Whether cities can provide critical public services and infrastructure depends on their fiscal health or the ability to pay for different service responsibilities and meet other financial obligations. In this study, we explore a long-simmering controversy in the study of local politics and public finance: does mayoral partisanship matter for city fiscal health? To answer this question, we use audited financial data from 2004 to 2016 for U.S. municipalities with a population of 50,000 or more to measure a critical dimension of fiscal health, which is budgetary solvency. Employing difference-in-differences regression with staggered treatment adoption, our findings reveal that cities switching from a Democratic to a Republican mayor experience improvements in budgetary solvency. However, the effect does not last and dissipates as the next election approaches, indicating the existence of a city fiscal health cycle. The effects of mayoral partisanship are more evident when elections are not competitive. We also find that Republican mayors in mayor-council cities exhibit better budget outcomes than Republican mayors in council-manager cities.

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One-shot revenue shocks influence governments’ budget decisions and the provision of public services. However, how governments respond to transitory income remains a theoretical and empirical puzzle. The permanent income hypothesis suggests that governments save revenue windfalls to smooth consumption across time. Alternatively, other theories suggest that windfalls will lead to significant spikes in current government spending. Extant studies on the effects of transitory income have produced mixed results because the revenue sources they examine may not be truly transitory. The case of special and extraordinary gains from uncommon and one-time events allows us to investigate the effects of truly transitory revenues. Taking advantage of the GASB requirement that governments report such gains in their financial statements, this study examines the effects of gains on governmental expenses for a sample of cities across ten years. Using a staggered adoption event study design, we find that transitory gains stimulate spending and that the size of gains matters before one observes the stimulatory effects. These results have substantial implications for budgetary transparency and fiscal sustainability in municipal governments.

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The 2021 American Rescue Plan Act (ARPA) created the Coronavirus State and Local Fiscal Recovery Funds (SLFRF), which provided $350 billion for state and local governments to aid with pandemic recovery efforts. This research examines the local implementation of SLFRF from the point of view of city officials. We assess the effectiveness of grant implementation on two dimensions, specifically funding allocation (the ease or difficulty of selecting and prioritizing projects to be funded), and project management (the ability to complete projects on time and within budget). Our research focuses on the contributions of three general groups of factors on grant implementation performance: 1) federal control and oversight (extent of local management discretion, rule clarity, and communication frequency with the federal government), 2) local capacities (grant administration centralization, human capacity, and fiscal resources), and 3) local political actors (elected officials, citizens, and various interest groups). We conducted a national survey of cities that received SLFRF grants and gathered information from city officials responsible for administering the grant on different aspects of SLFRF implementation. Using ordinary least squares and ordered logit regressions to analyze the survey data, the empirical results uncover some consistent patterns. Specifically, local management discretion, perceived clarity of federal rules, a centralized local grant administration structure, and mayoral involvement are positively associated with grant implementation effectiveness.

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How does revenue diversification shape the budgetary solvency of city governments? Previous studies informed by the public choice/fiscal illusion perspective suggest that diversification leads to unsustainable government expansion and budgetary imbalance. In contrast, the organizational adaptation/modern portfolio theory suggests that diversification enables government to prepare for external fiscal shocks. We use different measures of revenue diversification and rely on audited financial information to develop general fund-based and government-wide budgetary solvency measures for more than 500 midsized and large cities in the U.S. from 2006 to 2012. Addressing omitted variable bias, the results of the econometric analyses indicate that the type of diversification matters. Specifically, diversifying to non-tax sources improves budgetary solvency as indicated by higher government-wide operating ratio and reserves, whereas diversifying within the tax structure produces the opposite effects. The contradictory results point to the need to rethink current theories of diversification, which do not recognize the different ways that revenue structures can be broadened, and how these produce distinct effects on fiscal performance. We lay out the critical first step in clarifying and further developing a more nuanced theory by proposing three causal mechanisms outlining the pathways through which the types of diversification can influence budget outcomes.

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