Forms of government and municipal financial performance

IMPACT

This paper finds that the political influence of a local mayor on the appointment of the chief administrative officer (CAO) has a negative influence on the financial outcomes of local governments, as evidenced by lower municipal bond ratings. This finding suggests that excessive political authority delegated to mayors may restrict managers from using long-term and apolitical financial strategies. The authors urge local governments to have a mechanism that insulates their CAOs from political pressures to increase government efficiency and decrease the risk of corruption.

ABSTRACT

The authors examined the impact of municipal government structures on the bond ratings of municipalities in the USA. While their initial analysis suggested that the mayor–council system has a negative impact on municipal bond ratings, the application of Nelson and Svara’s (2010) government typology demonstrated that the political influence of a mayor on the appointment of the chief administrative officer is a driving factor that negatively affects bond ratings, regardless of the government being a mayor–council or a council–manager form.

KEYWORDS:

• Chief administrative officer (CAO)
• forms of government
• incentive structure
• local government
• municipal bond ratings

Disclosure statement

No potential conflict of interest was reported by the author(s).