Association for Public Policy Analysis & Management

Assessments of cities’ fiscal responses to the Great Recession are based on either ad hoc case studies of one or a few cities or large-N studies that aggregate revenue and spending decisions and provides an ‘average city’ response. This study of city fiscal behavior is based on an understanding of the constraints placed on cities’ policy officials, limiting their capacity to respond to the shifts of underlying economic forces. The frame through which we propose to understand city fiscal behavior is called the Fiscal Policy Space of cities and it includes three critical constraints: (1) state-imposed constraints (TELs, general tax authority); (2) the Fiscal Base of cities, or the alignment between the underlying economic base and the city’s fiscal architecture; (3) demands for services by residents and others. Cities are then clustered based on the three constraints and their behavior is then analyzed. Data for this paper are derived from Census data, GFOA financial data, CAFRs, and state legal documents of 100 cities for the time period 1992-2012, an era that includes the Great Recession. Preliminary results indicate that, although the academic literature indicates that cities drew down their reserves in response to the Great Recession, our data indicate that only the most constrained cities drew down their reserves. The least constrained cities actually increased their reserves. The paper extends the analysis to other areas of fiscal policy.