- Apr 30, 2023
- 2 min read
While running a city is somewhat different than running a company there are universal qualities in leaders that are transferable across the private and public sectors. Similarly, there are fundamental goals that the private and public sectors must always keep top of mind: the private sector is driven by maximizing profits, and the public sector is guided by maximizing public good.
In the private sector, companies sell goods or services to cover the costs to run their business operations and make a profit. In the public sector, cities use public revenues to pay for: "parks and recreation services, police and fire departments, housing services, emergency medical services, municipal courts, transportation services (including public transportation), and public works (streets, sewers, snow removal, signage, and so forth)." In the news we often hear that the public sector is funded by our "taxes," but local government revenue is a little more complex than that, it can come from "property, sales, and other taxes; charges and fees; and transfers from federal and state governments and municipal bonds.
Just like most companies seek to become great companies, most cities seek to become great cities, and just like some companies may get confused along their path, some cities do so as well. I recently re-read some classic Peter Drucker and saw how his advice to companies seeking to become great companies in his Management: Task, Responsibilities, Practices, also provides a cautionary tale for cities as cities levy to position themselves as the best cities to live, work and play in.
For the private sector Drucker asserts that "profit" is a strategic necessity rather than the ultimate end goal, when he said: "Business cannot be defined or explained in terms of profit...The concept of profit maximization is, in fact, meaningless...The first test of any business is not the maximization of profit, but the achievement of sufficient profit to cover the risks of economic activity."
Similarly, by just changing a few words to the classic quote here is my take on how we can apply this management concept to cities as they turn to local taxes to ensure that the revenue from those taxes can cover the costs to keep the city looking beautiful, maintain good roads and parks and have reliable utility services across the city: "Cities cannot be defined or explained in terms of city tax revenues from land use...the concept of city revenue maximization is, in fact, meaningless...the first test of any city is not the maximization of city tax generation, but the achievement of sufficient public good for all to cover the risks of economic activity."
Just for fun: if you're interested in seeing how your city's revenue sourced the Government Finance Officers Association has created revenue sources for cities with populations over 10,000 people.
