LOCAL-GOVERNMENT RESPONSES TO THE 2008 U.S. FISCAL CRISIS: STRATEGIC, MERELY PREDICTABLE, OR LIFTED FROM THE GARBAGE CAN?

Author:Justice, Jonathan B.
Position:Report
 
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  1. INTRODUCTION

    U.S. state and local governments faced significant fiscal challenges as a result of the so-called great recession of December 2007 to June 2009. That in turn brought renewed attention by researchers to the responses of public organizations to changes in their fiscal environments. One area of attention has been normative, with academics and other experts offering tactical and strategic guidance for state and local governments (e.g., Miller & Svara, 2009; Task Force on the State Government Budget Crisis, 2012). But the crisis and the attention paid to it by practitioners and researchers have also created opportunities to examine a number of still unsettled descriptive and explanatory questions about how public organizations respond to abruptly decreased environmental munificence. This article presents an analysis of data from the International City/County Management Association's 2009 State of the Profession Survey (ICMA, 2009) as a way to understand the retrenchment choices local governments made in response to the 2008 fiscal crisis in the U.S.

    The analysis addressed two research questions in particular. First, could U.S. local governments' responses to fiscal stress in the wake of the financial crisis be classified in any meaningful way as either systematically designed, goal-oriented strategies (e.g., Pfeffer & Salancik) or predictable stages of retrenchment (e.g., Levine, Rubin, & Wolohojian, 1981a; Wolman & Peterson, 1981)? Previous research has sometimes reached such a conclusion, but there is also a body of research that finds retrenchment behaviors to be largely reactive, non-systematic, and/or too idiosyncratic to be categorized (e.g., Bartle, 1996; Pammer, 1990). Second, if those responses to fiscal stress are in fact demonstrably strategic, predictable, or at least categorizable, do they follow a pattern that is unique to the public sector (e.g., Pandey, 2010), or are they similar to private organizations' responses to scarcity, consistent with a "generic" model of organizations and management (e.g., Bozeman, 2010)? The research results presented below suggest that U.S. local governments' responses to the Great Recession were in fact strategic in the sense of being rationally related to circumstances and the goal of organizational mission continuity. Further, the observed patterns of retrenchment correspond better to a generic model of strategy than to the most widely cited public sector-specific model.

    Exploratory factor analysis of the ICMA data identified four major patterns of responses that were broadly consistent with the strategic categories identified by a generic resource-dependency model of organizational choice (Pfeffer & Salancik, 1978). The response patterns were less consistent with the strategic stages model of fiscal retrenchment developed by Charles Levine and colleagues (Levine et al., 1981a). At the same time, several of the retrenchment actions did not fit neatly into the four factors, and the factors did not match perfectly with either model of strategic choice. Similar results have been interpreted by some researchers (e.g., Bartle, 1996; Pammer, 1990) as indicating a largely irrational and non-strategic "garbage-can" model of organizational decision making (Cohen, March, & Olsen, 1972). However, it is also entirely consistent with rational, strategic efforts by local decision makers to respond effectively to distinctive local conditions (e.g., Bourdeaux, 2012; Levine, Rubin, & Wolohojian, 1981a; 1982; Nelson, 2012). This inability to identify decision processes conclusively based upon observations only of decision outcomes is a limitation of the present research, similarly to previous quantitative studies. The data are observations only of (self-reported) organizational actions, not the decision-making processes that resulted in those actions. Still, a body of careful case-study research (e.g., Levine, Rubin, & Wolohojian, 1981a; Nelson, 2012; Rubin, 1982) suggests that variations in retrenchment behavior among organizations are likely to reflect rational adaptation to local contingencies more than irrationality.

    In multiple regression models that used the factor scores as dependent variables, jurisdiction size and local officials' perception of the degree to which their jurisdictions had been affected by the crisis were positively associated with the use of all four strategies. Larger and more strongly affected jurisdictions were more likely to something, but not necessarily to choose any specific strategy over others, ceteris paribus. Regression results did reveal modest associations of specific strategic choices with local governments' organizational characteristics, practices, and environments. Having a strategic plan was positively associated with pursuit of a restructuring strategy, and negatively associated with an input-exchange-control strategy of reducing employee compensation. Municipal governments were more likely than counties to adopt a restructuring strategy or to engage in non-strategic temporizing. Governments with appointed chief administrative officers (CAOs) were more likely than others to temporize, restructure, or adopt a buffering strategy of increasing fee revenues. Governments using the council-manager form were more likely to pursue a restructuring approach than were non-council-manager governments. The involvement of citizens in retrenchment decision making was positively associated with the adoption of the buffering and exchange-control strategies.

    Taken as a whole, the results suggest a conclusion, a broad hypothesis, and a methodological lesson. First, U.S. local governments' fiscal responses to the Great Recession appear to have been largely rational. Second, organization-specific fiscal history and context are likely to be stronger influences on local governments' fiscal strategies than organizational traits or structure. Third, direct observation may be a more effective way to measure decision processes than trying to draw inferences about them from observations of decision outputs alone.

    The remainder of this article is organized as follows. Sections two through four review relevant literature that has articulated and tested models of organizational responses to decreasing environmental munificence generally, and local-government responses to fiscal stress specifically. Section five develops some general propositions from that literature. Section six describes the data and research methods used for this study. The final three sections present respectively the results of the factor analysis, the regression analyses, and the conclusions drawn from those results.

  2. MODELING AND OBSERVING RETRENCHMENT BEHAVIOR

    The literature on governments' responses to fiscal stress and declines in resource availability has grown fitfully, with a flurry of attention in the wake of every recession. Much of the agenda for retrenchment research was established in the late 1970s and early 1980s, as cities and states strove to respond to coincident transformations in the U.S. national economy, intergovernmental fiscal arrangements, and political economy. Researchers at that time generated a number of theories and models of organizational urban fiscal stress or pressure specifically, as well as organizational decline more broadly (e.g., Biller, 1980; Cameron & Zammuto, 1983; T. N. Clark & Ferguson, 1983; Downs & Rocke, 1984; Glassberg, 1978; Levine, 1978, 1979; Levine, Rubin, & Wolohojian, 1981b; C. W. Lewis & Logalbo, 1980; G. B. Lewis, 1984; Martin, 1982; Morgan & England, 1983; Wolman & Peterson, 1981; Wolman, 1980; Zammuto & Cameron, 1982).

    This literature is by now extensive but not altogether cumulative or conclusive. There is no consensus to date on broad questions such as whether public and private organizations handle cutback management similarly (Bozeman, 2010) or differently (Levine, Rubin, & Wolohojian, 1982; Pandey, 2010) across sectors. Indeed, there is no consensus even regarding whether governments' responses to fiscal stress and fiscal crises are descriptively classifiable or explainable across jurisdictions. Some researchers have found that retrenchment behaviors are predictable, consistent with models predict that behavior will reflect deliberate strategic choices driven by organizations' strategic orientations (e.g., Pfeffer & Salancik, 1978). Other models posit more emergent, but still largely predictable, patterns of reaction to developing local circumstances (e.g., Levine et al., 1981a; G. B. Lewis, 1988; Wolman & Peterson, 1981). Other researchers, however, have argued from empirical analysis that retrenchment behaviors instead represent the effectively unclassifiable and unpredictable outcomes of decremental or garbage-can decision making (e.g., Bartle, 1996; G. B. Lewis, 1984; Pammer, 1990).

    One potential source of confusion in the literature is that researchers are not always explicit about whether their units of analysis are the processes by which decisions are made in organizations versus the observed behaviors that result from those decisions. Figure 1 illustrates the key parts of a basic open-systems model of how environmental conditions are transformed into organizational choices and behavior. It is used here to help make sense of the literature and empirical phenomena of retrenchment by distinguishing organizational decision-making processes from two dimensions of organizational strategy: strategic stance or orientation, and strategic actions (Andrews, Boyne, & Walker, 2006; Boyne & Walker, 2004).

    For present purposes, organizational strategy refers to a configuration of one or more consciously coordinated, purposive actions undertaken by an organization. (Actions can also be undertaken that are not necessarily part of a coherent strategy.) Actions and strategies are designed and selected by organizational decision makers in response to cues and conditions in the organization's environment. Those choices...

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