Austerity urbanism or pragmatic municipalism? Local government responses to fiscal stress in New York State

Abstract

As local governments respond to fiscal stress after the global financial crisis, some scholars warn about an austerity urbanism response wherein local governments cut and privatize services, while others see a pragmatic municipalism response that seeks to protect public services by sharing services, applying for more grants, or charging user fees. Existing empirical works lack detail about the types of local government responses and their drivers. Using a structural equation model with 2017 survey data of 919 counties and municipalities in New York State, we explore the drivers of perceived fiscal stress and two responses: cuts and pragmatic municipalism. We find economy, demography, and state policy drive perceptions of fiscal stress and differentiate responses. The dominant response is pragmatic municipalism, and cuts are only dominant in counties and places with more tax-exempt property. Pragmatic municipalism is found not only in places with larger college-educated populations, left-leaning governing boards, and stronger support for maintaining and providing services, but also in places with greater anti-tax sentiments, poverty, and lack of resources for innovation. These results show that local governments use pragmatic approaches to hold back the tide of austerity pressures and respond to local needs within constraints.

Keywords

Local governments fiscal stress austerity urbanism pragmatic municipalism

Introduction

The global financial crisis (GFC; 2007–2008) began as an economic crisis but quickly became a political one (Peck, 2014; Thompson, 2012) that raised questions about the developmental role of local governments (Lobao et al., 2014; Pike et al., 2017; Rodríguez-Pose, 2018; Tomaney et al., 2010; Xu and Warner, 2016) and their implications for democracy (Lafer, 2017; Peters, 2011). From this political crisis, an austerity narrative emerged that says governments must shrink their revenues and expenditures because of fiscal stress (Blyth, 2013; Peck, 2014). The concern is that austerity hurts the most vulnerable groups in society (Donald et al., 2014; Glasmeier and Lee-Chuvala, 2011; Hastings et al., 2017; Peck, 2014). Who or what drives austerity? Recent works show the drivers can be top-down as in the European Union (Clifton, 2014; Clifton et al., 2018), but also bottom-up as in recent populist movements in the USA (Warner and Clifton, 2014; Rodríguez-Pose, 2018). In a multilevel governance system, the shifts in roles and responsibilities among different levels of government are particularly important (Lobao, 2016; Peck, 2014; Rodríguez-Pose et al., 2009; Tomaney et al., 2010; Xu and Warner, 2015, 2016). This paper explores the role of US local governments in the austerity-driven restructuring process.

Some recent works find local governments pushing back against austerity pressures after the GFC (Aldag et al., 2018; Newman, 2014; Williams et al., 2014) and promoting progressive policies that have broader goals than only fiscal balance (Clifton and Warner, 2014; Davies and Blanco, 2017; Doussard, 2015). However, in the USA, corporate coalitions, such as the American Legislative Exchange Council (ALEC),¹ are promoting austerity policies at the subnational level as a response to fiscal stress (Kim and Warner, 2018a; Lafer, 2017; Peck, 2014). Based on studies of extreme cases like Detroit, San Bernardino, and Vallejo, the “austerity urbanism” view sees local governments acquiescing to (and at times actively promoting) the austerity agenda of cutting and privatizing public services (Davidson and Kutz, 2015; Donald et al., 2014; Peck, 2014). This view predicts more cases like Detroit and Vallejo in the future and sees little traction in local attempts to push back.

A less dire view finds diverse responses to fiscal stress based on local context (e.g. Kim and Warner, 2018b; Lobao and Adua, 2011; Warner and Clifton, 2014; Xu and Warner, 2015, 2016), but there is limited knowledge on how context matters for these responses. This paper contributes to the exploration of contextual factors and the diverse responses. Do localities acquiesce to an austerity urbanism agenda of cuts when responding to fiscal stress or do they respond with broader tactics, such as sharing services and searching for alternative revenues, to maintain services in pragmatic ways (“pragmatic municipalism”)? Where do we see austerity urbanism or pragmatic municipalism? Is there potential for progressive local responses, and if so, from what types of local governments?

The US case is interesting because it has always been highly decentralized compared to other OECD countries (OECD, 2016), with local governments delivering a wide range of services (Lobao, 2016; Lobao and Adua, 2011; Peck, 2014; Warner and Clifton, 2014; Warner and Hefetz, 2012). Does the greater local autonomy in the USA translate to more pushback against austerity or more self-imposed austerity? A better understanding of diverse responses requires a robust measure of local responses (including fiscal, managerial, and political behaviors) and understanding how structural forces drive fiscal stress and shape local responses. Empirical research has been limited to narrow measures of local responses, such as changes in revenues, expenditures, and debt (e.g. Langley, 2016; McFarland and Pagano, 2015; Skidmore and Scorsone, 2011; Tse and Warner, 2018; Wen et al., 2018), or focused on the role of higher-level structural pressures (e.g. state and business actors) that force austerity measures on local governments (e.g. Donald et al., 2014; Kim and Warner, 2018a; Lafer, 2017; Peck, 2014). Political attitudes, coalition building, and management strategies at the local level are seldom measured beyond a case study, as large-scale quantitative data do not exist. Moreover, most studies focus on large, urban places even though the pressures that fuel the political crisis are largely from the rural and rustbelt regions (Cramer, 2016; Rodríguez-Pose, 2018; Spicer, 2018).

Our analysis captures structural shifts that drive fiscal stress, such as demography, economy, and state policy, as well as a wider range of local government responses. The dataset of 919 local governments is based on a survey we conducted in 2017 of all local governments in New York State (NYS), excluding New York City (NYC).² Our 58% response rate gives us a representative sample that includes the full variety of local governments by size, urbanity, and type (counties and municipalities), and provides an excellent opportunity to analyze the effects of structural pressures, such as deindustrialization, population aging, out-migration, and state policy—changes that contribute to fiscal stress and austerity politics. We also include various local context and attitudinal measures in our large-scale quantitative analysis. Our results show that in NYS, despite being part of the rustbelt region, the dominant response is pragmatic municipalism that balances service needs with structural constraints, and is broader than just cuts. Cuts are found primarily in counties and places with more tax-exempt property. Pragmatic municipalism responses are not limited to places with higher education levels among residents and left-leaning governing boards, but are also found in places with more poverty and anti-tax sentiments. This pragmatic ability to balance needs and constraints shows the potential for progressive local responses.

Theory and literature review

Local government responses

In the USA, the transformation of the 2007–2008 financial crisis into a political crisis became most obvious through existential crises of local governments. Based on cases of municipal bankruptcies, the austerity urbanism view sees the emergence of austerity coalitions among municipal, state, and business actors that privatize and cut public services and weaken public employees’ rights (Davidson and Kutz, 2015; Donald et al., 2014; Lafer, 2017; Peck, 2014). Austerity urbanism warns that this agenda is especially prevalent in already disadvantaged places (Donald et al., 2014; Hastings et al., 2017; Peck, 2014).

Nevertheless, recent scholarship has shown the possibility of local governments leading progressive responses to fiscal stress. Warner and Clifton (2014) note the potential for local pushback, especially in US cities, which have always been more fiscally autonomous than those in Europe. Cities across the USA have begun to promote living wages, and Doussard (2015) shows how local grassroots movements can scale up to the national level through coalitions. Loh (2016) found that even fiscally stressed cities in Michigan exhibited some progressive pushback through planning processes, but warned that structural pressures from demographic trends and low growth were significant barriers.

Austerity urbanism tends to emphasize the power of structural pressures, while progressive local responses show the possibility of local agency. The few large-scale quantitative analyses of local government responses find diversity in local responses, based on local context (Hefetz et al. 2012; Kim and Warner, 2018b; Lobao and Adua, 2011; Peck and Tickell, 2002; Xu and Warner, 2015, 2016). For example, Lobao and Adua (2011) found in a study of 1756 US counties in 2008 that counties with more capacity adopt austerity measures earlier. In a study of 1889 US cities and counties in 2012, Kim and Warner (2018b) found alternative service delivery is more common in places with more capacity and that cities use a variety of finance and service delivery tools to maintain services. In a 2008 county survey, Lobao et al. (2014) found resilience in local social safety nets and little evidence for increased privatization. Spatial analysis of 3100 US county areas found state-level devolution of expenditure responsibility to local government was a key factor that explains differences in local government tax effort (Xu and Warner, 2016) and local governments’ ability to bounce back after the GFC (Xu and Warner, 2015). Building on these previous studies, we hypothesize that local governments respond to fiscal stress with tactics to protect public services by practicing “pragmatic municipalism” (Kim and Warner, 2016). Pragmatic municipalism predicts that local government responses to fiscal stress are broader than just cuts (as austerity urbanism predicts) and focus on maintaining public services by sharing services and/or searching for alternative revenue sources. For example, social impact bonds are an attempt by local government to expand services by seeking alternative revenue sources (Tse and Warner, 2018).

Structural pressures: economy, demography, state policy

US local governments are subject to structural pressures from the economy, demography, and state policy. The impacts of the recent financial crisis were especially pronounced in the USA (Taylor-Gooby, 2011) and the economic development prospects in already declining areas, like the rustbelt region, are gloomy (Rodríguez-Pose, 2018). With deindustrialization, one strategy of economic development emphasizes medical and education institutions (“eds and meds”). Studies highlight their role in creating jobs, higher wages, and knowledge as anchor institutions (Adams, 2003; Bartik and Erickcek, 2008; Sherman and Doussard, 2018). Many local governments have embraced this economic development strategy, but it can exacerbate fiscal stress by weakening the property tax base, as these institutions are often exempt from local property taxes, which are the primary source of local revenue for many US localities (Aldag et al., 2018; Kenyon and Langley, 2011; Kim, 2017).

Sales tax is another important own-source revenue for local governments but is pro-cyclical and its volatility can be a source of fiscal stress for localities (Bartle et al., 2011). When economic decline spurs out-migration, local governments must maintain public infrastructure with a weaker tax base. Maintaining and upgrading aging infrastructure is particularly challenging for rustbelt cities (Reese et al., 2014), and many cities in NYS face this challenge (Pendall, 2003). Indeed, out-migration and the rise in foreclosures has caused 11 cities in NYS to create land banks to help cities demolish vacant properties (Agyeman-Budu et al., 2014).

Population aging is a demographic trend that increases pressures on local governments (Nefs et al., 2013), and these demographic trends have long-lasting implications for local development (Tomaney et al., 2010). The elderly have greater service needs, but particularly dislike the property tax—an important own-source revenue for local governments (Shan, 2010; Warner and Zhang, 2019). Poverty, especially among children, is a big problem in NYS, where out-migration of economically active young adults leaves communities with a higher proportion of low-income elders and children (Bacheller, 2015). Local governments have limited capacity to address poverty (Lobao et al., 2012; Warner and Pratt, 2005), especially when political jurisdictions are fragmented. In NYS, poverty is concentrated in the rural areas and central cities, and there is almost no tax sharing with the richer suburbs (Pendall, 2003). Recent literature warns about austerity responses in places with more poverty (Donald et al., 2014; Hastings et al., 2017; Peck, 2014) leading to a downward spiral. National US studies find localities with higher education levels have more economic development (Reese, 2012) and are less likely to eliminate services as a response to fiscal stress (Simonsen and Robbins, 2000). Thus, we see both vicious and virtuous cycles depending on local conditions that can lead to increased inequality across local governments (Lobao and Adua, 2011; Warner and Pratt, 2005).

In the USA, states set the rules for what local governments can or cannot tax, but also the rules for local policies regarding land use (Frug and Barron, 2008), employee relations (e.g. collective bargaining, employee benefits), and service delivery (Lafer, 2017; NACo, 2016; NLC, 2018). State mandates have always been a point of contention in state–local relationships (Berman, 2003), but recently some fundamental changes to state–local relationships have occurred (Kim and Warner 2018a; NACo, 2016; NLC, 2018; Peck, 2014). Recent austerity politics involve state governments responding to their own fiscal stress by cutting state aid to localities or pushing expenditure burdens down to the local level (McFarland and Pagano, 2015; NACo, 2016; Peck, 2014). Some states have used narratives of local waste and mismanagement to make state intervention in local policymaking easier (Hinkley, 2017; Kim, 2018; Lafer, 2017; Loh, 2016; Mitchell, 2012; Peck, 2014), and states are using legal preemptions to constrain cities and counties (NLC, 2018; SiX, 2017; Schragger 2016). One example is tax and expenditure limitations (TELs) that “cap” how much revenue local governments can raise (Wen et al., 2018). Recent studies find state context matters for local responses to fiscal stress (Lobao and Adua, 2011; Xu and Warner, 2016), but how state policies matter remains unclear. NYS has high levels of public services and a Democratic governor, but the state has cut aid to localities, implemented a “tax cap” on local tax levies, and delegated additional expenditure responsibilities to local governments since the GFC (Kim, 2018).

Figure 1 is a visual representation of our theoretical framework. Economy, demography, and state policy are the structural pressures that shape fiscal stress and local responses of cuts or pragmatic municipalism. We hypothesize that local governments exercise local agency and balance the structural pressures with their mission to deliver services.

Figure 1.

Theoretical framework: drivers of fiscal stress and local government response.

Data and methods

Our study includes more detailed measures of local finance and richer measures of the local political context than previous studies (e.g. Kim and Warner, 2016, 2018b; Lobao and Adua, 2011; Lobao et al., 2014). NYS has a Democratic governor who has launched a major assault on local governments, calling them “wasteful and very, very expensive” (Cuomo, 2011). Governor Cuomo argued that local governments should share more services to become more efficient, but local officials pointed out that they already have a long history of sharing services (Aldag and Warner, 2018). The governor’s narrative obscures the way the state has transferred its own fiscal stress to localities. The state cut state aid to localities by US$1 billion in real terms between 2007 and 2015, and local governments cut expenditures across all categories, except for employee benefits (a state-mandated expenditure item; Kim, 2018) in response. State aid is separate from federal aid and is more important, as federal aid to a place is less than 10% of the level of state aid, on average (Xu and Warner, 2015). In 2012, the state imposed a tax cap on all local governments except NYC, and NYS continues to decentralize more expenditures to local government than any other state in the USA except Nevada (Xu and Warner, 2016). Nearly a decade after the GFC, the NYS Comptroller’s Fiscal Stress Monitoring System data show the number of local governments under “significant” fiscal stress increased between 2016 and 2017. In this constrained context, we can test whether localities acquiesce to an austerity urbanism agenda of cuts or use pragmatic municipalism to maintain services. Pragmatic municipalism responses include service sharing, search for alternative revenues (e.g. grants, user fees), and organizational restructuring (e.g. consolidate departments), and is broader than austerity urbanism responses.

The survey

We designed a statewide survey based on focus groups held with local officials across the state in 2015 and 2016 in partnership with state-level associations of local governments. All questions and response options are based on items that focus group participants highlighted. A draft of the survey was pre-tested with research directors of the state-level local government associations. The final survey, conducted in spring 2017, included questions about drivers of fiscal stress, local government responses, and barriers to addressing fiscal stress. Respondents were chief elected or administrative officers of cities, counties, towns, and villages in NYS (excluding NYC, which is exempt from many state-imposed austerity policies). Of the 1596 general-purpose local governments, 919 responded to the survey—a 58% response rate. Our sample reflects the geographic diversity across the state and represents all local government types (76% of 62 cities, 53% of 57 counties, 55% of 932 towns, and 61% of 545 villages).³ We linked survey data to demographic data from the American Community Survey (ACS) five-year estimates (2011–2015), the 2000 and 2010 US Decennial Censuses, fiscal data from the NYS Comptroller (2007–2015), and property tax data from the NYS Department of Taxation and Finance (2016).

We are interested in what drives perceptions of fiscal stress and two potential responses: cuts and pragmatic municipalism. We use a structural equation model (SEM) to estimate the relationships between the drivers and responses in a comprehensive model, with perceptions of fiscal stress as a mediator variable. The SEM allows us to model fiscal stress perception and the two responses—cuts and pragmatic municipalism—in a single model simultaneously, so we can measure model error concurrently and control for latent associations among the three dependent variables.

Our model is as follows:

Fiscal stress perception = f (economy, demography, state policy, local government context)

Cuts response = f (fiscal stress perception, economy, demography, state policy, local government context, local managerial attitudes)

Pragmatic municipalism response = f (fiscal stress perception, economy, demography, state policy, local government context, local managerial attitudes)

Dependent variables

Our three dependent variables are the level of fiscal stress perceived by local governments and the level of two types of local response: cuts and pragmatic municipalism. Fiscal stress is based on respondents’ ranking of their jurisdiction’s level of fiscal stress on a four-point Likert-type scale (“none” = 1, “weak” = 2, “moderate” = 3, “significant” = 4). The average level of fiscal stress was “weak” (2.4), but half of all respondents reported either a “moderate” or “significant” level of fiscal stress.

To operationalize local response, we use answers to two questions. The survey asked: “Has fiscal stress caused your jurisdiction to make any of the following changes?” in terms of (1) “expenditures and revenues” and (2) “service delivery” and listed eight possible responses for each question (total possible response = 16). These responses were identified through focus groups with local officials and provide a more robust measure of local responses than just fiscal figures (e.g. change in expenditure, debt, etc.). An initial factor analysis identified two groups of responses, which we aggregate into indices named “cuts” and “pragmatic municipalism.” Both indices have the same scale (0–8), allowing comparison of standardized coefficients between the two responses.

The cuts index (α = 0.62) is the sum of the following eight responses (in order of most to least popular; see Table 1): “defer capital expenditures,” “personnel cuts,” “reduce personnel benefits,” “reduce service(s),” “sell assets,” “eliminate service(s),” “privatize service(s),” and “consider declaring bankruptcy.” This index captures efforts to cut, shed, or shrink.

Table 1.

Local responses to fiscal stress in New York State: cuts and pragmatic municipalism.

Cuts (α = 0.62)	Percentage reporting	Pragmatic municipalism(α = 0.64)	Percentage reporting
Defer capital expenditures	45.7	Explore service sharing agreements	52.3
Personnel cuts	35.3	Apply for more grants	50.2
Reduce personnel benefits	27.7	Increase existing user fees	38.8
Reduce service(s)	22.8	Consider government consolidation	26.1
Sell assets	9.5	Adopt new user fees	20.7
Eliminate service(s)	7.7	Consolidate departments	20.0
Privatize service(s)	5.7	Increase revenue collection efforts	19.2
Consider bankruptcy	0.2	Use citizen volunteers for services	12.8

Note: N = 855 municipalities and counties in New York State.

Data source: New York State Local Government Fiscal Stress Survey (2017).

The pragmatic municipalism index (α = 0.64) is the sum of the following eight responses (in order of most to least popular):⁴ “explore additional service sharing agreements,” “apply for more grants,” “increase existing user fees,”⁵ “consider government consolidation,” “adopt new user fees,” “consolidate departments,” “increase revenue collection efforts (e.g. delinquent taxes, fees, and fines),” and “deliver services with citizen volunteers.” This index captures a broader response to fiscal stress that attempts to balance meeting service needs with limited resources. Overall, pragmatic municipalism responses (mean = 2.4) are more common than cuts (mean = 1.6). The most common responses are: “explore additional service sharing agreements,” “apply for more grants,” and “defer capital expenditures.”

Independent variables

Economy

Economic development challenges and aging infrastructure are two contributors to fiscal stress. Our survey asked respondents: “How would you describe the following factors’ contribution to the fiscal stress in your jurisdiction?” Respondents ranked the severity of each challenge on a four-point Likert-type scale (“none” = 1, “weak” = 2, “moderate” = 3, “significant” = 4). Overall, 69% of respondents indicated economic development challenges as either a “moderate” or “significant” contribution to fiscal stress, and 81% indicated the same for aging infrastructure.⁶ Economic pressures, such as market volatility and the shift to “eds and meds,” affect local revenues and we include two measures that capture such pressures: sales tax volatility (2007–2015 period standard deviation of sales tax revenue per capita in 2015 dollars; NYS Comptroller Financial Data 2007–2015) and ratio of tax-exempt land to full value (NYS Comptroller Financial Data 2015, NYS Department of Taxation and Finance 2016). See Table 2 for descriptive statistics of all model variables.

Table 2.

Descriptive statistics: drivers and responses to fiscal stress in New York State.

	Mean	Std. dev.	Min.	Max.
Dependent variables
Fiscal stress perception^a	2.4	0.9	1	4
Cuts^a	1.6	1.5	1	8
Pragmatic municipalism^a	2.4	1.9	1	8
Economy
Economic development stress^a	2.8	1	1	4
Aging infrastructure stress^a	3.2	0.8	1	4
Sales tax volatility^d,e	12.4	17.3	0	201.5
Ratio of tax-exempt land to full value^d,f	0.2	0.5	0	9.2
Demography
Population above age 65 (%)^b	17.2	5.6	2.1	56.6
Population change (%)^c	0.6	15.2	−48	400
ln(population)^b	8.1	1.4	1.8	13.8
Poverty (%)^b	12.4	6.7	0	44.8
College educated (%)^b	27.6	15.9	4.4	100
State policy
Employee benefits as percentage of expenditure^d	14.3	5.9	0.68	35.4
State mandates stress^a	3.5	0.7	1	4
State rules barriers^a	2.4	1.5	0	5
Local government context
County (dummy, 1 = yes)^a	0.03	0.2	0	1
Property tax dependence (%)^d	50.9	22.36	0.8	98.8
Community and union opposition^a	0.2	0.5	0	2
Lack of resources for innovation^a	0.4	0.7	0	2
Left leaning (dummy, 1 = yes)^a	0.05	0.2	0	1
Anti-tax sentiments^a	6.6	1.8	2	10
Local managerial attitude
Maintain and provide services^a	15.2	2.9	4	20
Pushback against state narrative^a	7.5	2	2	10
Longer-term thinking^a	1.4	0.7	0	2
Coalition building^a	1.4	1.1	0	13

Note: N = 919 municipalities and counties in New York State.

Std. dev.: standard deviation; Min.: minimum; Max.: maximum

Data sources: ^aNew York State Local Government Fiscal Stress Survey (2017); ^bAmerican Community Survey five-year estimates (2011–2015); ^cUS Decennial Censuses (2000, 2010); ^dNew York State Comptroller Financial Data on Local Governments (2015); ^eNew York State Comptroller Financial Data on Local Governments (2007–2014); ^fNew York State Department of Taxation and Finance (2016).

Demography

Aging and out-migration are demographic pressures that can drive fiscal stress, and we include percentage of the population that is above age 65 (ACS 2011–2015) and percentage change in population between 2000 and 2010 (US Decennial Census) to capture these pressures. Larger population centers are more urban, and we include population (ACS 2011–2015) to control for this geographic difference.

Poverty is a long-standing challenge and austerity urbanism scholars worry that austerity is more severe in places with more poverty (e.g. Donald et al., 2014; Hastings et al., 2017; Peck, 2014). We include poverty rates (ACS 2011–2015) to test the expectation that places with higher poverty are more stressed and primarily use cuts. We also include the percentage of college-educated in the population (ACS 2011–2015) and expect places with a larger percentage of college-educated in the population to have a more balanced response of pragmatic municipalism.

State policy

State policy can have different effects on local governments within the state, but there are limited data to test these effects. We use a fiscal measure of state-mandated expenditure burden and two perception measures as proxies for state policy pressures. Employee benefits, which are largely determined by state rules, have been cited as a significant contributor to local fiscal stress (McFarland and Pagano, 2015). We include employee benefits as a percentage of total expenditures (NYS Comptroller Financial Data, 2015) and expect places with a larger proportion of employee benefits as a percentage of expenditure to have higher levels of stress.

We include two perceptual measures of fiscal stress from our survey data. Local governments frequently identify state mandates as a driver of fiscal stress, but there is no direct fiscal measure of state mandates. We asked survey respondents to assess how much state mandates contribute to their fiscal stress on a four-point Likert-type scale (same coding as other four-point scales). A total of 88% of respondents indicated that state mandates have a “moderate” or “significant” effect on their jurisdiction’s level of fiscal stress (mean = “moderate” at 3.5; standard deviation = 0.7).

State policy regulating government procedures can affect responses to fiscal stress. The survey asked: “What are the barriers your jurisdiction faces in addressing fiscal stress?” The following five state-level barriers were among the potential answers: “state mandated procedures (e.g. Prevailing wage, Wicks Law, and Taylor Law),”⁷ “state mandated services,” “reduction in AIM (aid to municipalities) funding,” “unable to earn substantial interest on invested surplus funds,” and “loss of revenue due to economic development tax abatements.” We aggregate these responses into a “state rules barriers” index (range 0–5; α = 0.52). “State mandated procedures” and “state mandated services” were most common, with over 70% of respondents identifying these as barriers to addressing fiscal stress. On average, respondents report facing two of these five state rule barriers. We expect communities reporting more barriers from state rules to be less likely to use pragmatic municipalism and more likely to use cuts.

Local government context

Previous works have identified diverse responses to fiscal stress, depending on local context and state rules (e.g. Kim and Warner, 2016, 2018b; Lobao and Adua, 2011; Lobao et al., 2014; Warner and Clifton, 2014; Xu and Warner, 2016). State rules may be particularly constraining for counties because they operate as “arms of the state” and are less independent in their service delivery decisions. In NYS, nine state mandates consume 100% of the county property tax levy (NYSAC, 2015). We include a dummy variable for counties to test the expectation that counties face more stress and are more likely to use cuts.

Local fiscal and political contexts will shape local responses. The property tax is an important own-source revenue but was targeted by the 2012 tax cap. We include property tax dependence (as a percentage of total revenues; NYS Comptroller Financial Data, 2015) to test the expectation that places with more dependence on the property tax will be more stressed. We also expect that localities with more severe perceptions of fiscal stress will use more cuts.

The survey asked: “What are the barriers your jurisdiction faces in addressing fiscal stress?” The following four answers were available (in addition to the state-level barriers): “union opposition,” “community opposition,” “lack of funding to study the feasibility of innovation,” and “cost of designing new approaches to services.” We aggregated union opposition and community opposition (r = 0.195, α = 0.000) into a “community and union opposition” index and the “lack of funding to study the feasibility of innovation” and “cost of designing new approaches to services” (r = 0.498, α = 0.000) into a “lack of resources for innovation” index. We expect places with union and community opposition to use fewer cuts, and places with lack of resources for innovation to use more cuts.

We include two measures of the local political context. The survey asked respondents to indicate the composition of the governing board (“liberal,” “evenly mixed,” or “conservative”), and we include a dummy variable for left-leaning (“liberal” in the US context) governing boards in the model. We expect these places to be more likely to respond with pragmatic municipalism and fewer cuts. Given that anti-tax sentiments can fuel austerity pressures, we include a measure of anti-tax sentiments based on the survey respondents’ assessment of statements about how much the governing board and residents “believe local governments should lower taxes” on a five-point Likert-type scale (“strongly disagree” = 1, “disagree” = 2, “neutral” = 3, “agree” = 4, “strongly agree” = 5). We combined responses about the governing board and residents (r = 0.422, α = 0.000) into an overall community anti-tax sentiment variable. We expect anti-tax sentiments to be associated with more cuts.

Local managerial attitudes

We include local government attitudes about services, austerity pressures from the state, and organizational management in our model to test how local agency matters. Focus group participants frequently mentioned their efforts to maintain services, despite shrinking revenues. We include a measure of these attitudes about service responsibility based on respondents’ assessment of statements about how much the governing board and residents “believe we should maintain services in times of fiscal stress” and “believe we should provide services to meet the needs of dependent populations (e.g. elderly, children, low-income households)” on a five-point Likert-type scale (same coding as other five-point scales). We aggregated resident and governing board attitudes (r = 0.479, α = 0.000) into a single “maintain and provide services” variable. We expect communities ranking higher on this variable to use fewer cuts and more pragmatic municipalism.

The governor has pushed a narrative of local government inefficiency that exerts political pressures on local governments. The “pushback against state narrative” variable measures governing board and resident support for the statement: “Believe we should push back against the Governor’s narrative of local government inefficiency” on a five-point Likert-type scale (same coding as other five-point scales). We aggregate these responses (r = 0.351, α = 0.000) into one “pushback against state narrative” index. We expect places with more support for pushback to adopt more pragmatic municipalism.

Focus group participants emphasized that, while they were able to maintain services under the recent state austerity policies, they were less optimistic about their ability to do so in the future. To capture this longer-term thinking, we use responses to the survey question: “How has the Property Tax Cap affected your jurisdiction’s ability to meet future budgetary needs?” “Significantly impair” responses are coded as 2, “moderately impair” responses are coded as 1, and all other responses (“minimal” or “positive impact”) are coded as 0. We expect longer-term perspectives to lead to more cuts and pragmatic municipalism.

Lastly, for attitudes toward coalition building, we asked respondents to identify “partners involved in developing responses to fiscal stress” and in “changing the Governor’s narrative that blames local governments.” Partners in “developing responses to fiscal stress” were as follows (from most to least popular, proportion of respondents in parentheses): county governments (37%), state government (23%), regional council of governments (19%), business community (7%), labor unions (7%), neighborhood groups (4%), non-profit service partners (4%), colleges/universities (2%), and religious groups (1%). Coalition partners that have “resisted the Governor’s narrative” were the business community (17%), neighborhood groups (12%), labor unions (9%), non-profits (8%), and religious groups (3%). The coalition building variable aggregates the number of coalition partners (a total of 14 is possible). On average, the number of coalition partners is fewer than two (see Table 2). We expect governments with broader coalitions to exercise more pragmatic municipalism.

Results

We build a comprehensive model of drivers of perceived fiscal stress and local government responses and test our concepts using a structural equation model (SEM). The SEM estimates all outcomes simultaneously, but we discuss the results in two parts: drivers of perceived fiscal stress and responses.⁸

Drivers of perceived fiscal stress

Our first equation models drivers of perceived fiscal stress and shows that economic pressures are key drivers. Stress that originates from economic development challenges and aging infrastructure is associated with more severe perceptions of fiscal stress, as expected (see Table 3). Economic restructuring and aging infrastructure are challenges over which local governments have little control. One source of fiscal stress is the inability of local governments to change their revenue structures to respond to economic shifts. Sales tax is a flexible revenue source, but its volatility is associated with higher levels of fiscal stress, as expected. Places with more tax-exempt properties report higher levels of fiscal stress. Most “eds and meds” are tax exempt, and as these sectors grow in importance, property tax receipts do not. This can create fiscal challenges for local governments that must provide services without a corresponding tax base.

Table 3.

Structural equation model results: drivers and responses to fiscal stress in NYS.

	Fiscal stress perception		Cuts		Pragmatic municipalism
	Coef.	SE	Coef.	SE	Coef.	SE
Economy
Economic development stress^a	0.245***	0.037
Aging infrastructure stress^a	0.225***	0.035
Sales tax volatility^d,e	0.086*	0.038
Ratio of tax-exempt land to full value^d,f	0.061^†	0.032	0.055^†	0.031	–0.020	0.031
Demography
Population above age 65 (%)^b	–0.049	0.035
Population change (%)^c	–0.037	0.030
ln(population)^b	0.038	0.042	0.135***	0.035	0.131***	0.034
Poverty (%)^b	0.108***	0.034	0.029	0.035	0.078*	0.035
College educated (%)^b			0.057	0.035	0.074*	0.035
State policy
Employee benefits as percentage of expenditure^d	–0.031	0.037
State mandates stress^a	0.070*	0.034
State rules barriers^a			0.174***	0.035	0.136***	0.035
Local government context
County (dummy, 1 = yes)^a	0.023	0.038	0.089**	–0.03	0.032	0.032
Property tax dependence (%)^d	0.027	0.035
Fiscal stress perception^a			0.171***	0.034	0.131***	0.033
Community and union opposition^a			0.179***	0.029	0.098***	0.029
Lack of resources for innovation^a			0.020	0.031	0.128***	0.030
Left leaning (dummy, 1 = yes)^a			0.018	0.030	0.049^†	0.030
Anti-tax sentiments^a			0.035	0.034	0.108***	0.033
Local managerial attitude
Maintain and provide services^a			0.001	0.035	0.089**	0.034
Pushback against state narrative^a			0.043	0.033	–0.035	0.033
Longer-term thinking^a			0.100**	0.032	0.086**	0.031
Coalition building^a			0.126***	0.031	0.204***	0.030
Constant			–1.447	0.227	–1.583	0.270
N	766		855		855
Within equation R²	0.238		0.279		0.296
Overall R²	0.546
Model Chi-square	114.83***

Note: Coefficients are standardized. ^†p < 0.1; *p < 0.05; **p < 0.01; ***p < 0.001. Goodness-of-fit statistics as follows: CFI (comparative fit index) = 0.89; RMSEA (root mean square error of approximation) = 0.06.

Coef.: coefficient; SE: standard error

Data sources: ^aNew York State Local Government Fiscal Stress Survey (2017); ^bAmerican Community Survey five-year estimates (2011–2015); ^cUS Decennial Census (2000, 2010); ^dNew York State Comptroller Financial Data on Local Governments (2015); ^eNew York State Comptroller Financial Data on Local Governments (2007–2014); ^fNew York State Department of Taxation and Finance (2016).

We also expected demographic shifts to be associated with more fiscal stress, but neither the percentage of population older than 65 nor population change differentiate levels of fiscal stress in our sample. Aging and population loss affect most governments in NYS (NYC, which is excluded from our analysis, is one of the only areas in the state experiencing population growth). The only demographic variable that differentiates levels of stress is poverty. Places with more poverty perceive higher levels of fiscal stress, as expected.

State mandates are often mentioned as a source of fiscal stress. Our results show that places that report state mandates as a source of stress also report higher perceptions of fiscal stress. While employee benefits are large drivers of costs, this seems to be a challenge across all local governments and does not differentiate levels of fiscal stress.

Furthermore, local context does not differentiate levels of perceived fiscal stress. We expected counties to be more stressed because, as “arms of the state,” they have less flexibility than municipalities (Wen et al., 2018). However, SEM results show levels of perceived fiscal stress do not differ by type of local government. Fiscal stress is a widespread concern for all types of local governments in NYS. Property tax dependence has been highlighted as a limitation of local revenue structures (Bartle et al., 2011; Pagano and Johnston, 2000), but property tax dependence does not differentiate levels of perceived stress in our model.

Responses to fiscal stress

We examine two types of local responses: cuts and pragmatic municipalism. Our SEM shows how economy, demography, state policy, and local context and attitudes are related to the two responses and what differentiates them. Recall that pragmatic municipalism responses are more common than cuts, but we are also interested in which places are using more cuts versus more pragmatic municipalism.

Tax-exempt land was linked to higher levels of perceived fiscal stress, and we find it is also related to more cuts. Property taxes are a main source of revenue for local governments, and tax exemptions erode this revenue base. This fiscal reality can constrain the scope of responses that local governments choose, limiting them primarily to cuts.

Larger places use both more cuts and pragmatic municipalism. This may reflect greater managerial capacity in larger, more urban places. Our results do not show that cuts are more common in places with more poverty, in contrast to the claims of austerity urbanism (Donald et al., 2014; Peck, 2014). In fact, poverty is associated with more pragmatic municipalism. The percentage of college-educated in the population is also associated with more pragmatic municipalism.

Local governments are “creatures of the state” and we expected state rules barriers to be associated with more cuts and less pragmatic municipalism. However, we find that greater awareness of state barriers is linked to both more cuts and pragmatic municipalism.

How does local context matter? Counties, while not reporting higher levels of perceived stress than municipalities, use more cuts. We find local governments that perceive more fiscal stress use a combination of both cuts and pragmatic municipalism. Community and union opposition are also associated with more of both responses. This reflects the pragmatic nature of local governments; they manage political pressures from the community and/or unions to maintain services. Lack of resources for innovation are linked to more pragmatic municipalism, not more cuts, as expected. Pragmatic municipalism responses include strategies to search for alternative revenues, thus the awareness that there is a lack of resources for innovation may lead to more efforts to find such funds. Local political pressures matter, and they drive pragmatic municipalism. A left-leaning governing board at the local level is associated with more pragmatic municipalism, although it does not differentiate levels of cuts. In addition, we expected anti-tax sentiments to be associated with more cuts, but our results show that they are linked to more pragmatic municipalism. Even in places where anti-tax sentiments are greater, local governments are using service sharing or non-tax sources of revenue rather than cutting.

In terms of local managerial attitudes, beliefs that local government should maintain and provide services are associated with more pragmatic municipalism, and not related to cuts. While we expected attitudes of pushback against the state narrative of “local government inefficiency” to be linked to more pragmatic municipalism, our results show this political attitude does not differentiate local responses. Lastly, longer-term thinking and coalition building are associated with both more cuts and with pragmatic municipalism.

Discussion

Structural pressures, especially economic pressures, are key contributors to fiscal stress. Economic development stress, aging infrastructure, tax-exempt land, sales tax volatility, poverty, and state mandates all drive perceptions of fiscal stress. These are structural factors over which local governments have little control. Economic pressures are a matter of market dynamics and history. Federal and state policies do not allow local governments to shift their revenue structures to match an economy that is shifting toward the “eds and meds” service industry, which is exempt from local property taxes. Poverty is a social problem that is difficult to solve at the local level. As creatures of the state, local governments have little fiscal or legal power to push back on state mandates.

Despite the structural pressures that lead to fiscal stress, the dominant response is pragmatic municipalism that focuses on maintaining public services—not cuts. What differentiates the two responses? Pragmatic municipalism responses are dominant in places where we would expect to find progressive coalitions (Davies and Blanco, 2017; Doussard, 2015; Williams et al., 2014), such as places with a larger proportion of college-educated among the population, left-leaning governing boards, and stronger attitudinal support for maintaining and providing services. But pragmatic municipalism responses are also dominant in places with more poverty, greater anti-tax sentiments, and lack of resources for innovation. Despite these constraints, local governments exercise agency to protect their mission of service provision.

Recent scholarship has argued that austerity urbanism responses of local governments focus primarily on cuts as a response to fiscal stress and warned these responses are dominant in high-poverty places (Donald et al., 2014; Hastings et al., 2017; Lafer, 2017; Peck, 2014). We do not find cuts responses to be dominant in places with more poverty, but rather in places that have more tax-exempt property, and in counties. Having more tax-exempt property puts a strain on local governments to provide services with a weaker revenue base. Comparing cities and counties, county governments are responsible for more state-mandated services and have fewer alternative revenue sources than municipalities (Wen et al., 2018). This is where we find the potential for austerity to exacerbate social inequality and create a vicious cycle, as counties, which are primarily responsible for state-mandated social welfare services, and places with weaker property tax bases are using more cuts. Future studies could examine how and what types of services these places are cutting.

Conclusion

In the wake of the GFC, an austerity narrative emerged, reshaping the landscape of public services (Blyth, 2013). What role do local governments play in this process? Some see local governments as an accomplice in austerity urbanism (Donald et al., 2014; Hastings et al., 2017; Peck, 2014), often through coalitions with state-level actors and corporate lobbies (e.g. ALEC and ACCE; Lafer, 2017; Peck, 2014). Others see more diverse responses (Kim and Warner, 2016; Lobao and Adua, 2011; Newman, 2014; Warner and Clifton, 2014; Xu and Warner, 2016), and even progressive pushback (Davies and Blanco, 2017; Doussard, 2015; Williams et al., 2014). We have built a comprehensive model of drivers and responses to perceived fiscal stress among local governments in NYS. Our model includes the various structural pressures that can drive austerity and the political, managerial, and fiscal responses of local governments.

We find that structural pressures of economy, demography, and state policy drive perceptions of fiscal stress. These structural pressures have intensified in the last decade. Increased attention to the importance of structural constraints, especially state policy (Lafer, 2017; NACo, 2016; NLC, 2018), is an important contribution of austerity urbanism scholars (e.g. Davidson and Kutz, 2015; Donald et al., 2014; Peck, 2014). But those structural constraints do not prevent or solely predict local government action. Local governments exercise agency, and we find a broader and more balanced response to fiscal stress that focuses on protecting services. Local governments do not simply cut, as austerity urbanism theories predict. In fact, we find potential for progressive local responses (Davies and Blanco, 2017; Williams et al., 2014) even in places with more poverty and anti-tax sentiments.

Local governments can be leaders of progressive pushback (Aldag et al., 2018; Davies and Blanco, 2017; Williams et al., 2014), or at least hold back the tide of austerity urbanism with pragmatic municipalism responses (Kim and Warner, 2016). Looking to the future, however, we worry that there may be limits to pragmatic municipalism as structural constraints deepen. This may create virtuous cycles in places with progressive coalitions, and vicious cycles in places with less capacity (Xu and Warner, 2016). Urban scholars need to give more attention both to state policy constraints on local governments and the continuing potential for tactical local action as we seek to understand local government responses to fiscal stress in the post-GFC context.

Footnotes

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Acknowledgements

We would like to thank the Association of Towns of New York State and the New York Conference of Mayors for their assistance with the survey. We would also like to thank Nghi VM Nguyễn for Figure 1.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This research was supported in part by USDA, National Institute of Food and Agriculture (grant #2017-67023-26226), the New York Agricultural Experiment Station Hatch (grant #1597422), the Cornell Institute for Social Sciences, and the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (grant #NRF-2016S1A3A2924563).

Notes

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