Assessing the efficacy of rational budgeting approaches: fiscal recovery planning and municipal budgetary solvency

ABSTRACT

This study assesses the effects of financial recovery planning on the budgetary solvency of US cities. Budgetary solvency is the ability of governments to meet their service responsibilities and other financial obligations in a fiscal year. Financial recovery planning, which is based on rational decision-making theory, is designed to help cities recover from fiscal stress by facilitating diagnosis of fiscal problems, and the implementation of short- and long-term fiscal recovery strategies. Using data from a national survey of cities and multi-year audited financial reports, the results of the regression analyses show that planning is associated with stronger budgetary solvency, but its effectiveness varies across cities. Specifically, planning helps majority of fiscally struggling cities, but not those facing extreme fiscal decline.

KEYWORDS:

• Rational budgeting
• financial planning
• city budgetary solvency
• great recession

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Planning has been linked to various performance and service outcomes, other than financial or budgetary. For detailed reviews of the planning literature, see Boyne (2000); and specifically for strategic planning and management, see Poister, Pitts, and Edwards (2010), Bryson, Berry, and Yang (2010), and Bryson, Edwards, and Van Slyke (2018).

2. Budgetary solvency is not a binary condition. It is more appropriate to think of budgetary solvency as a continuous measure of the degree to which a city can meet its service and financial obligations.

3. See http://www.gfoa.org/overview-process-stages-financial-recovery (Accessed on 6–1-2017).

4. See http://www.gfoa.org/stage-7-recovery-plan (Accessed on 6–1-2017).

5. See http://www.gfoa.org/long-term-financial-planning-0 (Accessed on 6–1-2017).

6. The discussion on measures of budgetary solvency and control variables borrows extensively from Jimenez (2017a, 2017b, 2017c, 2018).

7. Population cannot be used because the American Community Survey does not update yearly population data for some cities (see https://www.census.gov/programs-surveys/acs/guidance/estimates.html).

8. Based on survey best practices suggested by Dillman, Smyth, and Christian (2009), and Podsakoff, MacKenzie, and Podsakoff (2012).

9. Because of space consideration, the results are not presented here but are available on request. Additional tests for multicollinearity, including variance inflation factor, were implemented.

10. Because the log of negative and zero values is undefined, a constant value is added to the solvency measures (and relevant controls) to enable log transformation and avoid dropping observations.

Additional information

Notes on contributors

Benedict S. Jimenez

Benedict S. Jimenez (PhD, University of Illinois) teaches courses on public and nonprofit budgeting and financial management, public finance and economics, and public administration at Northeastern University’s Department of Political Science, School of Public Policy and Urban Affairs, and the Politics, Philosophy, and Economics Program. Benedict’s research examines how sub-national governments finance, manage and provide local public goods. In the last five years, he has employed different data-gathering methods—ranging from a national survey of city officials, interviews with city managers and budget directors, the collection and coding of audited financial reports, and analysis of raw census data—to assemble a comprehensive dataset on municipal public finance especially during and after the 2007-09 Great Recession. Analysis of these data has resulted in numerous articles published in top public administration, public policy, and public finance and budgeting journals such as the Journal of Public Administration Research and Theory, Public Administration Review, Public Budgeting and Finance, Public Finance Review, American Review of Public Administration, International Public Management Journal, Public Administration, and Urban Affairs Review, among others. Benedict has presented the results of his research in different national and international conferences of the American Political Science Association, Association for Public Policy Analysis and Management, Public Management Research Association, National Tax Association and the Association for Budgeting and Financial Management.