Association for Public Policy Analysis & Management

Several states monitor the fiscal health of their local governments by "benchmarking" them using a suite of financial indicators to track performance over a period of time. Benchmarking of public organizations can facilitate performance management, leading to the spread of best practices and improved organizational performance. However, it is also possible that benchmarking, absent other performance routines, can exert isomorphic pressures encouraging local governments to adopt policies that converge performance or financial indicators towards the group mean, rather than improving mean performance. This paper tests these rival hypotheses using the introduction of North Carolina's financial benchmarking tool in 2010. We construct a panel of the 14 indicators used to assess and compare the financial positions of North Carolina county and municipal governments from fiscal year 2008 to 2014. We find support for the isomorphism hypothesis as the dispersion of several indicators declined in the post-implementation period without offsetting beneficial changes in the mean indicator value. These findings pose a dilemma for the quantitative evaluation of both benchmarking and performance management systems; could offsetting changes results in null findings?