Association for Public Policy Analysis & Management

Thai V. Le, University of Southern California
Manita Rao, University of Southern California

This paper analyzes the differential fiscal impacts of the Great Recession in California, where municipalities are heterogeneous with respect to economic and social factors, and where rapid gentrification of central cities contrasts with enduring patterns of racial and class segregation and racialized poverty in other parts of metropolitan regions. The Great Recession of 2007 to 2009 was a significant disruption to municipal finance, which had experienced nearly three decades of relative stability (Fisher, 2015). The recession led to reduced income levels, lower consumption, and scaling back of construction and other development projects, which in turn had disparate detrimental effects on municipalities (Adkisson and Mohammed, 2014). Much of the new construction stimulated by the housing bubble was located in suburban and exurban fringes, suggesting that areas with relatively few economic amenities and lower fiscal capacity may have been particularly hard hit. Moreover scholars including Colgan (2017), Park (2017) and Henricks & Harvey (2017) argue that many localities respond to times of financial crises by increasing fees and regressive taxes that are disproportionately borne by low-income and marginalized communities, a second form of distributional inequity potentially associated with the recession.

Utilizing longitudinal data from city Consolidated Annual Financial Reports (CAFR) for the period 2003 to 2016, this study assesses the extent to which fiscal disparities were exacerbated by the Great Recession, and the extent to which local municipalities in the state became more dependent on the types of regressive revenues identified by Colgan, such as sales and excise taxes and fines and forfeitures. The extended time period in this longitudinal study provides deeper analyses of potential lag and shocks from the Great Recession. Our preliminary results suggest that in aggregate, relative to other years in our analysis, the growth rate of fines and forfeitures as a portion of total revenue saw higher increases between 2006 and 2009 whereas post-recession years experienced a negative growth rate. Similar trends are not reflected in sales and use taxes, but this requires further investigation and possible disaggregation. The study aggregates municipalities by regions, size, fiscal capacity, and demographic characteristics, and integrates geospatial analysis to illuminate the impact of the recession on fiscally stressed cities in California. It assesses the extent to which local government responses were regressive in their incidence, and analyzes the city features that appear associated with more regressive responses to the economic downturn.