Finance

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What Is Public Financial Management?

Mary McMahon

Last Modified Date: February 09, 2024

Public financial management is the administration of funds used to deliver public services. Depending on the level of government and the specific nation, these can range from water and sewage service in a city to a national health plan. This is a special field within the larger discipline of financial management, focused on delivering services as effectively and efficiently as possible to maximize benefits to residents. Specialists in this subject can participate directly in agency administration as well as legislation, policy development, and enforcement of regulatory frameworks used to control public expenditures.

Governments provide a variety of services to citizens to improve quality of life and the function of society. These can include emergency services like firefighting, law enforcement, and medical care, along with infrastructure such as roads and an electricity grid. Education, business grants, and other measures to improve communities are also part of public finance. Vast sums of money can be involved and managing these responsibly ensures that funds will continue to be available while the greatest number of citizens possible benefits from government activities.

In the discipline of public financial management, people look at documented needs and expenditures for different public services. They can perform analysis to identify areas of greater or lesser efficiency. Some programs may be ranked by importance to prioritize spending. For example, a government may want to allocate funds to law enforcement before arts programs to ensure that social order is maintained.

Sources of revenues for public finance activities can include taxes, fees, and fines. In public financial management, analysts prepare revenue projections and discuss ways to increase or manage revenues more effectively. These can include auditing or investigating for signs of fraud if these activities are likely to pay off in terms of higher revenue or less waste. Governments can also make investments to grow their revenues, under advice from financial directors who can decide how and where investments should be made.

There are some special concerns with public financial management that aren’t present with spending in the private sector. One is public accountability. Members of the public expect to see accounting to show how their money was collected and spent. They may participate directly in policy making at the polls, through petitions, and in lobbying measures targeted at specific agencies or legislators. Another issue is the need to balance the public good, and what will benefit most people most of the time, in public financial management.

Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Mary McMahon

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Discussion Comments

Melonlity

January 1, 2015

@Melonlity -- Sure private companies could offer those major trash pick ups and deal with recycling. Those are called services that companies offer in hopes of besting the competition. That is called capitalism and consumers benefit from competition almost every single time.

You do make a good point about cable companies, though. Those end up being natural monopolies, so the question is who gets to run them? I realize you prefer big companies to run them, but I don't know about that.

I subscribe to a cable service run by one of those national companies and I get a headache whenever I want to question something about my bill, want to add more channels or have service outages. If my cable company was owned by the city, at least I could go to a local office and yell at someone when I had a problem.

Terrificli

January 1, 2015

@Logicfest -- Well, you do have a problem when cities run services. Take your trash service example. Having a bunch of competing trash companies may be good for rates, but what happens if the city wants to institute a recycling program? How about a "big item" trash pick up day where citizens get to leave anything they want on their lawns and those items will he hauled off to the dump?

It might be possible to arrange those things with a bunch of independent carriers, but it would be difficult.

Meanwhile, let's talk about that cable company. I don't know if giving a city a monopoly on one of those is a good idea. You never (or rarely, at least) see more than one cable company in a city. Frankly, I'd rather have that one cable be a big company that can give me low rates because it has the purchasing power to buy programming for cheap than a city owned company that doesn't have that advantage.

Logicfest

December 31, 2014

@Soulfox -- No losers? I don't know about that. Consumers benefit when there is competition. That is just capitalism 101.

Let me give you an example. I live in a city that doesn't even provide trash service. We have about 10 private trash services, then, and each provides different rates and services. Our trash collection prices are low because there is competition. If prices go up, we can go to another carrier. You can't do that when it comes to services that cities run.

Soulfox

December 30, 2014

I once lived in a city that provided a lot of unique services. Sure, you had the typical water, sewer and trash services, but you also had electricity and cable. The result of all that was that taxes were low because the city made a killing off of cable and electricity.

There are just some things the government is better at doing than the private sector. I would say providing electric and cable service are a couple of those things. We had reliable service, low taxes and reasonable rates. Everyone won.