Local Government Budgeting Responses to Fiscal Pressures

INTRODUCTION A July 10, 1995 issue of Nation's Cities Weekly (Arnt, 1995) heralded the news of a break in the long struggle for U.S. cities to keep their yearly revenues abreast of expenditures. Seventy-two percent of the 117 jurisdictions surveyed by the National League of Cities (NLC) reported that their revenues exceeded expenditures for fiscal year 1994. The article goes on to warn us, however, that these figures do not indicate how well the needs of these cities are being met, with the implication that these needs, especially infrastructure, are probably not being properly addressed. Thus, we are introduced to the complexities of studying and understanding public budgeting in general and local government budgeting in particular. We as citizens need to know decisionmaking processes concerning our tax dollars and public administrators need to know these processes in order to identify problems and offer solutions. This literature review was commissioned in order to identify and interpret where we are in our journey to understanding local government budgeting processes in response to times when revenues are not keeping pace with expenditures. In order to understand local government responses to fiscal pressures better and the implications associated with the discipline of public administration, this author chose to step back and view the broader theoretical framework and proceed downward to the practical findings in the empirical literature. Prior to examining the theoretical and empirical literature on actual budgetary responses, he will review the literature on causes of fiscal pressures on local governments. What is causing strain on our local government jurisdictions? Are there measurable problems with the supply of revenue and the urgency of demand or is budgetary scarcity truly a subjective ". twosided condition: how much governments have in relation to how much interests and agencies want" (Schick, 1980:114). On the revenue side, the literature presents some convincing evidence that local government revenue sources have, at least, been changing and for different reasons over time. Unstable revenue sources have been linked to what Schick (1980) terms "escapist budgeting" and Caiden (1980:143) calls "negative financial practices. " Caiden (1980) describes unstable budgeting systems of the "prebudgetary" feudal era as marked by ". fragmentation of revenues, deconcentration of accounts, cash flow manipulation and profitable diversion of financial purposes. " Schick (1980) further tells us of the corruption and "escapist" budgeting practices in New York City in the 1960s and 1970s, prior to the fiscal bailout, of public officials authorizing capital projects to build parks and schools which never materialized with the authorizations going to operating budgets instead.2 So, stability of revenue sources can be thought of as good for accountability and efficiency in the budgetary process. Now, lets view some studies, trends, and indicators of local government revenue sources in recent history. Local governments' own source tax burdens have risen over the postwar period (Rubin, L., 1992). The percentage of federal aid of total state and local outlays went from about 11 percent in 1958 to about 27 percent in 1978 (Shannon, 1990:22). The percentage of federal aid in local governments' total revenue fell from 13 percent in 1978 to 4 percent in 1988.3 Local government reliance on state aid has remained steady over the 1970s and 1980s at about 36 percent of total local revenues. As a percentage of total grants to local governments, state grants totaled 73 percent in 1978 and 91 percent in 1988 (Rubin, L., 1992:897)4 Other than the declining role of federal aid, the most onerous culprit of shrinking revenues may be attributed to recessions (Pammer, 1990:4; Cohen, 1989). 5 Cohen found that some of the worst municipal defaults occurred during major economic depressions. …