financial returns, perhaps to detriment of public purpose
- Likely
to be resented by potential competitors in the market
- Profitability
likely to be undercut by more nimble and flexible market-based
competitors. The market will tend
to “skim the cream” from the customer base.
- Charter
should specify periodic reauthorization
- Government-Sponsored Enterprise (GSE):
A chartered, privately owned and controlled institution with
statutory privileges (such as tax benefits, regulatory exemptions, reduced
cost of borrowing). Constrained by
charter to serving specific market segments through limited range of
services. Examples: No local government examples given
(Fannie Mae & Freddie Mac mentioned most often).
- Need
arises because some market imperfection limits ability of private sector
to otherwise meet an important public need; if no market imperfection, a
GSE will not flourish without heavy subsidies.
- Can
leverage its shareholder capital more heavily, due to regulatory relief
- May
be organized as investor-owned or as cooperatives. To limit monopolistic tendencies,
i.
Coops will not compete with member-owners
ii.
Multiple grants of charter will constrain
investor-owned model.
- Creates
risk of financial exposure to sponsoring government
- To
limit risk that financial gain
displaces public purpose (stockholders’ needs will be served first by
managers), may
i.
Define (and regularly adjust) activities authorized in
charter (but stockholders will also be attempting to adjust charter toward
profitability)
ii.
Vest a government agency with power to require specific
public service
iii.
Require that a fixed percentage of income serve public
purpose
- As
GSE develops, the market should mature and might make government
sponsorship unnecessary.
Therefore, all GSE charters should include a sunset provision
(10-20 years).
- “Sorcerer’s
apprentice” problem—once GSE uses government benefits to gain market
position, government loses ability to control it.
Using
the Tool
Government
Corporations
|
Government-Sponsored
Enterprises
|
1. Identify public
purpose & functions
|
1. Identify public
purpose & functions
|
2. Determine (eventual)
financial self-sufficiency
a. determine fund source if not
self-sustaining
|
2. Determine
financial profitability
a. determine that market cannot do it alone
b. estimate cost of special privilege
c. unprofitable public-purpose activities—
require support? Or
create tandem
government program?
|
3. Determine
organizational location
|
3. Determine
a. oversight for financial safety
b.
oversight for continuing service
c, exit strategy
|
4. Draft a charter
& enact legislation
|
4. Draft a charter
& enact legislation
|
5. Establish
operating structure
a. appropriation for first year of operation
b. appoint chief executive & other
officers
c. appoint other officials of the corporation
|
5. Establish
operating structure
a. create interim board of directors
b. sell stock in GSE
c. hold stockholder election of first board
d. appoint chief executive & other
officers
e. appoint other officials of the corporation
|
6. Begin operations
|
6. Begin operations
|
© 2004 A.J.Filipovitch
Revised 9 February 04