Municipal Responses to Fiscal Stress

Abstract

This study examines officials' reactions to the fiscal constraints facing Wisconsin municipalities in 2004. Using survey response data coupled secondary demographic and financial data, our findings reflect a substantial amount of continuity when compared to earlier published works. Wisconsin municipal officials support a series of revenue and expenditure strategies depending on the level of stress facing the community. Surprisingly, we find no statistical relationship between officials' perceptions of fiscal stress and empirical measures of fiscal stress. Our study also demonstrates that the existence of professional administration influences the types of response strategies pursued by municipalities.

Keywords:

• fiscal stress
• public finance
• retrenchment

Notes

1. For a summary see Honadle, B. W., Costa, J.; Cigler, B. Fiscal Health for Local Governments: An Introduction to Concepts, Practical Analysis and Strategies; Elsevier: San Diego, CA, 2004.

3. Levine, C. H. Organizational Decline and Cutback Management. Public Administration Review, 1978, 38, 316–325.; Levine, C. H. More on Cutback Management: Hard Questions for Hard Times, in Managing Fiscal Stress: The Crisis in the Public Sector, Ed. C. H. Levine; Chatham House: 1980 Chatham, N. J,; Levine, C. H.; Rubin, I. S.; Wolohojian, G. G. Resource Scarcity and the Reform Model: The Management Retrenchment in Cincinnati and Oakland, Public Administration Review 1981 41(6), 619–628.; Pammer, W. J. Managing Fiscal Strain in Major American Cities: Understanding Retrenchment in the Public Sector; Greenwood Press: New York, 1990.; Wolman, H.; Davis, B. Local Government Strategies to Cope with Fiscal Pressure, in Fiscal Stress and Public Policy, Eds. C. Levine; I. Rubin. Sage Publications: Beverly Hills, CA, 1980.; Downing, R. G. Urban County Fiscal Stress: A Survey of Public Officials' Perceptions and Government Experiences. Urban Affairs Quarterly, 1991, 24: 2(December); 314–325.

4. Pagano, M. A. City Fiscal Conditions in 2004. State Tax Notes 34, (10), 435–439; Maher, C. S.; Deller, S. C. A Survey of the Fiscal Health of Wisconsin Municipalities; The Municipality, League of Wisconsin Municipalities: Madison, WI, December 2004.

8. Knight, B., Kusko, A., Rubin, L. Problems and Prospects for State and Local Governments. State Tax Notes, 2003, 29(6) (August):427–439.; McGuire, T. J.; Steuerle, C. E. A Summary of What We Know — and Don't Know — About State Fiscal Crises. State Tax Notes, 2003(August):357–361; Reschovsky, A. The Implication of State Fiscal Stress for Local Governments. Paper presented at The Urban Institute Conference on State Fiscal Crises: Causes, Consequences, and Solutions. Washington, DC, 2003 (April).

13. Levine, 1980; Wolman & Davis, 1980; Schick, A. Micro-Budgetary Adoptions to Fiscal Stress in Industrialized Democracies. Public Administration Review, 1988, 48(January/February): 523–533.

16. Schick, 1980.

17. Wolman & Davis, 1980.

18. Levine, 1980.

19. Levine, 1980; Levine, C. H.; Rubin, I. S. Wolohojian, G. G. Resource Scarcity and the Reform Model: The Management Retrenchment in Cincinnati and Oakland. Public Administration Review, 1981, (6): 619–628; Downs, G. N.; Rocke, D. M. Theories of Budgetary Decision-Making and Revenue Decline. Policy Sciences. 1984, 16(March):329–347.

20. Pammer, 1990.

21. Downs & Rocke, 1984.

22. Pammer, 1990.

24. The operationalization of professional versus non-professional forms of local government has typically been a dichotomy between council-manger forms versus mayor-council forms.

25. Deller, S. C., Hinds, D. G.; Hinman, D. L. Local Public Services in Wisconsin: Alternatives for Municipalities with a Focus on Privatization. Department of Agricultural and Applied Economics Staff Paper Series No. 441, University of Wisconsin-Madison/Extension, June, 1997.

26. Question 1 asked, “Please rate the current financial condition of your city/village”; responses can be found in Figure 1. Question 2 asked, “What are the financial prospects for your city/village for the next five years?”, responses can be found in Figure 2. Question 3: “Please check the box that best describes your answers to the following questions:”. The responses can be found in Table 2.

27. Including Milwaukee increases the average population of the sample to 11, 712.

28. According to Osborne and Hutchinson (2004), a similar pattern can be found in most other states.

29. Deller, et al., 1997.

30. We would like to thank the anonymous reviewer for the helpful comment on this section.

31. Pammer, 1990.

32. Levine, 1980; Pammer, 1990.

33. Ideally, we would have included measures of the political environment in each of the communities, but data limitations prevented us from doing so. Based on Pammer's (1990) findings, this should not have a significant impact on the models.

34. Levine, et al., 1981.

35. Pammer, 1990.

37. Levine, 1980; Pammer, 1990; Hite J.; and Ulbrich, H. Fiscal Stress in Rural America: Some Straws in the Wind. American Journal of Agricultural Economics. December 1986, 1188–1193; Ward, J. D. Responding to Fiscal Stress: A State-Wide Survey of Local Governments in Louisiana a Research Note. International Journal of Public Administration 2001, 24(6) 565–571.

38. Pammer, 1990, p. 61.

39. Honadle, et al., 2004.

40. This variable is a simple cumulative measure of responses to eight measures of fiscal stress (Table 2). Note that for six of the eight questions, the lower the value, the better the fiscal condition. The direction of two questions was reversed for consistency: “we are near our debt level capacity” and “we are faced with unfunded pension liabilities.” Due to the question coding, the lower the value, the better a community's fiscal condition. Finally, the validity of this cumulative measure was verified by the strong association between it and responses to the question that asked respondents to evaluate their current financial condition (Table 1); the Pearson's correlation coefficient was −.517.

42. Initially an ordinal measure was created where council-manager forms were coded three, mayor-council forms with an administrator and/or finance director coded two and the remaining municipalities were coded one. The findings were consistently insignificant.

43. Pammer, 1990.

44. Pammer, 1990.

45. Levine, 1980.

46. Levine, 1980.

47. Schick, 1980.

48. In fact, we previously analyzed the qualitative measures of fiscal stress derived from this survey and a host of objective quantitative measures obtained through an extensive literature search, we found little to no association between them.

49. Downs & Rocke. 1984.