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Incrementalism Redux: State Roles in Local Government Fiscal Crises∗

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Incrementalism Redux: State Roles in Local Government Fiscal Crises∗ Incrementalism Redux: State Roles in Local Government Fiscal Crises∗ Presented by: Beth Walter Honadle Director, Institute for Policy Research, and Professor, Political Science University of Cincinnati ∗ Presented at the 59th International Atlantic Economic Conference, London, England, March 12, 2005. The author gratefully acknowledges the C. P. Taft Memorial Fund for an international conference travel grant, which allowed her to present this paper at the conference. She also appreciates assistance on preparing the manuscript from Yana Keck, a graduate student at the University of Cincinnati working at the Institute for Policy Research. Incrementalism Redux: State Roles in Local Government Fiscal Crises Beth Walter Honadle Abstract State governments in the U. S. have a major stake in the fiscal health and condition of local governments inasmuch as local fiscal emergencies can adversely impact the states’ finances and, to the extent that local services receive state funding, the states want to ensure responsible management of state funds. This paper contributes to understanding how states have developed their roles relative to this ostensibly local governmental issue. Drawing on survey data collected by the author, this paper examines how states have developed their roles relative to local government fiscal crises. The generic state-level roles that the study explored are: to predict, to avert, to mitigate, and to prevent recurrence of local government fiscal crises. Taken as a whole, these roles are assumed to approximate the rational- comprehensive approach to public policy. At the other end of the spectrum is the incremental approach, which involves small steps and changes in response to opportunities. This paper investigates three questions to determine whether states are more rational-comprehensive or incremental in their policies for dealing with local government fiscal crises: (1) Are States comprehensive in their approach? (2) At what point in the “life” of a crisis do states get involved (if at all)? (3) When states opt to make changes to their policies relative to local governments, how (piecemeal, incremental or comprehensive) are states’ policies evolving to deal crises? The conclusion is that states are predominantly incremental in their formation of policies relative to dealing with local government fiscal crises. Incrementalism Redux: State Roles in Local Government Fiscal Crises Introduction The role that states play in dealing with local governmental fiscal crises in federal systems is very salient. In the United States local governments are beholden to states for their very existence as well as specific provisions regarding their structure, functions, financing options, and other features. States have a stake in the fiscal health and condition of local governments inasmuch as local fiscal crises can affect the state’s bond rating, the economic development potential of the state, and the quality and quantity of public services within the state. Also, since states invest considerable state-raised resources in local governments, it is in the states’ interest to ensure that the managers of those funds are on sound fiscal footing. States have wide latitude in how they interact with local governments and their policy choices are instructive for other states. In an earlier paper (Honadle, 2003) I presented exploratory research on the role of the 50 states in dealing with local government fiscal crises. It presented a conceptual framework of the potential roles states might play before, during, and/or after fiscal emergencies or crises occur. The research was based on the proposition that there are four broad roles that states could play relative to local government fiscal crises: (1) predict, (2) avert, (3) mitigate, and (4) prevent a recurrence. That exploratory study found that states are usually not aware of potential local government fiscal crises before they occur. When they are aware of fiscal crises, they normally do not have the authority to avert them. The diverse range of responses from the states points to the fact that states vary considerably in the degree to which they assist local governments to manage their own problems versus directing them to change their budgets, lay off employees, raise taxes, restructure debt, and so forth. The previous article did not suggest solutions to fiscal crises of local governments. However, a number of states have enacted legislation to prevent future crises. Often these reforms are adopted in the aftermath of local government crises in those states. The question then becomes, what kind of policies are being created to address local governmental fiscal crises? Specifically, do states follow a rational-comprehensive approach (Weimer and Vining, 1989, 1992) or a more incremental approach (Lindblom 1959, Sparer, 2004)? This paper is an attempt to explain the states’ policy formation by looking at how states have developed their policies relative to local government fiscal crises. Using the rational- comprehensive model of decision-making as an ideal, I investigated whether the behavior of the states better fits this model or the incremental approach. Examples of both models exist within state government. This paper will attempt to understand the differences among states in their approaches and to learn about rational-comprehensive as opposed to incremental state policymaking relative to local government fiscal crises. The current paper incorporates essential material from the earlier article to build a foundation for the present analysis. It expands on the earlier work by posing three simple, focused questions intended to probe and delineate distinctions in how states are developing policy relative to local government fiscal crises. I begin with a brief discussion of the nature of fiscal crises and a cursory overview of popular models of public policy making. I then present the approach to the current study, findings, and conclusions. What is a Fiscal Crisis? Various authors have attempted to distinguish between common budget problems and fiscal crises. A fiscal crisis, according to Hirsch and Rufolo, is “when a government reaches a state such that the normal budgetary flexibility no longer exists. If no combination of acceptable expenditure cuts, revenue increases, and borrowing exists, then the government is in a crisis situation.” (Hirsch, Rufolo, 1990) Inman’s definition of a fiscal crisis is “when a city’s potential to raise revenues is insufficient to cover the city’s legally required expenditures” (Inman, 1995). In other words, fiscal crises are when the local government is incapable of functioning because it is running out of the financial ability to operate. There are various reasons for local governmental fiscal crises including institutional constraints, economics, management problems, demographics and politics. Among the most publicized local financial crises in the United States are New York City’s in 1976, Philadelphia’s in 1990, Orange County’s in 1994 and Miami’s in the 1990’s. One study cited New York City’s fiscal crisis as “a wake-up call for every other state” (Citizens Research Council of Michigan, 2000). A Brief Review of Public Policy: Making Models A number of basic models describing public policy making have been identified: Lindblom (1959), Cohen, March and Olson (1972), Simon (1976), Kingdon (1995), Dunn (1994), Anderson (1994), Theodoulou (1995), Kime (1996), Dye (1998), (Weimer & Vining (1999), Birkland (2001). These include (to borrow Kime’s list) The Generic Model, The Rational- Comprehensive Model, The Incremental Model, The Garbage Can Model, Bounded Rationality, and the streams metaphor for making public policy. Each of these models is described briefly below: The generic model is the basic model that social scientists agree include the five stages of public policy making, including: identifying the problem, place on the public agenda, creating the proposal to be considered by a decision making body, adopting the proposal, and implementing the proposal. Finally, the consequences of actions taken to implement the policy are evaluated. This model is concerned with the logical steps in the policy-making process. The rational-comprehensive model is typically used by urban planners and is also known as the “common sense model”. Generally viewed as the ideal model, the model assumes a logical process with rational decision-makers presented with the best information possible and that these decision makers will select the solution that will maximize the benefits and minimize the costs of the stated goals. Politics, human factors, time, and money make this model difficult toattain. The incremental model is associated with Charles Lindblom. In his 1959 article, “The Science of Muddling Through,” Lindblom argued that the public policy process is not rational but is an incremental process that is a function of timing and opportunity. Because of political barriers, decision-makers often need to make small, incremental changes occurring over time, which then 2 become a comprehensive public policy. Thus, Lindblom’s contribution was to challenge the notion that policymakers set about problem-solving in a comprehensive way, but rather take series of steps along the way that accumulate to form policy. As Weimer and Vining (2005) state, “….Rarely is there adequate theory or data for the construction of reliable comprehensive models. Further, all important factors are not readily subject to quantification. In particular, the appropriate weights to place
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