The Politics of Local Government Stabilization Funds

• DOI: http://doi.org/10.1111/puar.12317
• Date: 01 March 2015
• Published date: 01 March 2015

Douglas Snow is professor of public

service at Suffolk University in Boston.

His primary teaching areas are budgeting,

f‌i nancial management, and strategic

management. His research interests lie in

the areas of government budgeting and

f‌i nancial vulnerability.

E-mail: dsnow@suffolk.edu

Gerasimos A. Gianakis is associate

professor of public service at Suffolk

University, where he teaches quantitative

analysis, budgeting, and strategic

management. His most recent research

has been in the areas of public pensions,

procurement, and stabilization funds. He

is coauthor (with Clifford P. McCue) of

Local Government Budgeting: A

Managerial Approach (Quorum, 1999).

E-mail: ggianaki@suffolk.edu

Jonathan Haughton is professor of

economics at Suffolk University. His current

research ranges from the effects of tax

reform proposals in the United States, to

the impact of microcredit in Vietnam and

Thailand, to the pedagogy of teaching

statistics. A prizewinning teacher, his most

recent book, Living Standards Analytics,

was published by Springer in 2011.

E-mail: jhaughton@suffolk.edu

304 Public Administration Review • March | April 2015

Public Administration Review,

Vol. 75, Iss. 2, pp. 304–314. © 2014 by

The American Society for Public Administration.

DOI: 10.1111/puar.12317.

the accumulation of surpluses as excess taxation, while

voters with a pro-spending political disposition may

view surpluses as forgone spending. To the extent that

communities attract citizens with similar preferences,

these preferences contribute to a common politi-

cal culture. At present, little is known about how a

community’s political culture and f‌i nancial manage-

ment capacity af‌f ect the ability of a community to set

aside surpluses in a stabilization fund. While there

is a growing body of literature on the determinants

and use of f‌i nancial reserves in general, this litera-

ture is still in its early stages and has yet to develop a

“theoretical model that incorporates relevant manage-

rial, organizational, and political” variables (Hendrick

2006, 43).  e development of such a theoretical

model is important to (1) fully understanding the role

of these funds within a community’s overall f‌i nancial

structure and (2) developing recommendations for

the implementation, size, and use of reserves. Because

state legal and regulatory environments vary, it has

been especially dif‌f‌i cult to identify funds that are

specif‌i cally set aside for f‌i scal stabilization, leaving

The adoption, maintenance, and prudent use

of budgetary stabilization funds have become

fundamental precepts of municipal f‌i nancial

management.  e most common rationale for these

funds is to stabilize expenditures during times of

recession, but communities sometimes set aside funds

to f‌i nance nonrecurring expenditures such as small

capital projects and equipment. Best practices call for

explicit designation of a stabilization fund’s purpose,

policies for its use, minimum and maximum balances,

and transparency (Kavanagh 2011; National Advisory

Council on State and Local Budgeting 1998).  ese

policies set these funds apart from other f‌i nancial

resources.

Stabilization funds cannot come into existence

without capable f‌i nancial managers who recommend

and, with political support, implement policies and

practices that favor the accumulation of the surplus

revenue required to f‌i nance them.  e preferences of

these managers exist in tension with voter preferences.

Voters with an anti-tax political disposition may view

 e Politics of Local Government Stabilization Funds

Douglas Snow

Gerasimos A. Gianakis

Jonathan Haughton

Suffolk University

Abstract:  e adoption, maintenance, and prudent use of budgetary stabilization funds are fundamental

f‌i nancial management precepts, yet the variables that inf‌l uence the size of these funds are poorly understood.  is

ar ticle contributes to the stabilization fund literature by examining the extent to which variation in stabilization

fund balances across municipalities and over time can be explained by a community’s political culture and

f‌i nancial management capacity.  e balanced panel research design includes archival data for 239 Massachusetts

municipalities for each of 18 f‌i scal years. Stabilization fund balances are lower in communities with either an

anti-tax or a pro-spending political culture. Stabilization fund balances are higher in communities that have the

f‌i nancial management capacity to accumulate budget surpluses that can be made available for appropriation to

stabilization funds. Communities with the open town meeting form of government also have higher stabilization

fund balances.

Practitioner Points

• Political support for policies advocated by professional f‌i nancial managers is important to a community’s

capacity to build and maintain stabilization funds.

• Support for building stabilization fund balances is lower among voters who perceive these balances as either

unnecessary taxation or forgone spending.

• Reaching a politically acceptable stabilization fund balance requires planning and discipline over time—

approximately f‌i ve years in the models produced for this study.

• Communities with the open town meeting form of government have higher stabilization fund balances than

communities with other forms of government.