Understanding municipal fiscal health: A model for local governments in the USA. By Craig S. Maher , Sungho Park , Bruce D. McDonald III , Steven C. Deller , New York: Routledge. 2023. pp. 350. $61.99 (paperback) and $160 (hardcover). ISBN: 9781032055428

• Published date: 01 May 2024
• Author: Andrey Yushkov
• Date: 01 May 2024
• DOI: http://doi.org/10.1111/puar.13817

Accepted: 26 March 2024

DOI: 10.1111/puar.13817

Understanding municipal

fiscal health: A model for

local governments in the USA

By Craig S. Maher, Sungho Park, Bruce D.

McDonald III, Steven C. Deller, New York:

Routledge. 2023. pp. 350. $61.99

(paperback) and $160 (hardcover). ISBN:

9781032055428

Andrey Yushkov

1,2

1

O’Neill School of Public and Environmental Affairs, Indiana University,

Bloomington, IN, USA

2

Tax Foundation, Washington, DC, USA

Email: ayushkov@taxfoundation.org

Local governments are critical to the operation of any

modern society. They provide essential public services in

education, healthcare, public safety, transportation, and

other functional areas, and can respond to residents’needs

and preferences, often faster and more efficiently than

higher levels of government (Oates, 1999). However, in

competitive federalist systems, not all local governments

are equally successful. Some municipalities, leveraging

favorable external conditions and implementing growth-

oriented policies, manage to attract mobile capital and

labor, ensuring sustainable local development. Others are

hindered by unfavorable environmental or demographic

factors, poorly designed policies, fiscal pressures from

more successful neighbors, and numerous state-imposed

restrictions, leading to chronic fiscal challenges. Under-

standing how to diagnose the fiscal problems of local gov-

ernments and measure their fiscal health thus becomes a

vital task for government officials, academics, and financial

analysts. Understanding Municipal Fiscal Health by Maher,

Park, McDonald III, and Deller is the first attempt to synthe-

size vast and fragmented literature on local government

financial condition and to propose a novel and compre-

hensive approach to assessing municipal fiscal health that

can be used by both academics and practitioners.

The authors summarize existing frameworks for fiscal

condition analysis (Berne & Schramm, 1986; Hendrick,

2011; Honadle et al., 2003; Nollenberger et al., 2003) and

introduce an open-systems model that consists of inputs

(municipal fiscal environments that are shaped by socio-

economic conditions, institutional settings, external pres-

sures, and internal structures), outputs (municipal revenue,

expenditure, and debt trends that are affected by

municipal fiscal decisions and structures), outcomes (vari-

ous measures of fiscal health and stress, including those

related to revenues and expenditures, operating position,

and long-term liabilities), and policy actions in response to

fiscal challenges and crises. Each element of this open-

systems model is analyzed in a separate chapter.

In their discussion of municipal fiscal environments

(Chapter 2), the authors pay special attention to the insti-

tutional structure of American fiscal federalism (also see

Johnson et al. (2021) for a similar discussion on municipal

debt markets) and, particularly, to the oversight role of

states in local fiscal matters. They provide a useful typol-

ogy of various state-imposed fiscal rules, including munic-

ipal tax and expenditure limits (TELs), balanced budget

requirements, and debt limits, that significantly impact

local fiscal decisions and create substantial heterogeneity

among states and regions of the United States.

Chapters 4–6 provide an overview of existing

approaches to measuring fiscal health, fiscal stress, and

fiscal condition trends (Maher & Nollenberger, 2009;

Wang et al., 2007) and recommend a selection of the

10 most important financial ratios to assess fiscal health

of any given municipality that is somewhat different from

the Brown’s 10-point test and the Wang, Dennis, and Tu’s

solvency test. These ratios cover (1) revenues and expen-

ditures, including total per capita receipts and outlays as

well as the shares of property taxes and intergovernmen-

tal aid in total revenues, (2) the operating position, includ-

ing general fund deficit (surplus) and several measures of

unrestricted short-term assets, and (3) long-term liabili-

ties, including relative measures of general obligation

debt, debt service costs, and noncurrent liabilities. Since

some of the terms used by academics and practitioners

are confusing, the authors discuss the differences

between fiscal health and fiscal stress, noting that “fiscal

health is not a single measurement, but rather a spectrum

of financial conditions that a municipality may experi-

ence, [while] fiscal stress is a position on that spectrum.”

In the second part of the book (Chapters 9–13), Maher,

Park, McDonald III, and Deller apply their open-systems

model to the analysis of municipal fiscal health and pro-

vide several in-depth case studies of U.S. municipalities,

including Flint, MI, Wichita, KS, North Lauderdale, FL, Have-

lock, NC, and Commerce, CA. Although all these cities are

small or mid-sized, they constitute a diverse subset of

U.S. municipalities that face quite different socio-economic

challenges, are subject to divergent fiscal trends, and het-

erogeneously respond to fiscal stress using a wide range of

policy measures. For instance, three of these cities (Flint,

Havelock, and Commerce) have experienced declining

population and various short- or long-term fiscal problems.

In each case study, apart from analyzing relevant indicators

from audited financial reports, the authors summarize their

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