CARNEGIE INSTITUTE OF TECHNOLOGY COMMITTEE ON GRADUATE DEGREES IN THE SOCIAL SCIENCES AND INDUSTRIAL ADMINISTRATION DISSERTATION Submitted in partial fulfillment of the requirements for the degree of Doctor of Philosoohy in Industrial Administration. A COMPUTER SIMULATION MODEL OF MUNICIPAL RESOURCE ALLOCATION by John P. Crecine Approved by the Dissertation Committee (Signed) Herbert A. Simon May 31, 1966 Professor Herbert A. Simon, Chairman Date Approved by the Committee on Graduate Decrees in the Social Sciences and Industrial Administration (Signed) R. M. Cyert May 3 i. , 1966 Chairman Date PPJ*7? ACE This report contains a description of a particular kind of governmental decision making “ the decisional behavior con­ nected with municipal operating budgets. The theory is stated in the lan^ua^e of a computer nro^ra i, The ^odel of govern— nental problem solvin^ in ap^li-rsd to the cities of Cleveland, Detroit, and Pittsburgh* The Model, with appropriate parameter estimates, is used to reproduce operating budget decisions in the three cities* In addition various naive nodels are tested and then compared with our decision Model (Section 6). Analysis of model residuals (Section 7) and a sensitivitv analysis of some model parameters (Section 10) • is used to study "unpro^rnmmed" aspects of budgetary behavior. The formal Model (presented in Section 4) is also related to various theories of individual and organizational behavior in Section 9. The behavioral antecedents of the model are discussed in Section 5* Implications o r the study for political research are touched on in Section 11 and our positive model forms the basis for a normative discussion of municipal resource allocation in Section 12. Acknowledgements I am deeply indebted to the members of My disertation com­ mittee. Professor Herbert A. Simon, the chair1 van, provided me with a n;reat number of insightful and provocative ideas , not only in iii reference to the dissertation, but for the entire ran^e of the social sciences* Professor Otto A. Davis, in addition to the invaluable, general encoura^enent, has ade ^reat efforts to ret -e to saarnen py thinking on a number of issues* Tinothv c^uire has exerted a sinilar influence with rasnect to the statistical issues involved. The final,of f icial ne: d>er of the co^nittee T>rofessor Hichard T. Cyert, has provided the kind of general suooort and encouraperient over a loiv^ ierio ■ of tine, that has been luch nore inportant than he nrooably realizes. Mavinp access to the University of Pittsburgh conputaticn center Mien the alternatives uere unnroductive,is one exanple of this* I would be esDecially reniss if I did not acknowledge the influence and encouragement of the nan who introduced ^<e to the "non-casual11 study of nolitical phenomena, Professor James C* '"arch, the initial aenber of ny cor-riittee. I feel extrenely fortunate to have had the advise and counsel of this rrroun. In a study of this nature, success (or the onnortunity for it) is largely dependent on those individuals studied. Individually and collectively, the ^overnnental decision nakers encountered in this study rerit a ^reat deal of thanks. In Detroit city ^overn- nent, A.1 Teague of the 'jud^et 'ureau snent nanv productive (froi my standpoint) hours with t?q and readily sunplied necessary data* Alfred f. Pelhan, forner Controller of Detroit and of Tayne County, ^raCiously shared his exneriencc ^-jitl- we* Also very helpful in Detroit were Pichard Strickhartz, Controller, and i>ob ^ueller of the Citizen1s Research Council. In Cleveland, James A. orton, res. of Greater Cleveland Associated Foundations kindly provided access to the necessary information. Edward Knuth (Director) and Palnh T. runtz in the Department of 7inance were very cooperative. In ^ittsbur^h, I was exceedingly fortunate in bein^ able to sneak freely with the mayor, Ton. Joseph 7>arr. The Tayorfs Secretary, Aldo Colautti, provided -e with several hours of pro­ ductive conversation and ^enerouslv allowed ne to browse through the departnent request files. David Crai;, then City Solicitor and presently Director of Public Safety also provided me with a frreat many favors and valuable information. Calvin il. Hamilton, former City Planning Director (now with Los Anrelos), has, during the period I have known him, provided me with a ^reat deal of insight into the workings of government9 as has Richard K. Guenther (formerly with Pittsburgh’s City Planning Department). rfithout the willingness of these men (and a lar^e number of their colleagues) to provide necessary background and information, this report would not have been possible. The computer work for the dissertation has been carried out at the Carnegie Institute of Technology (0-20 and 7040), the Univer­ sity of Pittsburgh,(Iin 7094), and the University of ^ichi^an (7090). The experiences at these four installations have taught ne to v deeply appreciate the conditions found at the University of Pittsburgh (and acknowledge the assistance of Ted Van former) and at the IBM 7040 installation at Carnegie Tech. Any research effort of the nature presented here is dependent on the <»enerous financial assistance of various parties. I *»reatfullv acknowledge the sunnort, at various tines, of the Ford Foundation, the Richard Irwin foundation, Carnegie Institute of Technology, and nore recently, The Institute of Public Administration at the Universitv of Jichi an (Ferrel ’leady, director). The physical task of preparing and reoroducin" a docunent of this length is enormous, "ithout ny very able and dedicated typist, "iss Judy Brunclik, deadlines would not have been net and my work would have been increased substantially, "iss Bruneiik was invaluable. ' iss -loseviary Conte also deserves special thanks for helnin" ease the load. To !rs. Betty lenrv, who unsuspectingly volunteered to reproduce and assenble the final copy, ^oes ">y deepest thanks. John Patrick Crecine vi CONTENTS Section 1 INTRODUCTION 1 Importance of Municipal Finance 3 Scope of Study 5 Existing Theories 6 Organization of Report 12 2 CONCEPTS OF BUDGET 17 Budgeting as an Externally-Determined Event 23 Budgeting as an Internal, Bureaucratic Process 28 Overview of Theories of Budgetary Behavior 37 3 RESEARCH STRATEGY 40 Theory Formalization 43 Computer Programs and Problem Solving Process 44 Computer Simulation and Municipal Budgeting 46 Hypothesis Construction 50 Data Collection 51 Budget Categories 52 4 FORMAL MODEL 55 Overview 55 Scope of Model 59 DEPT. Submodel 63 MAYORS Submodel 70 Revenue Decisions 71 COUNCIL Submodel 88 Submodel Interdependence and Feedback 96 5 BEHAVIORAL ANTECEDENTS OF THE MODEL 99 Problem Perception 100 Problem Partitioning 101 Governing by Precedent 103 DEPT. Submodel 105 MAYORS Budget Recommendation Model 112 Wage and Tax Policy 122 COUNCIL Submodel 126 vii Section 6 EMPIRICAL TESTS -- CLEVELAND, DETROIT, AND PITTSBURGH 132 A. Parameter Estimation 132 l.a. Revenue Estimates 135 2. Submodel Parameter Estimates 136 a. DEPT, Relationships 142 b. MAYORS Relationships and Parameters 150 c. COUNCIL Relationships 152 B. Model Tests 159 1. Model Runs 163 2. Measures of Goodness-of-Fit 166 a. Alternative Models 171 b. Choosing between Alternative Models 173 c. Goodness-of-Fit Tests 177 d. Pittsburgh GOF Tests 179 e. Cleveland GOF Tests 187 f . Detroit GOF Tests 196 Overall Goodness-of-Fit 219 UNPROGRAMMED BUDGETARY CHANGE AND POLICY SHIFTS 229 A. Invisible Organizational Change 231 1. Increases in "Effective Budget Ceiling" 232 a. Increases in Available Revenue 234 b. Increases in Agency Efficiency 235 Detroit’s Budget Bureau 236 B. Visible Organizational Changes 238 1. Incremental Change-Cumulative Nature 239 2. Non-incremental Change- Unprogrammed Decisions 241 a. Model Deviations to be Examined 241 b. Rationale for Model Deviations 242 3. Analysis of Residuals 244 a. Detroit 245 b. Cleveland 254 c. Pittsburgh 267 General Patterns of "Policy Shifts" 274 viii Section C, Long-Run Characteristics of Budget Process 278 1. Model Drift 278 2. Causes of Model Drift 280 3. Observed Environmental Corrections in Drift 280 8 REPRESENTATIVENESS OF SAMPLE 284 A. Applicability to Central Cities 285 1. Political Characteristics 285 2. Economic Characteristics 290 3. Population Characteristics 293 B. Applicability to Other Levels of Government 293 1» Smaller Municipalities and Local Governments 245 2• State and Federal Governments 299 3. Other Nor-market Organizations 301 9 BUDGETING FROM DIFFERENT VIEWPOINTS 307 1. Budgeting as an Externally Determined Event 307 Parameters and "Influence" or "Demands" 309 Informational Inputs as External "Influence1* 313 Literature 314 Summary 316 2* Budgeting as Internal, Bureaucratic Process 321 Literature 321 1. "Conflict" Models 323 a., "Paw" Conflict 324 be "Log-Rolling" 327 2. Budget Formation as Problem- Solving and as a Decision Process 330 a. Organizational Behavior 331 br Computer Simulation of Human Thinking and Problem Solving 345 "Profitable" Vantage Points 356 ix Section 10 SENSITIVITY ANALYSIS 358 A. Model Test — Administrative Constraints and Guidelines 360 1. Results 366 2. Conclusions - Role of Internal Constraints 369 B. Model Test — Revenue Constraint 369 1„ Results 371 2. Conclusions -- Role of Revenue Constraint 377 C. Summary 378 11 SUMMARY AND CONCLUSIONS 379 12 N0R?[ATIVE CONSIDERATIONS 383 APPENDIX I. Parameter Estimation Procedures A-l II. Administrative Units A-5 III. Model Parameters A-8 A. Cleveland A-8 B. Detroit A-10 C. Pittsburgh A-20 IV, Sample of Computer Program: Detroit - Fortran II A-30 V. Sample Model Output A-49 VI, Data Sources A-53 x SECTION 1 INTRODUCTION This is a study of the decision process surrounding municipal operating budgets for city governments in large metropolitan areas (cities with populations of over 500,000 located in metropolitan areas of over 1,000,000 population - roughly 21 areas in the United States). It will be shown that existing propositions or theories dealing with how municipal budgetary decisions are made (vs. how they ought to be made) are ambiguous and conflicting. They are ambiguous largely because empirical testing has not been undertaken for the few theories that are well-enough formulated to be so tasted.