Association for Public Policy Analysis & Management

To tackle a variety of risks, local governments are considering a wide range of policy tactics to boost their organizational resiliency. One of the central governance tasks related to such efforts is to draw support and attention to newly proposed or ongoing resilience initiatives. A potent platform to signal or communicate resiliency, as is the case with crucial policy priorities, is through the budget process when local communities decide “who gets what, when, and how”. Using computational text mining techniques, we assess how county governments in California signal resilience efforts in their budgets during 2012-2017 fiscal years and how those signals are received by the municipal capital market. Specifically, we posit that resilience initiatives that are geared toward proactive, forward looking risk management or preparedness objectives are going to be rewarded in the capital market. The aim of proactive resilience policies is to minimize the exposure to shocks and, thus, protect the community assets from significant erosion. On the other hand, reactive resilience policies, such as crisis management or security response, seek to enhance competencies or marshal resources needed to attend to shocks post factum. While both proactive and reactive resilience policies are important for local residents, the capital market will reward communities that favor the proactive resilience. To test these divergent expectations regarding the relationship between resilience initiatives and municipal capital market outcomes, we focus on county underlying credit ratings, credit ratings of bond deals issued by counties, and the total costs of issuance for bond deals. Empirical results show that while county underlying credit ratings are insensitive to resilience signals in proposed budgets, proactive signals increase bond deal credit ratings and decrease total costs of issuance. Reactive resilience signals, however, are inversely related to bond deal credit ratings and increase their total issuance costs. By examining the efficacy of current resilience signals and their “side effects”, this study informs that significant attention should be paid that reactive resilience building initiatives do not come at the expense of proactive ones.