Caught in the Crunch: School District Financial Condition and Performance

• DOI: 10.1177/0160323X19892047
• Published date: 01 June 2019
• Date: 01 June 2019
• Author: Lucy C. Sorensen,Youngsung Kim
• Subject Matter: General Interests

General Interest

Caught in the Crunch: School

District Financial Condition

and Performance

Youngsung Kim

1

and Lucy C. Sorensen

1

Abstract

The ability of public organizations under fiscal stress to achieve their goals and maintain public

service delivery warrants attention. Using an eleven-year panel of school-district data from New

York State, this study examines how different dimensions of financial condition affect district per-

formance. The findings indicate that increasing debt burdens have immediate negative impacts on

school-district performance. These adverse impacts may be driven by the cutback strategies that

districts choose in response to declining financial conditions. These findings have practical impli-

cations for how public organizations can best cope with rising debt while maintaining high

performance.

Keywords

financial condition, organizational performance, school district

Prior studies on financial condition have

focused on the development of financial condi-

tion measures, the prediction of fiscal stress

using financial indicators, and the examination

of impacts of financial condition on govern-

ment operations such as public service delivery

(Gorina, Maher, and Joffe 2018; Hendrick

2004; Jimenez 2009; Johnson, Kioko, and

Hildreth 2012; Stone, Singla, Comeaux, and

Kirschner 2015; Wang, Dennis, and Tu 2007).

To date, however, little is known about how

financial condition affects the way that govern-

ments pursue and achieve organizational goals.

Using school districts in New York State as

a case study, this article aims to empirically

examine how financial condition of govern-

ments affects the extent to which they success-

fully achieve organizational goals. To answer

this research question, this article considers

four financial indicators—fund balances,

operating conditions, cash ratios, and debt bur-

dens—that reflect multidimensional aspects of

financial condition. District performance is

measured using standardized math and reading

test scores. Using these measures, multivariate

panel regression analysis is conducted with

school-district and year fixed effects.

This study seeks to make two contributions

to the literature. First, it shows that financial

condition can influence organizational perfor-

mance by affecting its ability to maintain

1

Rockefeller College of Public Affairs and Policy, University

at Albany, State University of New York, Albany, NY, USA

Corresponding Author:

Youngsung Kim, Rockefeller College of Public Affairs and

Policy, University at Albany, State University of New York,

135 Western Avenue, Albany, NY 12203, USA.

Email: ykim22@albany.edu

State and Local GovernmentReview

2019, Vol. 51(2) 104-112

ªThe Author(s) 2019

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DOI: 10.1177/0160323X19892047

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