Local Government Responses to Fiscal Stress: Evidence from the Public Education Sector

• Date: 01 September 2014
• Published date: 01 September 2014
• Author: Ashlyn Aiko Nelson,Rekha Balu
• DOI: http://doi.org/10.1111/puar.12211

Ashlyn Aiko Nelson is associate

professor in the School of Public and

Environmental Affairs at Indiana University.

Her research examining the causes and

consequences of inequality in housing

and school f‌i nance has been published

in Journal of Policy Analysis and

Management, Review of Economics

and Statistics, Review of Financial

Studies, and Economics Letters. She

holds a master’s degree in economics and

doctorate in economics of education from

Stanford University.

E-mail: ashlyn@indiana.edu

Rekha Balu is research associate at

MDRC in the K–12 education policy area.

She earned a doctorate in economics

of education and a master’s degree in

economics from Stanford University, as well

as a master’s degree in education from

the Harvard Graduate School of Education.

She focuses on experimental and quasi-

experimental impact evaluation techniques,

implementation and cost analysis, and

managing large-scale projects with complex

data sets. Previously, she served as associ-

ate director of the Center on Universal

Education and was a Fulbright Scholar in

Guatemala.

E-mail: rekha.balu@mdrc.org

Local Government Responses to Fiscal Stress: Evidence from the Public Education Sector 601

Public Administration Review,

Vol. 74, Iss. 5, pp. 601–614. © 2014 by

The American Society for Public Administration.

DOI: 10.1111/puar.12211.

Ashlyn Aiko Nelson

Indiana University, Bloomington

Rekha Balu

MDRC

 is article investigates local government responses to

f‌i scal stress through the lens of the K–12 public educa-

tion sector, examining two major policy options avail-

able to school districts for managing f‌i scal hardship: (1)

cutting costs, especially through layof‌f s, and (2) raising

revenues locally through voter referenda.  e article

employs district-level administrative and survey data

from California and Indiana to examine whether school

districts exhibit features of a rational or natural system—

in which their behaviors largely ref‌l ect f‌i scal pressures

only—or whether they exhibit features of an open system

in which nonf‌i nancial factors also shape responses. In

Indiana, district f‌i scal characteristics explain dif‌f erences

in cost-cutting and revenue-raising

behaviors; there is little empiri-

cal evidence that school districts

exhibit features of an open system.

In California, both f‌i scal and

environmental attributes, includ-

ing poverty characteristics, average

student achievement levels, and

the enrollment of English learner

students, explain school district

behaviors.

The nearly 90,000 local government units in

the United States—including townships,

municipalities, counties, special-purpose dis-

tricts, and public school systems—rely predominantly

on revenues from income, sales, and property taxes

and transfers from state and federal sources to provide

public services (Franzel 2009; U.S. Census Bureau

2009). Since the start of the “Great Recession” in

2007, f‌i scal shortfalls have resulted in reduced public

services in 46 states (Johnson, Olif‌f , and Williams

2011), impacting services provided at the local

government level: public education; public transporta-

tion; f‌i re, police, and ambulance services; parks and

recreation; road maintenance; health department

activities; water and sanitation; and public utilities.

Nationally, municipal budgets faced shortfalls between

$56 and $83 billion in the 2010–12 f‌i scal years

(Hoene 2009); since 2008, 34 states have cut their

K–12 education budgets, and 21 states proposed addi-

tional K–12 budget cuts for the 2011–12 f‌i scal year

(McNichol, Olif‌f , and Johnson 2012).  ese local

government f‌i scal shortfalls result from the sharpest

decline in state revenues on record: since 2008, state

tax receipts have declined by 12 percent in inf‌l ation-

adjusted terms (McNichol, Olif‌f , and Johnson 2012).

Further, shortfalls persist despite a temporary infusion

of $280 billion in economic stimulus to programs

administered by state and local governments under

the 2009 American Recovery and Reinvestment Act

(GAO 2009).

School districts are pervasive

local government organizations

and provide a rich environ-

ment for examining local

government responses to the

Great Recession.  is article

empirically investigates what

explains local government

responses to f‌i scal stress, using

the K–12 public education

sector as a setting. Our outcome measures of inter-

est ref‌l ect two primary means used by local govern-

ments for managing f‌i scal stress: (1) cutting costs,

especially by eliminating teaching staf‌f (the primary

spending obligation), and (2) raising revenues locally

through voter referenda. School districts may elect

to pursue a single policy response (e.g., cost cutting),

or they may pursue multiple policy responses simul-

taneously. Economically rational behavior does not

clearly preference one policy response over another,

and more research is needed to understand whether

school districts with particular characteristics are more

likely to select particular policy responses. Dif‌f erences

in district policy responses raise important equity-

based concerns, including whether districts serving

high-needs students—often considered the costliest to

educate—are more likely to face expenditure reduc-

tions, are less able to pursue revenue-raising strategies,

or tend to bear inequitable property tax burdens after

passing voter referenda.

Local Government Responses to Fiscal Stress: Evidence

from the Public Education Sector

School districts are pervasive

local government organizations

and provide a rich environment

for examining local govern-

ment responses to the Great

Recession.