RESPONSES TO RECESSION ERA FISCAL STRESS: LOCAL GOVERNMENT STRATEGIES IN NEW MEXICO.

Author:Desai, Uday
Position:Report
 
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  1. INTRODUCTION

    In 1979, at the beginning of a period of fiscal retrenchment in government, Charles Levine wrote that "we are entering... an era dominated by resource scarcity" (179). In the aftermath of the Great Recession of 2008-2009, an era of resource scarcity returned with a force not seen in decades. The recession and resulting fiscal stress hit state and local governments especially hard. Almost all states (43 out of 50) and 90% of cities faced declining revenues and high levels of fiscal stress (Maciag and Wogan, 2017; Johnson, Nicholas, and Pennington, 2009). State and local governments responded by making deep budget cuts (McGranahan, 2002; Scorsone and Plerhoples, 2010). The overwhelming majority of cities (90%) made spending cuts during this period (Hoene and Pagano, 2009). Bankruptcy declarations by Stockton, CA and Detroit, Michigan were emblematic of the dire fiscal crises experienced by many U.S. cities (Bartram 2013; Williams, 2013). There is a need, anew, for research into how state and local governments manage their budgets in this era of fiscal stress (Dougherty and Klase, 2009; Scorsone and Plerhoples, 2010; Fehr 2012; Jimenez, 2013).

    This study focuses on budgetary decision making by local governments in New Mexico, in response to fiscal retrenchment in the aftermath of the Great Recession. It examines the strategies used by local governments in the state; the impacts of cutbacks on government services; and the role of politics, strategic planning, policy research, and the extent of stakeholder participation in budgetary decisions. It also inquires into the relationships between the severity of the cuts vis-a-vis the form, type and size of local governments and their budget management strategies.

    The next section briefly reviews the last four decades of literature on cutback management by state and local governments in the U.S. The sections following outline our research design, summarize the responses of local government administrators to our survey questions, and discuss our analysis of the results. This includes analyzing the relationship between the governments' perception of the severity of the budget cuts and their use of strategic planning and policy research or analytical studies, as well as their experience of political pressure. We also explore relationships among three major dimensions of cutback decisions, that is, the cutback strategies chosen, their impacts on services, and the degree of stakeholder participation in the decision making. We then discuss relationships between the size, type, and the form of local governments and those three dimensions of cutback decision making, as well as relationships between the size, types, and forms of local government and perceptions of the severity of the cuts, the use of policy/analytical research, and political pressure. The paper concludes with some suggestions for future research.

  2. RELATED LITERATURE

    Many studies have identified and categorized responses of state and local governments to fiscal stress and the contextual factors that influence the cutback decisions (Glassberg, 1978; McTighe, 1979; Behn, 1980, 1985; May and Meltsner, 1981; Plant and White, 1982; Jick and Murray, 1982; Downs and Rocke, 1984; Klinger, Lehnen, and Schervish, 1984; Poister and McGowan, 1984; Higgins, 1984; West and Davis, 1988; Macmanus, Rattley, Ungaro, Brown, O'Donnell, and Shalmy. 1989; Pammer, 1990; Forrester and Spindler, 1990; Stipak and O'Toole, 1993; Bartle, 1996; Ward 2001; Beckett-Camarata, 2004; Anderson, 2011).

    There has been general agreement in the literature that local government managers should use policy and analytical research in making cutback decisions (McTighe, 1979; Higgins, 1984; Osborne and Hutchinson, 2005; Justice 2009; Scorsone and Plerhoples, 2010; Anderson, 2011). However, there are few empirical studies on the extent to which local governments actually use these tools in making cutback decisions.

    Many cutback management studies have found that government budgetary cutback decisions are rational or systematic choices, indicating shifts in a governments' priorities. These studies emphasize that cutback decisions are rational and sequential responses to the degree of severity of fiscal stress and generally follow similar patterns in all localities (Levine, Rubin, and Wolohojian, 1981a; Rickards, 1984; Behn, 1985; Dougherty and Klase, 2009; Klase, this symposium; Yang and Justice, this symposium). Other studies, however, suggest that cutback decisions have little similarity from one jurisdiction to another, that there are no general patterns (Pammer, 1990; Bartle, 1996), and that responses to fiscal stress vary considerably, while the reasons for the variations are "largely contextual" (Bartle, 1996, 47).

    Several studies have addressed the specific cutback management strategies used by state and local governments in response to fiscal stress. A study of Ohio local governments' cutback strategies found that, in order of importance, reducing non-workforce expenditures, attracting economic development, and freezing or reducing the workforce were the three most important cutback strategies (Beckett-Camarata, 2004). Skidmore and Scorsone, found that reducing capital spending was "especially responsive" to fiscal stress in Michigan cities (2011, 368). Cutting capital spending and decreasing cash balances were the two primary strategies in nine cities in New York (Bartle 1996). Expenditure reductions, alternative revenue sources and productivity improvements were the three major cutback strategies used by Charlotte, NC and Syracuse, NY (Higgins, 1984). Stipak and O'Toole (1993) found that Oregon cities, counties, and school districts made greater use of productivity improvement tools as fiscal stress increased.

    Significant budgetary cutbacks mean a decline in organizational resources and in services and programs previously provided. Any decline in an organization's resources, especially reduction in personnel, is expected to affect employee morale and work effort negatively (Darley, 2004; Kelman, 2006), though it has also been found that the manner in which the personnel cuts are carried out has significant effect on employee morale and performance (Cameron, 1994; De Vries and Balazs, 1997).

    There are some noteworthy gaps in the literature on fiscal stress and cutback management. Most cutback management studies, with few exceptions, are case studies that focus on one or two usually large cities (Levine, Rubin, and Wolohojian, 1981; Higgins, 1984; Anderson, 2011. Exceptions include Bartle, 1996; Beckett-Camarata, 2004; Klase, this symposium; Yang and Justice, this symposium). Those case studies do not provide an overall picture of cutback management in local governments, especially in small and medium size municipalities. They do not address many important theoretical assertions and questions raised in the fiscal stress and cutback management literature, for example, the importance of strategic planning, the use of policy and analytic research, or the influence of politics in cutback decisions. The literature also fails to consider budget reductions and revenue enhancement simultaneously (Scorsone and Plerhoples, 2010, 184), and pays inadequate attention to the impacts of cutbacks on services, including the extent to which levels of services are reduced, contracted out or eliminated altogether, and their impacts on in-house and long-term service capacity. While there is general normative agreement that citizen participation and stakeholder involvement in cutback decisions are important, there is little empirical study of the extent to which this is actually practiced by local governments (For an exception, see Jimenez, 2014). It is also generally assumed that cutbacks affect public support for and expectations of governments generally. However, there is little empirical data on the extent to which local government officials find this to be the case.

  3. RESEARCH DESIGN

    Our research surveys strategies for coping with fiscal stress across local governments in the state of New Mexico. It is designed to fill important gaps in our understanding of cutback decisions by local governments. The few extant empirical studies have focused on local governments in large urban, industrial states and on one or two local governments (Levine, Rubin, and Wolohojian, 1981; Anderson, 2011; Bartram, 2013). Folz and French claim that "[T]he paucity of academic research on the management and governance of small communities borders on the scandalous, especially considering that these cities comprise the vast majority of all incorporated U.S. municipalities. In 2003 "...80% of all cities had populations between 2,500 and 25,000..." (2005, 4). By comprehensively surveying the cutback management decisions by municipalities in New Mexico, this study fills two important gap in the literature. First, it is one of the few studies of cutback management in small municipalities, and second, it represents one of the seldom studied 40% of U.S. states that are sparsely populated largely rural. In addition, New Mexico is one of the poorest states in the union, thus making the recession and the resulting fiscal stress an even greater challenge than it would be elsewhere.

    The study focuses on three major dimensions of responses to fiscal stress. First, it addresses the substantive strategies local governments use in dealing with revenue shortfalls. What specific cutback strategies are most commonly used? Second, it addresses the impacts of cutbacks on services that local governments provide and on their in-house service capacity. Third, it addresses the process of decision making. How are cutback decisions made? Do policy research and political pressure influence these decisions? Who participates in the decision making?

    Our research is also designed to consider the relationships between various dimensions of responses to fiscal stress. The study analyzes the...

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