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Cities and counties exist to provide public services, many of which require continuous provision. Even in periods of severe economic instability such as the Great Recession, local governments are obligated to keep services including public safety, fire protection and public utilities operational. These expectations for uninterrupted service compel local governments to find methods that guarantee continued operations, preferably without changing tax and expenditure patterns.
To maintain service provision when fiscally stressed, many local governments build fiscal savings into their unassigned fund balance. Unlike other parts of the fund balance, the unassigned carries no restrictions, making it the most readily available resource against unforeseen events and economic uncertainty. Today, professional organizations including the Government Finance Officers Association (GFOA) encourage governments to establish such savings. In fact, since 2002, GFOA has officially recommended general-purpose governments maintain a minimum unassigned fund balance "of no less than 2 months of regular general fund operating revenues or regular general fund operating expenditures."1 Governments, though, may further increase their fiscal savings based on local conditions and potential risks they face at any given time. Generally, governments with volatile revenue streams, population growth, high infrastructure needs and other risks (e.g. extreme weather) should maintain higher level of fiscal savings.2
Evidence shows that fiscal savings have become routine for many local governments across the country. According to the 2015 City Fiscal Conditions - a survey distributed by the National League of Cities (NLC) to more than 1,000 city finance officers - ending balances (equivalent to unassigned fund balance) for 20 years have not fallen below GFOA's minimum target (see Figure 1). Even during the Great Recession, a period best remembered for its economic uncertainty, cities participating in the NLC survey managed to maintain average fiscal savings above GFOA's recommended target.
Given that fiscal savings add resiliency and sustainability to local financial management, this study seeks strategies for financial managers to accumulate unassigned fund balance. Specifically, we answer two questions: What factors influence fiscal savings accumulation among local governments; and, what strategies could help local governments maintain savings above GFOA's minimum target and further enhance their fiscal sustainability?
Accumulating Fiscal Savings
Over the latest decade, several studies have sought to identify determinants of government fiscal savings. Figure 2 presents the most-cited fiscal, socio-economic and...