The States' Role in U.S. Local Government Fiscal Crises: A Theoretical Model and Results of a National Survey

Abstract

Abstract This article hypothesizes four potential roles that states may play in dealing with local government fiscal crises: predict, avert, mitigate and prevent the recurrence of local fiscal crises. Based on a 50‐state telephone survey administered by the author to members of the National Association of State Auditors, Comptrollers and Treasurers in 2002, this article presents detailed information on states' roles in dealing with actual local government fiscal crises. The research found that ten states had formal definitions of local government fiscal crises while the remainder varied between having a working definition, having no definition, or leaving it to local authorities to define a fiscal crisis for themselves. Although the majority of states lacked a rigourous, legal definition of what constitutes a local government fiscal crisis, 36 states reported that they had had such crisis in recent history in their states. Seven overlapping categories of state approaches emerged: the directive approach, the proactive approach, the ad hoc approach, the special legislation approach, the reform approach, the takeover approach, and the responsive approach. States reported a wide range of activities under each of the hypothesized roles. In general, states tended to get involved after a crisis rather than before one occured. Keywords: Local governmentState policyPublic financeFiscal healthFiscal crisesIntergovernmental relationsFiscal stressFiscal strain Acknowledgments The author wishes to thank the high‐ranking state officials who responded to the survey on which this article is based. She would like to thank the following graduate students at Bowling Green State University for their assistance on this project: Manjula Raghunathan, Yun Li, Cynthia Roddy, Jonathan (Jay) Samelak, Karapet Beglaryan, and Sarah Eppink. Notes aThe letter soliciting participation in the survey stated, in part, "[I]f you think you are not the right person for me to interview about your state, please help me contact the right person." bThe reader is reminded that the survey is based on responses to a questionnaire administered to state officials; those responses are reported here. Thus, statements about what a state does or what states do are shorthand for what the officials who responded to the survey told the interviewer their states do. cFor an analysis of the effects and unintended consequences of financial control boards, see Ref.Citation[27]. dMany respondents who reported that their states have not had fiscal crises offered their views on what their state would hypothetically do or not do if such a crisis were to occur. Information both on what states have done and would do, if the occasion of a fiscal crisis were to arise, were recorded, but only the actual behavior of states in real situations—unless otherwise noted—are reported in the findings.