Association for Public Policy Analysis & Management

Panel: Fiscal Health Measurement and Policy Interventions in Local Governments

(Public and Non-Profit Management and Finance)

State and local government fiscal health proved to be tenuous in the wake of the Great Recession. Revenue volatility was at a record high relative to the past three recessions, coupled with pervasive expenditure cutbacks aimed at balancing budgets. A growing body of literature has deemed the years following the Great Recession a "new normal," in which decreased revenue expectations have constrained the ability of government to meet increasing demand for public service provision. This panel addresses this timely topic with four papers aimed at advancing theory on government response to fiscal stress while identifying tools relevant for practitioners in the field. The first paper empirically tests how existing measures of fiscal stress prove inadequate, given a lack of emphasis on endogenous community factors which have an effect on government financial health, such as the relationship between income, housing values, and the levy of millage rates. This study is conducted across a national panel of 112 municipalities in the Lincoln Land Institute's newly released FiSC database. The following papers focus on the relationship between state fiscal monitoring systems and financial interventions in relation to local governments. A second paper conduct a difference in differences analysis to understand how state interventions into municipalities may mitigate the effect of fiscal stress through the Great Recession. A third paper offers a similar analysis but measures the effect of state interventions on local government deficit and debt accumulation. A final paper analyzes the effect of government spending on county GDP during economic recessions. This study uses an innovative panel VAR methodology and a decomposition of BEA regional MSA GDP calculations, and presents evidence that subnational governments may not only have the ability to shore up their budgets during periods of fiscal stress but also have an effect on the local economy. Collectively, these papers reflect a growing body of literature which shows that there are financial management strategies state and local governments can employ in response to periods of fiscal stress. The panel has a diversity of presenters, from economists to public budgeting and finance researchers. It includes professors, students, and practitioners from a variety of fields and institutions. This mix of researchers will ensure that the panel reflects a diversity of viewpoints on a critical topic in state and local government financial management.