The Implementation and Utilization of Stabilization Funds by Local Governments in Massachusetts

This paper examines the management of stabilization funds by local governments in Massachusetts. It assesses the implementation and funding of stabilization funds and explores how they were utilized to respond to a midyear reduction in state aid. We find that stabilization funds correlate weakly with unreserved general fund balances. We also construct multiple regression models to predict stabilization and general fund balances. We surmise that communities have either implicit or explicit financial management strategies in which slack resources play more than countercyclical roles. Further research is needed to determine the role of stabilization funds in local government financial management strategies.