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.     

Interlocal collaboration and local climate protection

ABSTRACT

The influences of state government have been curiously absent from most studies of collaboration among cities. Extant research on city collaboration which promotes on climate and environmental sustainability issues focuses primarily on local-level institutions, politics, and processes. Thus, the role of states to constrain or facilitate collaboration among local governments needs to be more fully accounted for. Building on transaction cost and institutional collective action theory and drawing on data from a national survey of US cities, we investigate the influences of city-level factors together with the hierarchical effects of state rules and policies on the extent to which mechanisms for interlocal collaboration are employed in pursuing climate protection and renewable energy development goals. The results confirm predictions that multilevel intergovernmental forces influence the extent to which cities collaborate. These results have both theoretical and practical implications for understanding interlocal collaborations.     

Economic resilience after the Great Recession: an examination of unreserved fund balance in Michigan counties

ABSTRACT

This paper examines fiscal slack, in the form of unreserved fund balance, as a tool used by local governments to enhance economic resilience. It adapts ecological, engineering, and organisational definitions of economic resilience and investigate their relevance to local financial management in the United States after the Great Recession in 2008. Using group-based trajectory modelling, we identify different strategies of fund balances used by Michigan counties. The change of fund balance does not delineate any pattern theorised by the resilience concepts. We also find different factors that motivate local officials to manage their fund balances differently. The study suggests a nuanced understanding of fiscal slack used by local governments for economic resilience that goes beyond unreserved fund balance.     

Local Fiscal Stress in Sub‐Saharan Africa: The Kenyan Example

Abstract

This article identifies the fiscal weaknesses of local government in Africa, with concentration of the fiscal stress that is endemic to their condition. It then examines Kenya, as a case study in sub‐Saharan Africa. It continues to focus down on three Kenyan cities—Nairobi, Mombasa, and Kisumu, and identifies their six major revenue sources: land based revenues, regulatory revenues, income‐based taxes, service revenues, user charges, and government grants. Although some of the data is problematic, it is possible to determine several reasons for local fiscal stress. These reasons include limited access to stable financial resources, unstable national economic performance, centralized governmental control, mixed results of decentralization, and institutional and managerial weaknesses, including corruption in the collection and use of resources. Four recommendations are advanced to help these local governments: the development of local credit systems, the use of non‐governmental organizations, the clarification of the use of foreign aid, and the development of a greater capacity for governance. This articles main theoretical contribution is the development of an analytic framework for examining the reasons for fiscal stress in sub‐Saharan Africa. By examining revenue and expenditure patterns of the three localities, the article develops a data set that highlights some of the reasons for local government financial problems—the governments do not know how much revenue can be collected from a particular revenue source, they do not have records of existing sources of revenue, and they only collect about 40–60% of their estimated collections.     

Local Fiscal Stress in California: Out of Local Control and Driving Toward Growth

Abstract

Many regions of the United States have experienced rapid growth in recent decades with California being the best example of this growth. The dangers of such growth have been evident since the 1970s and yet, neither the state nor local governments have been very successful in implementing growth control policies. Why it is that government has been unable to rein in the growth has been the focus of much research in recent decades. There are essentially two schools of thought with regard to this question. One is that pro‐growth forces—essentially landowners, business elites, and elected officials—actively promote growth because it provides them personally with benefits. The other view, advocated most by Paul Peterson back in the early 1980s, is that elected officials do support and adopt pro‐growth policies, but not by choice. Cities, Peterson argued, are constrained by the economic situation around them and they must do what they can to raise revenues and reduce, or hold steady, expenditures. This research examines a region of southern California that has experienced tremendous growth despite the fact that surveys of resident attitudes within the region indicates that in general, residents favor growth control. This research contributes to an understanding of the driving forces behind the pro‐growth policies of local governments by considering how fiscal constraints placed on local governments by the state may limit the policy options of local elected officials, as Peterson predicted. This study finds that there is evidence to indicate that the revenue‐raising options available to cities may be contributing to pro‐growth policies. And this could help explain why elected officials continue to support growth within their cities despite the fact that residents express negative views toward growth.     

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.     

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.     

CENTRAL GOVERNMENT BUDGET PRACTICES AND TRANSPARENCY: AN INTERNATIONAL COMPARISON

From an international perspective, a relationship between public sector transparency and better economic and social outcomes is something that is increasingly acknowledged. In terms of lack of transparency in budget reports both bureaucratic model and fiscal illusion theory have been argued as explanations. To assess transparency in budget practices we analyse to what extent a sample of 41 countries are meeting OECD requirements according to its Best Practices for Budget Transparency document (OBP). We find an average OBP fulfilment of 56.4 per cent. Transparency is negatively correlated with corruption and positively correlated with economic development. Countries receiving external financial and technical support meet fewer OBP recommendations than countries not receiving it. Considering the political framework, both progressive and conservative governments reach similar transparency levels. OECD members do not significantly fulfil more OBP suggestions than non‐members. In respect of 4 variables: transparency, corruption, democracy and development, four clusters of countries arise: top‐performing, low transparency‐developed, low transparency‐developing and worst‐performing.     

Motivations Behind Using Performance Measurement: City-wide vs. Selective Users

Abstract

This article identifies and describes the utilisation of performance measurement in Florida local governments. Two research questions are considered here: which factors influence Florida city governments to use performance measurement? And how do the factors associated with cities that are city-wide users differ from cities that are selective users? The paper develops a framework constructed from literatures in performance measurement and management innovation to develop hypotheses that are tested with 2005 Florida local government data. This study finds strong support for the role of community attributes, form of government and internal capacity as contributors to the use of performance measurement. The study also finds the factors that influence city-wide users are different from factors that influence selective users, especially with regard to revenue size and the reward/incentive system.     

Incumbents and Innovations under Decentralization: An Empirical Exploration of Selected Local Governments in the Philippines

Abstract

Like in other developing countries, many local governments in the Philippines have become innovative under decentralization. We investigate here the drivers of local innovations, with focus on quality of incumbent leaders, their political incentives and fiscal resources. We applied Poisson regressions on a survey data comprising 209 innovations introduced in 48 cities and municipalities during the period June 2004–June 2008. The statistically significant factors are the mayor's competence (age, educational attainment), re-election status and term in office. Innovations appear to increase with local fiscal resources but at decreasing rate. Access to information appears not to matter much. However, these factors, including poverty rates, vary in relative importance in explaining innovations in expenditure services, and in revenue and public administration services. Some policy inputs are suggested.     

Interlocal Agreements and Multilateral Institutions: Mitigating Coordination Problems of Self-Organized Collective Action

ABSTRACT

In the United States, competition among cities for economic development tends to be the norm. Cities are also collaborating more to improve their economic advantage. However, transaction costs inhibit various of interlocal agreements from being formed. This study examines the role of multilateral institutions in facilitating interlocal agreements for economic development. An analysis of survey data collected from city governments in eleven US metropolitan areas highlights the importance of regional institutions in moderating the effect of coordination problems on the formation of developmental joint venture agreements. The findings complement extant research on the governance mechanisms that mitigate transaction costs of collective action.     

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.     

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.     

Minimum Wage Competition between Local Governments in China

The theory of fiscal and regulatory competition between jurisdictions is more advanced than its empirical testing. This is particularly true of labour regulation in general, and minimum wage regulation in particular, and especially so for developing countries. This paper utilises the spatial lag methodology to study city-level strategic interactions in setting and enforcing minimum wage standards during 2004–2012 in China. We manually collect a panel data set of city-level minimum wage standards from China’s government websites. This analysis finds strong evidence of spatial interdependence in minimum wage standards and enforcement among main cities in China. If other cities decrease minimum wage standards by 1 RMB, the host city will decrease its standard by about 0.7–3.2 RMB. If the violation rate in other cities increases by 1 per cent, the host city will respond by an increase of roughly 0.4–1.0 percentage points. The results are robust to using three estimation methods, Maximum Likelihood, IV/GMM, and a dynamic panel data model. Our findings of strategic interactions suggest the need for policy coordination in labour regulation in China.     

Can alternative service delivery save cities after the Great Recession? Barriers to privatisation and cooperation

ABSTRACT

Cities continue to face fiscal challenges after the Great Recession and alternative service delivery is being emphasised as a solution. How promising is alternative service delivery as a solution and what are its barriers? Regression analyses using 2012 survey data of US local governments show that local governments manage procedural barriers, but structural barriers of economy and demography hinder privatisation and cooperation. Places with a housing bust (measured as decline in home values) can use privatisation, but not places with more or increased poverty. Cooperation is more promising for places with increased poverty, but lack of a willing partner hinders this spatially constrained tool. Neither cooperation nor privatisation is promising for places with low home values. State governments must level the playing field for localities with weak economies if market approaches to service delivery are the main tools for local governments to survive fiscal stress.     

Investigating Sales Tax Revenue Competition Among Principal Cities and Their Neighboring Cities in Texas

ABSTRACT

While research has explored the economic importance of principal cities on regional economies, little is known about the short-run and long-run dynamic relationships between principal cities and their neighboring cities as it pertains to their sales tax revenue elasticities and the subsequent affect this has on horizontal tax competition. Using vector error correction models on data from six principal cities in Texas, the findings of this study suggest that the relationship between principal and neighboring cities is highly dynamic and unique for each principal city. The study recommends that local economic policies should reflect these unique relationships.     

Intra-provincial fiscal decentralization,relative wealth,and healthcare efficiency: Empirical evidence from China

Decentralizing fiscal power to locally elected governments is often regarded as beneficial for public service efficiency. However, questions remain about whether decentralizing fiscal responsibilities work well in countries lacking political decentralization. In China, fiscal decentralization has significantly strengthened the role of local governments in the provision of healthcare services, but evidence of its efficiency effects is scarce. To cast light on this issue, this study investigates the relationship between intra-provincial fiscal decentralization and the productive efficiency of healthcare services in China. Analysis of panel data for 2006–2017 suggests that expenditure and revenue decentralization from provincial to sub-provincial governments significantly improves healthcare efficiency. Further analysis suggests that the positive impact of healthcare expenditure decentralization on healthcare efficiency may be stronger in wealthier provinces. These findings have important theoretical and practical implications.     

Fiscal Transparency: Concepts, Measurement and UK Practice

Greater fiscal transparency is seen by its advocates as a means of improving economic governance arrangements in ways which, by promoting fiscal stability, will in turn improve the functioning of the government sector and facilitate improvements in the economic environment for the private sector. 'Fiscal transparency' is much acclaimed by policy-makers, not only in the UK Treasury but also by the IMF and OECD. Fiscal transparency can have substance or can just be voguish incantation. This article explores the meaning of fiscal transparency, by examining its structure and evaluating criteria for assessing the degree of fiscal transparency attached to particular sets of circumstances. It explores the link between transparency and accountability, developing the distinction between event and process transparency. Consideration is given to the trade-off between the value of sunlight (to employ an analogy) and the danger of over-exposure. The performance of the United Kingdom against emerging international best practice is examined, with regard to both public expenditure and taxation. By international standards, UK fiscal transparency is high. Nevertheless, there is a major gap between UK rhetoric and practice, indicating a  divergence between nominal and effective transparency. This is evidenced by: frequent changes in public expenditure definitions; the non-publication of important analyses; the location of certain liabilities 'off-balance sheet'; and a lack of candour about tax policy.     

Cyberdemocracy or Potemkin E-Villages? Electronic Governments in OECD and Post-Communist Countries

Abstract

The dramatic increase in the use of the World Wide Web and the Internet in government may foreshadow important changes in the nature of governance. A number of theorists have posited that the adoption of networked information systems is accompanied by inevitable shifts toward democratic government. Others argue that technologies are secondary factors in changes in levels of democracy or types of governance. Our article examines the openness of cabinet-level websites in the Organisation for Economic Co-operation and Development (OECD) and post-communist countries as a measure of an important aspect of governance that has only recently been operationalized. It provides a brief review of other studies in this field and the directions in which they are heading. The article analyzes the effects of political, cultural, economic, and technical factors on openness of cabinet-level websites in OECD and post-communist countries. The question is whether the level of democracy and cultural legacies affect openness of electronic governments. The study employs statistical analysis of a comparative database of national-level public agency websites that is produced by the Cyberspace Policy Research Group (CyPRG). The dependent variable is based on transparency and interactivity scores and availability of cabinet-level websites. The independent variables include Freedom House and Polity indexes of democracy, historical legacy, religious tradition, and the GDP per capita and number of Internet users per 1,000 people. Regression analysis shows that democracy, historical legacies, level of economic development, and religious tradition affect openness of cabinet-level websites in OECD and post-communist countries. This study demonstrates need to distinguish between cyberdemocracy and “Potemkin e-villages,” that is, window-dressing, in electronic governments.     

U.S. treasury department studies of federal- state-local fiscal relations: the context,the major themes,and the outcome

This article provides an assessment of the condition of the literature on several major issues of Federal-State-local fiscal relations. The assessment is provided in the context of a three-volume report on Federal-State-local fiscal relations recently published by the U.S. Treasury Department. The author was a major participant in the studies who generally views them favorably, but who also raises his real concerns about a number of matters.

This article summarizes and evaluates certain aspects of the economic theory of federalism, the intellectual underpinnings of the report. This article addresses the institutional context in which the report was written, which helped shape its approach, content, and conclusions. The report itself generally lacks detailed recom-mendations.

Three main themes of the report are addressed in detail in this article. These are: (a) issues relevant to programs of general-purpose fiscal assistance, which include the adequacy of any potential improvements that might be made in measures of the fiscal capacity of State and local governments; (b) the role, if any, for tax subsidies to State and local governments through the deductibility of State and local taxes in the computation of individual Federal income taxes, and the exemption from Federal income taxes of interest paid on bonds and notes issued by State and local governments; and (c) the projection of the long-term outlook for the fiscal condition of the State-local sector on a current services basis, compared with projections of the long term outlook for the Federal government.