How does intergovernmental fiscal environment affect general fund balances of major American cities?

This study explores the extent to which intergovernmental fiscal factors affect fiscal reserves in municipal general funds. Statistical results from panel data of 87 major cities in the US for the period from 1995 to 2010 show that cities facing more restrictive limitations on local property taxation tend to maintain higher levels of unreserved general fund balances. Additional analyses also show that fiscally constrained cities accumulate surpluses in their general funds. This is consistent with the proactive approach in which municipal governments make fiscal decisions with the awareness of expected state constraints on their revenue-raising capacity. We call for consideration of relevant intergovernmental constraints in the determination of appropriate level of fund balances for municipal governments.     

The impact of functional responsibility and state legal constraints on the “revenue-debt” packages of U.S. Central cities

State governments have the power to restrict the revenue and debt sources available to their municipalities. States also have the power to assign functional responsibilities to their municipalities - - some of which can be extremely burdensome financially (educatin; welfare; hospitals). This research examines the effect of these state constraints on: (1) the revenue-debt use patterns; and (2) the fiscal condition of 243 U.S. central cities (FY 1974, FY 1975, 1976).

The results show that the revenue/debt use patterns of cities vary signigficantly according to the restrictions imposed by the state on their taxing, borrowing, and functional responsibility powers. In addition, revenue/debt use patterns differ among ciites experiencing varying levels of distriess. Severely distressed cities are more dependent on external revenue sources (federal, state). They are less capable of generating revenue at the local level and are less flexible in their use of local revenue soruces, depending more hevily on the property tax and less heavily on nonproperty tax and nontax revenue sources than healthier cities. They are also found to be more reliant on full faith and credit (property tax-backed) long-term debt and on short-term debt than the more prosperous cities.

Cities in states imposing heavy restrictions on use of property tax and full faith and credit long-term debt sources but imposing few restrictions on municipa; nonproperty taxing powers are generally the healthiest fiscally. Such state policies have effectively enhanced municipal diversification of both traditional revenue sources and debt sources.

The major significance of this research is the demonstration that state governments have within their policy-making power the ability to affect the fiscal dependency level of their respective municipalities. An activist role is necessary on the part of state governments if they wish to increase their role in municipal fiscal affairs relative to that of the federal government.     

Municipal Responses to Fiscal Austerity: The Thai Case

This article discusses the use and determinants of fiscal retrenchment strategies of Thai municipalities during the FY 2009/2010 economic downturn. Based on a survey of over 900 municipalities, the author finds that Thai municipal government did not prepare itself for a declining economy. It mainly employed short-term strategies by cutting down line-item and miscellaneous spending rather than utilizing more fiscally sustained schemes such as increasing the revenue from untapped resources or applying more stringent budgetary control measures. Reasons for the fiscal adaptation were several but mainly stemmed from the declining fiscal conditions during the recession as exhibited by fund balance ratio and debt service payment. The findings indicate that Thai municipalities are running at fiscal risk due to inadequate preparation for economic fluctuation and suggest that a local fiscal surveillance system be put in place.     

Measuring horizontal fiscal imbalance: the case of Italian municipalities

In the literature on fiscal federalism, vertical fiscal imbalance has been widely studied, while the theme of horizontal fiscal imbalance and inequality among local governments, due to differences in their fiscal capacities, has been less explored. This article contributes to fill the gap. A new method to compute fiscal capacities based on regression analysis is proposed, which can overcome some of the drawbacks of traditional methods such as the representative tax system. This new approach is then employed to evaluate the fiscal capacities of Italian municipalities over the period 2002–2010. Finally two global measures of the horizontal fiscal imbalance are used to evaluate the equity implication of a major policy change occurred in 2008 in Italian municipal finance.     

Crucial Decisions By Small Towns and Villages: Why Did Some Municipalities Choose to Merge But Others Did Not During the Nationwide Wave of Municipal Mergers in Japan?

This article focuses on the nationwide wave of municipal consolidations in Japan that took place from 2003 to 2006 and examines why some municipalities merged but others did not. The central government did not legally force consolidations but instead provided municipalities with fiscal incentives. I argue that small municipalities were reluctant to merge because they would lose generous transfers from the central government as well as decision-making powers once they unified with their larger neighbors. Fiscal incentives by the central government significantly raised the cost of remaining intact and induced a large number of fiscally weak municipalities to merge.     

The Effect of Fiscal Decentralization on the Financial Condition of Municipal Government

This study examines the effect of fiscal decentralization between states and their local governments on the financial condition of municipal governments. There are strong theoretical arguments on both sides of the federalism debate about the benefits for and against decentralization. Most of the research in this area investigates economic and social welfare consequences of fiscal decentralization. There is limited research, however, on the effects of fiscal decentralization on the financial health of local governments. Using data from the nation’s 150 largest cities, this study finds that intrastate fiscal decentralization results in weaker financial condition for municipalities in those states.     

‘Faulty’ fiscal illusion: examining the relationship between revenue diversification and tax burden in major US cities across the economic cycle

We investigate how revenue diversification affects tax burden in major U.S cities as it interacts with fiscal balance reported in the general fund over the economic cycle. We find that more diversified cities have higher tax burdens, and that this effect is strengthened when cities maintain a large surplus in the general fund. We also test models of revenue diversification's impact on tax burden using data from 1995 to 2010, separated into good fiscal years (1995-2001, 2004-2007, 2010) and bad fiscal years (2002-2003, 2008-2009). Model estimates show that greater revenue diversification leads to higher tax burden in bad fiscal years but this outcome is not found in good fiscal years. Cities seek greater revenue diversification when they are experiencing economic recessions. This study contains important implications for local financial management and contributes to the literature on revenue diversification and tax burden.     

Fiscal and political determinants of local government involvement in public-private partnership (PPP)

ABSTRACT

In this article, we estimate the main determinants of local government’s engagement in public-private partnership (PPP) projects using logistic panel regression. We use data from 2478 municipalities and cities in Poland from 2009 to 2016. The results show that municipalities with higher levels of indebtedness have a higher probability of opening PPP tenders while local units that are more dependent on central grants or receive more European grants are less engaged in PPP. We also found that the mayors of municipalities and cities with stronger electoral competition engage in PPP with a higher probability. These results are important for discussions on the efficient use of PPP. They show that local government decisions made in conditions of fiscal constraint and political struggle can blur the PPP’s value-for-money aim.     

The view from city hall: Local perceptions of intergovernmental fiscal relations in the Czech Republic

This article analyzes perceptions of inter-governmental fiscal relations as held by local officials of the Czech Republic. The field study probes local perceptions of progress toward fiscal decentralization in the Czech Republic. A statistical analysis is based on a scaling of cities according to size and according to a generalized, multi-part measure of fiscal autonomy. This measure is effective in discriminating high and low autonomy cities by size, types of expenditures, and funding sources. Cities of diverse sizes are divided into groups reflecting perceptions of greater or lesser autonomy. The implications of the findings are discussed.     

Testing for Fiscal Illusion in Wisconsin Towns

Fiscal illusion, a theory of the impact of government revenue structures on voter decision-making, has been studied extensively by economists and political scientists; however, empirical verification has been limited. This study builds on Lowery's (1987a) work by examining the relationship between suggested illusionary revenues and measures of electoral stress. Here, electoral stress is measured as constituent contacting—one possible measure of voter influence—for local government officials up for re-election. Using a combination of survey data from over 1,000 Wisconsin town board members, audited fiscal data and U.S. Census data, we were able to test for fiscal illusion. Our findings show that when looking at five revenue types (conditional grants, unconditional grants, property taxes, user fees and charges, and debt service) there is some evidence suggesting officials seeking another term in office will tend to support fees and charges as a revenue structure over other structures. Overall, there is little consistent evidence suggesting that elected officials are manipulating revenue structures for electoral gain. Revenue structures are mostly influenced by social and economic factors, such as median household income, population changes, and per capita property valuation.     

Public Nursery School Costs and the Effects of the Funding Reforms in Japan

Using a panel dataset of 983 municipalities across Japan, this article investigates the impact of the funding reforms in 2004 on public nursery schools’ operating costs. We found that municipalities responded differently to the reforms, depending on their fiscal strength and city scale. In areas with relatively large populations, fiscally stronger municipalities were likely to spend less on public nursery schools in the wake of the reforms, while municipalities in smaller cities spent more. Besides, municipalities that were not compensated for the loss of the national subsidy reduced expenditures in large cities. In small cities, on the other hand, such municipalities actually increased expenditures.     

The impact of revenue diversification on municipal debts: comparing short-term and long-term debt levels

The extant literature has offered two competitive implications of revenue diversification: revenue stabilisation and fiscal illusion. Stabilisation helps governments have less revenue volatility, while fiscal illusion expands tax burdens through the increase in expenditure. The competitive views on revenue diversification leave a niche to explore the association between revenue diversification and debt levels in local governments. We estimate the static and dynamic effects of revenue diversification on both short-term and long-term debt levels in 150 fiscally standardised cities. Our findings show that local governments with greater revenue diversification are more likely to reduce short-term debts while expanding long-term debts. The findings imply that a stabilised revenue structure helps local governments better manage operational budgets but also invest in capital projects with greater debt capacity.     

Mayor vs. manager revisited: an archival approach to comparing efficiency

The efficiency of municipal government is defined as a function of two factors: financial indicators such as per capita spending and taxation, and quality of life. If the financial indicators differ between cities without a corresponding change in quality of life, then the city with the lower value can be said to be better managed. An analysis of data from the County and City Data Book and the Places Rated Almanac found that large cities managed by city managers are more efficient than those managed by mayors. There was no significant difference in efficiency between mayors and managers of small cities; theoretically, mayors of small cities are unable to tax, spend, and borrow in relative anonymity. A cluster analysis of 114 large U.S. cities suggested that they may be classified into one of four categories: (1) Drunken Sailors; (2) High rollers; (3) Prudent Big Boys; and (4) Solvent Citizens.     

Hardening Budget Constraints: A Cross-National Study of Fiscal Sustainability and Subnational Debt

This study explores the financial sustainability of subnational governments in four different countries. Scholars argue that subnational fiscal capacity helps local governments deliver better public services and provide public goods, which in turn helps to promote economic growth. While administrative control by the central governments contributes to reducing moral hazard from the soft budget constraints, bottom-up strategies to manage fiscal profligacy also need attention. The study first provides understanding about the characteristics of central-local governance and management of subnational government debt of each country. Then, we test our hypotheses regarding local fiscal capacity and administrative control, including political-economic factors that may affect debt spending by local governments. Our findings show that subnational fiscal sustainability improves when the central governments have clear rules to intergovernmental transfers in place and more (market) liberal policies, meanwhile when subnational governments have a more fiscal capacity and less intergovernmental transfers they are able to manage their debt more soundly.     

Adjustments in municipal fiscal crises. Are they different according to the gender of the mayor?

The literature on gender has attempted to explain the differences between the public outcome depending on whether the ruler is male or female, on the basis that men and women have different preferences. This scientific research has not yet examined issues related to fiscal crises, and our research aims to fill this gap. In a context of generalised economic crisis, our research examines if the gender of the mayor affected the fiscal adjustment policies carried out by municipalities with fiscal deficits in the Spanish region of Galicia. Our paper suggests that although gender of the mayor does not seem to have affected the level of adjustment in total current expenditure, it does seem to have influenced the way in which social and non-social spending were adjusted. Our study also highlights that female mayors are associated with lower levels of tax revenues and this could slow the adjustment processes of fiscal imbalances.     

A Survival Analysis of U.S. Municipalities in Fiscal Distress

This article uses survival analysis to investigate fiscal distress in U.S. municipalities. We hypothesize that fiscal distress is positively correlated with revenue concentration and debt usage, and negatively correlated with administrative costs and entity resources. We develop a model that can predict the likelihood of fiscal distress and correctly classify up to 86 percent of the sampled governments. The model enables users to analyze the impact of a change in the risk factors. Fiscal distress can be reduced most effectively by increasing tax revenues as a percent of total revenues or decreasing total debt as a percent of total revenues.     

The effect of fiscal transparency on corruption: A panel cross-country analysis

Both academicians and practitioners have advocated for increased fiscal transparency in government as a means of promoting budget discipline, improving functioning of the public sector, fostering greater accountability, and fighting the global menace of corruption. Despite worldwide calls for greater disclosure, empirical analyses of whether and how fiscal transparency actually affects governance outcomes are still limited. This study draws on public choice and principal–agent theories to demonstrate how public disclosure of budgetary information helps deter government corruption. The data from 95 countries over the period 2006–14 provide evidence that more fiscally transparent countries are perceived as less corrupt. We also find that fiscal transparency matters most at the final stages of the budget process when information disclosure reflects actual government spending. Data also confirm that a Citizens Budget can serve as a strong anti-corruption tool.     

Identifying and Coping with Fiscal Emergencies in Ohio Local Governments

Abstract

This study examines the reasons fiscal emergencies occur in Ohio local governments and the strategies that local governments use to recover. In Ohio, fiscal emergencies have regularly occurred predominantly at the local level. This study aims to reveal the internal process that both bring on and ameliorates fiscal emergencies. Previous studies failed to differentiate between fiscal stress and fiscal emergencies and did not include the role of the Ohio Fiscal Emergency Law in assisting local governments in restoring long term fiscal health. This study finds fiscal emergencies in Ohio were caused by: (1) the increased costs associated with unfunded state-mandated programs and, (2) major economical downturns brought on by local plant closings. Local governments were found to have responded in the short run by strategies such as targeted expenditure cuts and in the long run by increased the use of economic development.     

Fiscal Stress Management During the Financial and Economic Crisis: The Case of the Baltic Countries

The Baltic countries—Estonia, Latvia, and Lithuania—were severely hit by the global financial and economic crisis in 2008–2011. In response to the crisis, all three states chose to undertake extensive fiscal consolidations. This article examines the strategies adopted by the Baltic governments for managing fiscal stress and consolidating their budgets in the light of the existing literature on cutback budgeting. In all three countries, the governments combined expenditure and revenue measures, with a larger share of adjustment taking place on the expenditure side. Among expenditure measures, a mix of across-the-board and targeted cuts was adopted, though the importance of targeted cuts increased over time. The case studies also indicate that although the theoretical propositions of the cutback budgeting literature point to the correct directions overall, further refinement is needed in several theoretical issues.     

Performance Management and Deficit Adjustment in U.S. Cities: An Exploratory Study

Performance management or PM has been promoted as a tool to transform government. Claims that PM will enable governments to “do more with less,” “increase efficiency,” provide “value for money,” and make “rational budget decisions” abound. Has PM helped city governments in the United States cope with the effects of the 2007–2009 Great Recession? Theory suggests that PM can provide the informational and analytical foundation necessary for city officials to implement comprehensive but conflictive budget-cutting and revenue-raising strategies. By facilitating deep expenditure cuts and tax increases, PM can indirectly influence budget deficits. Using data from a national survey of city governments and multiyear audited financial reports, the empirical analysis shows that PM cities favored what are essentially decremental responses to fiscal crises that lead to marginal changes in revenues and expenditures. Not surprisingly, there is no evidence that PM influences the size and change in budget shortfalls.