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ABSTRACT
Local governments are continually facing challenges that can drastically influence savings levels and service provisions. From deteriorating fiscal environments to escalating internal costs, maintaining adequate undesignated revenue streams becomes increasingly difficult. The authors evaluate the connection between economic volatility and governmental savings levels. They find that volatility influences counties ' level of saving, but there are differences in how volatility in specific revenue sources affects the size of savings. The findings indicate that counties in Illinois, North Carolina, and Mississippi are able to save in accordance with evolving fiscal conditions. Volatility among various revenue streams, unemployment, and even ideology of the electorate all have significant influence on county fund balance levels. The authors conclude that savings increase with volatility and counties use their savings to fill budget gaps in times of fiscal stress.
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1. INTRODUCTION
Scholars and practitioners alike studying government savings have long grappled with understanding what constitutes an appropriate level of savings to ensure fiscal stability. Identifying an appropriate level of governmental savings, however, is a difficult task. Each government will differ in its cyclical vulnerabilities, but this depends on the composition of its revenue sources (Wolkoff, 1987; Stewart, 2009). Governments also respond differently to sav- ings. Gold (1984) suggests, for example, that the level of savings varies from state to state and over time, but the optimal size depends on the government's "desire for stability in tax rates and expenditures" (p. 426). But this difficulty does not mean that we cannot gain some leverage toward understanding what motivates governments to save when previous researchers like Massey and Tyer (1990) note a large discrepancy in the amount of savings local govern- ments hold. They find that governments in South Carolina maintain anywhere from a negative fund balance to over 700% of general fund revenues. Stewart (2009) identifies a similar pattern in some counties in Mississippi, which maintained savings ranging from below zero to over 200% of expenditures. While 700% and 200%, respectively, may appear to be excessive levels of savings, economic conditions of a particular government may suggest other- wise and warrant savings of this magnitude. Hence, what is considered an ap- propriate level for one jurisdiction may not be appropriate for another, thus making...