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Municipal response to the Great Recession: Evidence from small- to medium-sized cities in Georgia and Florida
Abstract
Purpose
The purpose of this paper is to examine the impact of the Great Recession on small- to medium-sized municipalities within the states of Georgia and Florida using a newly developed set of quantitative indices.
Design/methodology/approach
An examination of the methods and strategies utilized by individual cities to maintain public service levels despite distressed revenues is performed. From the data, performance measures are developed and used to evaluate the efficacy of the various strategies used by the cities. Outcomes of Georgia municipalities were compared to similarly sized Florida municipalities to study how underlying differences in tax structures and economies might have affected those outcomes.
Findings
Georgia and Florida municipalities relied on very different strategies for surviving the recession and its aftermath. Enterprise activities were critically important in both states with transfers to or from governmental activities rationalized in various ways. While Georgia is generally anti-property tax, more than half the Georgia municipalities relied on property tax increases to survive. Municipalities were unable to count on increased intergovernmental revenues during the recession. Finally, even with a tourist activity advantage, Florida municipalities fared only marginally better during and just after the recession, and fared worse four to six years post-recession.
Practical implications
The measures developed in this study provide a new, customizable methodology for the evaluation of financial condition that does not require in-depth comparisons to peers.
Social implications
Small- and medium-sized cities, and especially those in rural areas, are worthy of targeted research to better understand their unique problems.
Originality/value
This research is novel in utilizing a fiscal condition methodology that can be applied to a single municipality and does not require comparisons to peers for validity. However, it represents a very intuitive and customizable tool for making comparisons between municipalities of any size when such comparisons are desired. Additionally, the focus of this study is on small- to medium-sized municipalities which generally do not receive as much research attention as larger cities.
... In the literature, there have been various studies on local government financial resilience [1,[10][11][12]14,[20][21][22][23][24][25][26][27][28], but the concept of fiscal resilience is lacking. ...
The financial crisis and COVID-19 pandemic have affected the financial systems at various levels of government. The cities in Poland and Croatia have been no exemption. In turbulent times, they have been faced with the need to reorient their budgets to remain resilient and solvent. Therefore, the purpose of this article is to investigate the financial resilience profiles of large cities in Poland and Croatia from 2010 to 2020 and to identify the factors differentiating the identified resilience patterns. To obtain empirical results, a two-stage research procedure was employed. In the first stage, group-based trajectory modeling (GBTM) was applied, while a panel data regression was employed in the second. Our research has revealed different patterns of financial resilience among the cities in Poland and Croatia; moreover, the scope of fiscal resilience of local government units (LGUs) differed over time, which made it possible to distinguish four groups of cities in every country characterized by similar resilience trajectories over time. The common predictors of fiscal resilience in both countries are the percentage of the operating surplus in total income, total income per capita and capital expenditure per capita, although the strength of its impact varies from group to group identified by GBTM. Our research has shown that the source of differences in LGUs’ financial resilience is not as much the nature and intensity of the disturbances experienced as the internal financial capacity.
Purpose
The study aims to explore a retrospective overview of the Journal of Public Budgeting, Accounting and Financial Management , a prestigious international journal in the discipline. It also analyses the bibliometric information of its publications between 2011 and 2021 in terms of authors, countries, documents, themes, topics and sources.
Design/methodology/approach
The performance analysis and science mapping were conducted using the data from Scopus between 2011 and 2021. The bibliometric information of 301 publications was visualised through the analysis types, such as co-authorship, co-citation and bibliographic coupling, through the VOSviewer software programme.
Findings
The main finding is that the journal has recently improved in several areas (e.g. its productivity and visibility, citations, index scores and international collaborations). Although financial aspects such as accounting and accountability, financial management and public budgeting maintained their importance during the analysing period, some other features were revealed as new research themes. However, there are some research gaps regarding sustainable development goals, climate change and other matters, and the solutions for them through public fiscal policies.
Research limitations/implications
The analyses are primarily backwards oriented by their very nature. Although they were excellent at portraying the past, the findings provided limited information about subjects that would be hot topics in future. The study has some limitations. The information on publications was collected from the Scopus database. However, bibliometric analyses were conducted from 2011 to 2021 as its data on Scopus did not cover before 2011. Second, the data are dynamic over time and may contain various changes in the future. Therefore, the bibliometric analysis may be repeated by including new studies of JPBAFM in the following years.
Social implications
A performance analysing that the editorial team could benefit from in order to monitor the productivity of JPBAFM , one of the popular and favoured journals in the discipline, was conducted in this paper. The editorial team may also find ideas for the intellectual development of the journal as a result of mapping the performance of the publications.
Originality/value
The bibliographic analysis of the Journal of Public Budgeting, Accounting and Financial Management has yet to be conducted. The study presents comprehensive findings on the performance and bibliometric analysis of the journal to guide authors and readers.
This paper analyses the effect of the political decision to implement lockdowns on municipal revenues, with emphasis on the heterogeneous impact of this measure at the territorial and socio- economic level. The method used to determine the effect of the policy on the rate of income growth was panel data analysis with two-way fixed effects. The results indicate that all municipalities were affected by the pandemic, particularly, the impact of the policy at the territorial level was greater in metropolitan municipalities and large municipalities, while at the socio-economic level, municipalities with higher poverty rate had lower income growth. Based on these results, public policy recommendations are associated with the financial management of emergencies and changes in local institutions and intergovernmental relations.
Purpose
The financial resilience of local authorities has been a serious concern over the past decade due to austerity and its effects on local government budgets despite rising service demands. More recently, the scale and suddenness of the shock from COVID-19 has exacerbated problems of financial resilience. This paper explores the financial management responses required by a sudden, nationwide pandemic of such severity.
Design/methodology/approach
This paper applies the concept of financial resilience to English local government to analyse their situation in the aftermath of COVID-19. It is based on a close reading of official reports and the news media.
Findings
Local authority’s financial resilience could deal with normal levels of risk arising from austerity. However, the seriousness of COVID-19 alongside pressures still emanating from Brexit requires a significant level of central government support. This is critical as local government is expected to underpin future economic growth of the UK as well as deliver an important social response. Presently, the financial framework for funding individual local authorities through central government in terms of COVID-19 support is not on a reliable footing to answer specific demands. This can lead to gaming and perverse incentives.
Originality/value
This is the first paper to connect the financial resilience in the local government framework with the required central government funding procedures for sudden nationwide crises, such as the COVID-19 pandemic. It identifies the need to define what effect key variables, such as local government financial reserves, local deprivation indices and anticipatory financial management practices in local government should have on the determination of central government aid for individual local authorities.
This study presents a framework for assessing the financial condition and fiscal health of municipal governments, develops indices for some dimensions of the framework, and applies the indices to 264 suburban municipalities in the Chicago metropolitan region. The framework is based on a systems view of local government financial condition. It shows that fiscal health is a complex and multidimensional concept with varying time frames. Furthermore, the dimensions are related but often in indirect or nonlinear ways, indicating they must be measured separately rather than combined into a comprehensive indicator of fiscal health. Indices developed here for targeted dimensions of the framework are assessed and compared to alternative indicators of fiscal health developed by others in the field.
Cutback management in the public sector poses unique problems. More than 30 years ago, Charles Levine illustrated these problems by discussing the paradoxes of cutback management in public organizations. Building on Levine's work on cutback management and developments in publicness theory, the author provides a contemporary perspective on cutback management. He asserts that publicness creates paradoxical tensions in different domains such as organizational goals, employee motivation, and organizational performance. These tensions need to be embraced in both theoretical discussions of and practical engagement with cutback management. Instead of a short-term, reductionist approach to cutback management, a holistic and long-term perspective is necessary.
This study tests a measure of financial condition using government-wide information as required under the new financial reporting model set forth in GASB Statement No. 34. The measure consists of four financial condition dimensions in cash, budget, long-run and service-level solvencies, and 11 financial condition indicators. Results show that the measure is relatively reliable and valid and that government-wide information reported under the requirements of GASB Statement No. 34 provides a useful reporting framework to evaluate financial condition of a government. Additionally, financial condition among states varies greatly and there is much room for improvement.
The New Public Management has championed a vision of public managers as the entrepreneurs of a new, leaner, and increasingly privatized government, emulating not only the practices but also the values of business. Proponents of the New Public Management have developed their arguments largely through contrasts with the old public administration. In this comparison, the New Public Management will, of course, always win. We argue here that the better contrast is with what we call the “New Public Service,” a movement built on work in democratic citizenship, community and civil society, and organizational humanism and discourse theory. We suggest seven principles of the New Public Service, most notably that the primary role of the public servant is to help citizens articulate and meet their shared interests rather than to attempt to control or steer society.
The housing crisis and the recession have placed tremendous fiscal pressure on the nation's central cities. Cuts in state government fiscal assistance to their local governments, plus shrinking property tax bases are challenging the ability of local governments to continue their current levels of public services. In this paper, we use data on the financing of the nation's largest central cities from 1997 to 2008 to forecast the impact of the recession and the housing crisis on central city expenditures between 2009 and 2013. Because expenditure responsibilities vary among city governments and because overlying governments play different roles, we develop the concept of constructed governments in order to allow us to compare the revenue-raising and spending policies of large central cities. We predict that real per capita spending in the average central city will be reduced by about seven percent during the forecast period, and that spending cuts will be substantially greater in cities hit hardest by the economic recession and the housing market collapse.
Historically, local governments in the United States have relied on the property tax as one of their main sources of own-source revenues. However, the recent collapse of housing prices and the resulting negative impact on local government budgets suggest that it may be opportune to rethink this strategy. In this paper we document the overall decline in property values in the United States in recent years, and we find that the impact is in the aggregate negative but that the impact varies significantly by state and by locality. We also examine the impact on local government revenues, and we again find substantial regional and local variation. Indeed, our data indicate that substantial numbers of local governments seem to have avoided the significant and negative budgetary impacts seen most clearly for state and federal governments, at least to date. We then focus specifically on the State of Georgia, in order to determine the ways in which local governments have responded to the economic recession. Our empirical analyses indicate that there are several factors causing changes in property tax revenues, but the dominant factor is changes in housing prices, with some significant lags. We conclude that local government reliance on the property tax has in fact been an advantage for many local governments in the current economic environment, and that such reliance is likely to – and should – continue in at least some form for the immediate future.
This paper investigates the financial risk factors associated with fiscal distress in local governments. We hypothesize that fiscal distress is positively correlated with revenue concentration and debt usage, while negatively correlated with administrative costs and entity resources. The regression model results in a prediction of the likelihood of fiscal distress, which correctly classifies up to 91% of the sample as fiscally distressed or not. The model also allows for an analysis of the impact of a change in a risk factor on the likelihood of fiscal distress. A decrease in intergovernmental revenues as a percent of total revenues and an increase in administrative expenditures as a percent of total expenditures have the biggest influences on reducing the likelihood of fiscal distress.
Although public owned enterprises have rarely received the attention of the American public, their presence across the nation is widespread and their role in governance fundamental. These business-type activities, which are financed through user charges and fees, represent a great potential revenue source for municipalities as they often generate revenues beyond their costs. This paper examines longitudinally how public enterprises affect governmental spending and revenue patterns by analyzing a panel dataset of 100 Georgia cities between 2005 and 2009. This study used two-step GMM regression (2SGMM) and robust standard errors to estimate the relationship between dependent and independent variables. The findings of this research suggest that net enterprise transfers increase own-source revenues (additive effect) but decrease governmental expenditures (siphoning effect) contradicting findings from earlier studies.
This paper analyzes the impact of economic downturns on the revenue and expense sides of city financing for the period 2003 to 2009 using a convenience sample of the audited end of year financial reports for thirty midsized US cities. The analysis focuses on whether and how quickly and how extensively revenue and spending directions from past years are altered by recessions. A seven year series of Comprehensive Annual Financial Report (CAFR) data serves to explore whether cities' revenues and spending, especially the traditional property tax and core functions such as public safety and infrastructure withstood the brief 2001 and the persistent 2007 recessions? The findings point to consumption (spending) over stability (revenue minus expense) for the recession of 2007, particularly in 2008 and 2009.
Understanding the financial condition of local governments is important for public managers and elected officials as they work to align revenues with p ublic demands for services, while maintaining financial solvency. This task becomes even more important when the economic and financial environment, over which local officials have little to no control, is collapsing around them. This article seeks to expand the literature of measuring financial condition of local governments by testing the validity and reliability of the Financial Condition Index (FCI). The FCI is a framework for evaluating financial condition that was initially developed by Groves, Godsey, and Shulman and later applied in US state-level studies by a number of scholars. The results from this article cast serious doubt on the applicability of using the FCI, and the four associated solvency dimensions, as an appropriate methodology for evaluating local government financial condition.
Little is known about how cities and counties respond to negative shocks in their fiscal resources, such as those that occurred after the Great Recession. We provide evidence from the state of Florida on the millage rate and expenditure adjustments that cities and counties make in response to a loss in their two most important fiscal resources — the property tax base and intergovernmental transfers. These adjustments are hypothesized to vary with the monopoly power possessed by the local government. Our findings support this hypothesis and indicate that fiscal stress results in higher millage rates and cuts in expenditures. The cuts are targeted toward capital expenditures and less essential public services.
Enterprise funds provide one means by which cities provide municipal goods and services to their residents while generating revenues to augment cities' other revenue-generating activities or substitute for other forms of revenue. Because municipal enterprises are accounted for in separate proprietary funds, determining the extent to which the revenues they generate are actually usable by non-enterprise functions is somewhat more difficult than we have generally presumed. I use data from a recent national survey of cities to demonstrate how common measures of municipal enterprise revenue generation may be misleading and propose a measure that will provide more reliable data for both researchers and municipal decision makers.
A study of enterprise fund transfers in South Carolina cities shows that municipally-owned electrical utilities result in increased spending on municipal services and a subsidization of the property tax by substituting utility fees from city customers and, more importantly, noncity customers for taxes. Moreover, cities with only water and sewer enterprise activities in some cases follow similar practices. A key factor in determining the amount of such transfers is the amount of control the city council has over the enterprise activites. The concepts of fiscal illusion and public avoidance are used to discuss the issues raised by interfund transfers, and a number of issues are identified which need further attention, such as accounting and auditing practices, revenue estimation, and management ethics.
This paper explores the political implications of the use of public enterprises at the municipal level, using survey data from Illinois cities. The dependent variables include the number of enterprises cities have, the dependence of cities on income from enterprises, and the choice of which enterprises to provide. The paper explores why some cities have enterprises to handle parking, garbage, and economic development. Conclusions are that cities experiencing fiscal stress avoid enterprises, and more-reformed cities use enterprises more frequently. Particular enterprises have their own political and financial characteristics and are more likely to be used by cities with matching political characteristics. The paper concludes with suggestions for future research.
This paper uses survival analysis to investigate financial indicators of impending reductions of public services provided by U.S. municipalities. We hypothesize that reductions in public services are positively correlated with revenue risk and debt usage, and negatively correlated with organizational slack and entity resources. We develop and test a model to predict whether a municipality will significantly reduce public services. The model correctly classifies up to 83 percent of the sampled municipalities. The results show that the most important signal of an impending reduction in public services is a high level of intergovernmental revenues relative to total revenues. These results provide important information to citizens, policy-makers, and stakeholders interested in preventing, detecting, and mitigating fiscal conditions that could lead to a reduction in public services.
JEL Classifications: H72, H83, M48
Data Availability: Data are available from public sources identified in this study.
This article argues that the bursting of the housing bubble, the banking crisis and the resulting great recession of 2008 have altered the landscape for local governments. The authors contend that the economic recession has created a "new normal" for local government finances, employment, and services. This "new normal" perspective holds that the great recession of 2008 represents a break point for local governments, with implications likely to last long after the economy recovers. The authors suggest that the "new normal" for local governments will consist of fewer resources, smaller workforces, and new ways of delivering services.
A common argument put forth in tax reform discussions is that a balanced revenue system is better equipped to handle downturns. The purpose of this paper is to consider the empirical relationship between a scalar measure of the diversity of a state's state-local revenue system and the stability and growth of that revenue system. This evidence is drawn from panel data vector autoregression models. Impulse response analysis from these PVARs indicates that movements toward greater revenue system balance lead to greater revenue growth stability as well as faster rates of revenue growth itself.
Pennsylvania, like the United States, experienced a remarkable economic expansion through the late 1990s. The significant growth and change of this decade, however, did not equally touch all regions and all industries. Traditional sectors continued to decline, while growth in what has been dubbed the "new economy," considered to be the emerging service-and technology-based sectors, helped fuel the boom. Regional growth patterns also varied. The state's growth was centered in the southeast, while many northern tier and western counties grew slowly. These trends reflect an increased economic disparity between rural and urban Pennsylvania. Job creation has not remedied this disparity. Although annual employment growth rates since 1985 have been higher in rural counties than in urban ones, there is a growing gap between rural and urban per-worker earnings. The rural-urban wage gap, adjusted for inflation, grew from 9,450 per worker in 1999. Simply put, rural Pennsylvanians were faring worse in the new economy than they were 20 years earlier. If rural areas are adapting relatively slowly to the new economy, policymakers wanting to close the earnings gap need to understand rural growth trends, the causes of industry growth at the county level, and opportunities for growth in rural counties. This study investigates these issues by looking at the change in the number of jobs and business establishments and the average annual wages in rural and urban Pennsylvania, and in comparison states and their rural areas. Appended are: (1) Variables and their Data Sources; and (2) Predicted Industry Opportunities for Rural Pennsylvania Counties.
One of the thorniest issues of intergovernmental fiscal relations is state oversight of local fiscal affairs. States have oversight responsibility and must take action when local governments run afoul of responsible fiscal behavior. Less accepted is how states can detect local financial difficulties before they become emergencies that require state takeover. Research in the 1970s provided some assistance to states wishing to recognize local financial emergencies. But the time has come to look at this issue anew, particularly with an eye toward predicting local financial problems before they become serious. This article describes a 10-point scale that predicts these problems and tests the scale to predict local fiscal stress in a sample of Michigan local governments.
This study examines the trends in revenue diversification in approximately 240 suburban municipalities in the Chicago metropolitan region between 1988 and 1997. It then tests a model of revenue diversification’s impact on tax effort using data from 1993 to 1997, and separated by home rule and non–home rule municipalities. Trends show that suburbs with higher increases in diversification tend to be home rule, younger, less residential, experiencing more growth, less reliant on property taxes, and more reliant on sales taxes. Model estimates show that communities with more revenue diversification have lower tax effort when controlling for other determinants of tax effort, and this effect is stronger in non–home rule municipalities.
State and local government tax revenues dropped steeply following the most severe housing market contraction since the Great Depression. We identify five main channels through which the housing market affects state and local tax revenues: property tax revenues, transfer tax revenues, sales tax revenues (including a direct effect through construction materials and an indirect effect through the link between housing wealth and consumption), and personal income tax revenues. We find that property tax revenues do not tend to decrease following house price declines. We conclude that the resilience of property tax receipts is due to significant lags between market values and assessed values of housing and the tendency of policy makers to offset declines in the tax base with higher tax rates. The other four channels have had a relatively modest effect on state tax revenues. We calculate that these channels jointly reduced tax revenues by $22Â billion from 2006 to 2009, which is about 3% of total state own-source revenues in 2006. We conclude that the recent contraction in state and local tax revenues has been driven primarily by the general economic recession, rather than the housing market per-se.
Very little is known about what impact recent large upward and downward swings in single-family home values have had on local government budgets. Using a unique 15-year panel of Florida cities that includes both detailed revenue and house price data, we investigate the pathways whereby a change in house price may affect city revenue per capita and test for symmetric effects during housing booms and busts. For the median-sized city, we find that while increases in house price raise revenues, decreases in price have no effect on revenues. In addition, the former impact is small in magnitude. While the strongest pathway is through assessed values, our results illustrate that a change in house price can also affect other sources of revenue besides ad valorem taxes. The overall conclusion is that movements in Florida housing markets are only weakly related to a city's property taxes and total revenues per capita, which fails to support the argument portrayed in the popular press that house price changes strongly impact local budgets.
Our results confirm the existence of a positive direct effect of cross subsidies from municipally owned water utilities on city spending. While the results are consistent with the hypothesis that internal subsidization creates a fiscal illusion, they are also consistent with vote-maximizing behavior. That is, the demand for cross subsidies is found to depend on factors that reflect the city's fiscal position, including its spending level in the absence of a contribution. The results of the logit estimation suggest that annual contributions are discretionary, and explained primarily by a city's fiscal health. Our results also confirm the existence of a simultaneous relationship between municipal spending and utility contributions, and the need for a simultaneous estimation technique. This bias affects all prior studies of the interaction between utility revenue contributions and local public finance variables, and future studies must be aware of the simultaneous nature of the underlying relationship.
The main purpose of this paper has been to examine, theoretically and empirically, the effects of internal subsidization by municipal utilities on local public expenditures and tax burdens. The hypothesis was deduced that internal subsidization severs the link between public benefits received and taxes paid, creating a fiscal illusion that induces consumer-taxpayers to underestimate the actual cost of government. This in turn would lead to larger expenditure levels than would otherwise be forthcoming. This hypothesis was tested statistically with a sample of fifty-two municipalities in the state of New York which use utility profits to subsidize the general fund and sixty-four other municipalities which do not. A reduced form public expenditure model was estimated which included a dummy variable to check for any differences in expenditures, ceteris paribus, between the subsidy cities and others. It was found that subsidy cities had larger expenditure levels, all other things equal, which adds support for the main hypothesis. It was also found that while it is possible that utility profits may be substituted for other local revenue sources, in the sample of New York municipalities studied internal subsidization is likely to have stimulated expenditures, leading to an increase in local tax collections. This result adds further support for the main hypothesis.
A growing literature has sought to demonstrate when and how government capacity links to performance. This article examines those questions in the area of financial management. A basic challenge for state governments is to maintain budgetary stability and program predictability in face of economic downturns. State governments can best meet this challenge by developing what we call countercyclical fiscal capacity (CCFC). We present the concept of CCFC as the creation and use of financial tools that help state governments maintain countercyclical spending and program stability during revenue shocks. We operationalize the concept in terms of fiscal reserves that are used to mitigate emergency-spending cuts and tax increases and analyze the operation of such reserves over a period that includes recessions in 1991 and 2001. We find evidence of the efficacy of CCFC and argue for greater investments in this aspect of government capacity.
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