The Politics of Local Government Stabilization Funds

Date01 March 2015
Published date01 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.
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).
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.
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
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.

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