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.     

Substitution and Supplementation Between Co‐Functional Policy Instruments: Evidence from State Budget Stabilization Practices

Governments often use multiple policy instruments for pursuing policy goals with mutually reinforcing effects. These effects include supplementation and substitution. This article examines both effects by studying two instruments of state budget stabilization policy: general fund balances and budget stabilization funds. States normally maintain budget surpluses in the general fund. In recent decades, many also created separate budget stabilization funds to guard against economic downturns. Empirical results show that substitution occurs between these instruments. In other words, the influence of the first instrument is partially offset by the second. The second instrument also produces some independent impacts—called supplementation—that increase the overall influence of both instruments. Such self‐reinforcement decreases over time, suggesting that multiple policy instruments are most effective in the initial stage of application.     

Simulating Massachusetts Municipalities' Recession Readiness: Early Warning of a Perfect Storm?

We simulate effects of two recessions on Massachusetts municipalities in light of their relative dependence on state aid, capacity to increase property taxes under Proposition 2½ constraints, growth, and nondiscretionary costs. We also explore the efficacy of local government stabilization funds in light of current literature on stabilization funds, slack resources in general, and the state–local fiscal relationship. We found substantial variance in Massachusetts municipalities' recession readiness. Fifty‐five (16 percent) municipalities have insufficient resources to weather a severe recession scenario without significant sacrifice due to reliance on state grants‐in‐aid, low property tax revenue growth, erosion of property tax revenue increments by increases in nondiscretionary expenditures, and inadequate stabilization funds.     

The Role of Slack in Local Government Finances

The research presented here adopts an organizational approach to develop three regression models that examine why local governments accumulate slack in the form of unreserved fund balances, and what is the impact of slack resources on local governments' short‐term fiscal conditions and decisions about spending and revenues. Using data on Chicago suburban municipalities and their governments, the first model estimates the effects of long‐term and short‐term conditions (fiscal and governing) on unreserved fund balances. The second and third models examine the impact of slack resources and other factors on year‐end deficits or surpluses and changes in spending and own‐source revenues. The results show that ending balances, expenditures (size), and long‐term fiscal conditions have the greatest effect on fund balances, and that slack and current fiscal conditions have the greatest effect on ending balances and changes in revenues and spending.     

The Right Mix? Gender Diversity in Top Management Teams and Financial Performance

Recent research has illustrated that demographic diversity influences the outcomes of public sector organizations. Most studies have focused on workforce diversity; by comparison, little is known about how managerial diversity affects organizational outcomes. This article focuses on gender diversity in the top management teams of public organizations and its relationship to financial performance. Theory suggests that management diversity can be a positive asset for organizations, allowing for the use of more diverse knowledge and human skill sets. Results of this study, however, suggest that organizations may only be able to leverage these advantages if they have a supporting management structure. In a longitudinal study of top management teams in Danish municipalities, the authors find that gender diversity in top management teams is associated with higher financial performance, but only in municipalities with a management structure that supports cross‐functional team work. These results are interpreted in light of existing theory, and implications are suggested.     

State Rainy Day Funds and Fiscal Crises: Rainy Day Funds and the 1990–1991 Recession Revisited

The recession of the early 1980s prompted many states to establish budget stabilization (rainy day) funds. Initial examinations of rainy day funds find a limited impact by the funds in alleviating fiscal stress. In this article, we propose an enhanced model of rainy day fund impact. Using data from 48 states for the 1990–1991 recession, our analysis indicates that the presence of a number of structural factors and the maintenance of generally large balances in other funds entering recession helps to alleviate fiscal stress when a state's economy is in recession.     

Financial planning in metropolitan municipalities—lessons for South Africa from selected countries

In South Africa, municipalities are central to government's service delivery efforts to its communities. Because of inadequate revenue collection processes or impoverished communities that are unable to supply necessary operational revenues, both national and provincial government need to transfer funds to the local government to achieve delivery of priority services and economic development infrastructure. This study investigates, through a desktop study, the best financial planning practices for municipalities to implement in order to be financially viable, by reviewing and comparing the legislative and legal frameworks relating to financial planning and the financial planning practices in Australia and New Zealand, whose legislation served as an example for the drafting of current South African legislation. Copyright © 2014 John Wiley & Sons, Ltd.     

Do Municipal Mergers Improve Fiscal Outcomes?

Improved fiscal management is a frequent justification for promoting boundary consolidations. However, whether or not this is actually the case is rarely placed under rigorous empirical scrutiny. Hence, this article investigates if fiscal outcomes are improved when municipalities are merged. The basic argument is that the conceptualisation of fiscal management in political science is often too narrow as it focuses on the budget and pays hardly any attention to balances in the final accounts and debts – elements of management which are central to policy making. On this background, the causal relationship between municipal mergers and fiscal outcomes is analysed. Measured on the balance between revenues and expenses, liquid assets and debts, municipal mergers improve the fiscal outcomes of the municipalities in a five‐year perspective, although the pre‐reform effects tend to be negative. For liquidity and debt, however, the improvement only entails re‐establishing the levels prior to the reform. The testing ground is the recent mergers of Danish municipalities, which, it is argued, constitute a quasi‐experiment. This forms the basis of a Difference‐in‐Difference design, allowing the alleviation of endogeneity problems and enabling causal inference. The analysis is based on administrative data from the Danish municipalities in the period 2003–11.     

What's So Magical about Five Percent? A Nationwide Look at Factors That Influence the Optimal Size of State Rainy Day Funds

State rainy day funds have increased in popularity as countercyclical planning devices over the past 15 years. The view is widely held that all states need a rainy day fund balance of five percent in order to guard themselves against the threat of budgetary dislocation. This article compares the actual balances in state rainy day funds in 1997 to several factors affecting budgetary volatility. Little relationship is found between rainy day fund balances and the actual level of volatility in a given state. The article finds no justification for a "one size fits all" approach; each state should design policies based on its own peculiar needs.     

Determinants of the assignment of EU funds to Portuguese municipalities

The paper examines the determinants of the assignment of EU funds to Portuguese municipalities using a large and unexplored dataset covering all (278) mainland municipalities over 15 years. Empirical results reveal that besides normative objectives, political motivations also influence the distribution of funds by the national government across municipalities. Grants to municipalities increase during local election years, and more funds are transferred to municipalities where legislative elections have been closely contested and where the ruling national party had been supported by voters.     

Budget Slack,Institutions, and Transparency

Economic theory suggests that it is optimal for governments to use precautionary saving as a countercyclical tool. However, the availability of surplus funds often triggers political pressure for tax cuts and spending increases. Mechanisms for alleviating that pressure include limiting the transparency of slack resources and limiting politicians’ discretion to use slack resources for purposes other than stabilization. This article investigates the extent to which these two mechanisms are substitutes. In particular, the authors examine whether the widespread adoption of budget stabilization funds (BSFs) in the U.S. states over the past several decades has been accompanied by a decline in conservative revenue forecast bias. Using panel data from 47 states over a 22‐year period, they find that the adoption of a BSF reduces revenue underestimation by approximately two‐thirds; however, the size of the effect depends in part on how much a state saves in the BSF and the rules governing BSF deposits and withdrawals. The results suggest that BSFs have the unintended effect of increasing fiscal transparency.     

DIFFERENCES IN LEARNING PRACTICES AND VALUES IN NORTH–SOUTH CITY PARTNERSHIPS: TOWARDS A BROADER UNDERSTANDING OF MUTUALITY

This article addresses twinning between local governments in North and South, contributing to the past decade's discourse on institutional twinning in this journal. Local governments have increasingly become recognised as relevant actors in international development cooperation through city‐to‐city cooperation structures, which have been praised as an effective mechanism for local government capacity building. This article discusses the learning practices and the extent to which new knowledge is valued and adopted by twinning participants in both North and South and moreover whether learning benefits are mutual. In a study of three partnerships between Dutch municipalities and partner cities in Peru, South Africa and Nicaragua, 36 participants were interviewed. The findings reveal that learning in city‐to‐city partnerships is not mutual between North and South and that the benefits of ‘shared learning’—a rhetoric commonly used in the twinning discourse—are limited. Instead, other opportunities for mutuality arise for Northern municipalities from political and strategic benefits, such as staff loyalty and motivation. Mutuality in twinning hence deserves a broader interpretation than learning alone so that twinning benefits can be identified and maximised for both North and South, keeping cities interested and motivated. Copyright © 2012 John Wiley & Sons, Ltd.     

The causes of legal rents extraction: evidence from Spanish municipalities

This paper analyzes the causes of legal political rent extraction by using a direct measure of it, namely, local top politicians’ wages. In particular, we investigate whether local politicians’ incentives to extract rents by setting their own wages are influenced by the degree of political competition and voter information. We use a sample of the largest Spanish municipalities over the years 2008–2010. The results indicate that weaker political competition and lesser voter information are related to more rent extraction. In an additional analysis, we show that higher wages do not ensure better financial management. These findings confirm that when politicians can set their own salaries, higher wages do not mean better management, but they are just political rents.     

Administrative reform in a changing political environment: The case of Hong Kong

Since 1989, the Hong Kong government has implemented a programme of public sector reform that is based on the principles of ‘new public management’. The reforms initially focused mainly on financial management reform, including delegating responsibilities for resource allocation; re-defining the roles of the central resource branches; setting up trading funds in departments that provide services directly to the public; and instilling a new corporate culture of service throughout the government. Some progress has been made in implementing the reforms. In 1993, the government realized that further civil service reform was necessary to support the reforms. The government proposed to delegate more authority to department heads on personnel matters; give managers more freedom to manage personnel; and simplify personnel regulations and procedures. These ‘new public management’-type reforms are usually associated with stable, relatively unchanging environments. In Hong Kong, however, the reforms have been proposed and carried out in an environment of considerable political turbulence which has both facilitated and hindered their implementation. Because of the declining legitimacy of the colonial government, British authorities may not have the political capacity to implement the reforms. Opposition from both department heads and civil service unions to aspects of the reforms has already emerged.     

Do Politicians See Eye to Eye? The Relationship between Political Group Characteristics,Perceived Strategic Plan Quality,and Strategic Consensus in Local Governing Majorities

Although strategic consensus is a core concept in strategic management research, empirical evidence is lacking on (1) the degree of strategic consensus in public organizations, (2) how strategic consensus is impacted by group characteristics specific to public strategic decision‐making groups, and (3) how strategic plans impact these relationships. An analysis of multisource data from 1,075 governing majority members nested in 256 Flemish municipalities (Belgium) indicates that within‐group strategic consensus varies among governing majorities and is negatively impacted by political diversity and political power, but these relationships are mediated by perceived strategic plan quality. The results indicate that the idiosyncrasies of public decision‐making groups can impede high levels of strategic consensus, but strategic plans can attenuate this effect by fulfilling a boundary‐spanning role.     

Do Political Similarities Facilitate Interlocal Collaboration?

This research examines the extent to which political similarities—that is, homophily between political actors at the local level—affect patterns of interorganizational collaboration in an emergency response situation. While the field of emergency management has focused on implementation‐oriented arrangements among key stakeholders, few studies have systemically investigated the creation and development of interorganizational collaborations led by political actors, especially following catastrophic events. The analysis reveals that a dyadic tie with political homophily boosts local responders’ ties with other agencies during emergencies. Findings indicate that political solidarity, formulated by chief elected officials of municipalities and council members, can broaden the scope of interorganizational collaboration by mitigating institutional collective action problems at the local level. This research presents a critical recommendation for emergency managers that interlocal collaboration for timely response to a disaster is attributable to political similarities that facilitate frequent interlocal interactions through formal and/or informal agreements.     

Fiscal Slack and Counter‐Cyclical Expenditure Stabilization: A First Look at the Local Level

There is a rich literature on how state governments use slack fiscal resources—most often in the form of rainy day funds and budget stabilization funds—to minimize the effect of economic downturns. This paper presents the first known examination of whether slack resources have the same counter‐cyclical effects at the local level. It uses a panel data set to determine whether one particular form of local fiscal slack, general fund balance, stabilizes current annual expenditures among a sample of 103 Minnesota cities from 1990 to 2000. The findings suggest different fund balance portions have marginal but nonetheless important effects on expenditures.     

Shaping Public Corporation Leadership in a Turbulent Environment

This article explores how public corporation leadership copes with a turbulent environment using political, managerial, and individual leadership elements. It is an in‐depth case study of Lee Ji‐Song, who effectively managed the politically and managerially challenging environment that resulted from the merger of two large public corporations into the Korea Land and Housing Corporation. Lee, an engineer, manager, and chief executive of a major construction company, took advantage of his political, managerial, and individual leadership capital to cope with political challenges from lawmakers and with managerial challenges such as postmerger integration management, organizational stabilization, and financial improvement. The authors suggest that an effective public corporation leader must be a skillful politician and businessperson, as public corporations often operate in an environment in which public and private values interact.     

The Determinants of the Structure of Rainy Day Funds

This article investigates the factors that determine the configuration of budget stabilization funds, also known as rainy day funds, along their two most important dimensions: deposit and withdrawal requirements. These funds are created to accumulate savings in order to reduce the impact of adverse fiscal conditions during downturns. The effectiveness of such funds depends greatly on their institutional structure, and yet most states choose configurations that compromise their efficacy. Using multinomial discrete techniques, and introducing the ordered nature of the requirements in the analysis, the results of this study indicate that political and institutional factors such as the size of the house of the legislature and some strict institutions are associated with weak budget stabilization funds, while economic factors such as the volatility of state tax revenues are associated with stricter funds.     

The Optimal Size of Countercyclical Budget Stabilization Funds: A Case Study of Ohio

Ohio is one of several states that has instituted a Budget Stabilization Fund to serve as a tool to fight the impacts of economic fluctuations on state finances. The optimal size and rate of contribution to the fund are explored in this study. A widely accepted target of 5 percent of general fund revenue for the budget stabilization fund is found inadequate to provide any degree of normalization of state general fund revenue when Ohio's recent fiscal experiences are examined. An optimal size of close to 13 percent emerges as a more likely target for Ohio along with an annual contribution rate approaching 4 percent of revenues in average non-contractionary years.