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ABSTRACT
The COVID-19 pandemic has created a global recession unlike any other. Cities are having to develop budgets within an environment riddled with uncertainties. How should budget departments select fiscal measures to address unprecedented issues? This study examines and compares how seven cities responded to the Great Recession of 2008/2009 and budgeted for the 2020/ 2021 fiscal year. Using a framework published by the Brookings Institute, we examine how state preemption rules and a local government's economic base, to a great extent, determine budget options. The Framework posits that three primary attributes, state-local authority, a city's economic base and fiscal structure alignment, and demands of its citizens, contribute to explaining how local governments address fiscal stress. A city's tax structure should be imposed on its primary economic base. The ability for a city to be structurally aligned depends, in a large part, on the fiscal flexibility granted by the state.
Keywords: Municipal Budgeting, Nonprofit, Governmental
INTRODUCTION
In just over a decade, the country has experienced two fiscally stressful events. The Great Recession began in 2008, caused by the issuance of subprime mortgage-backed securities. Then beginning in early 2020, the COVID-19 pandemic created a second crisis with multiple dimensions, both financial and emotional.
While both events contributed to a recessionary economic environment or fiscal stress and uncertainty, they are vastly different in character. This study will explore local government's fiscal responses in the context of the Fiscal Policy Space Framework, as discussed in a Brookings Institute monograph by Pagano and Hoene (2018). We will examine how a city's policy environment, as affected by three key attributes, state-local policy, economic and fiscal tax base alignment, and citizen demand affect a municipality's response to fiscal stress in particular, recessions. A recession, as defined by the National Bureau of Economic Research, is "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesaleretail sales". This study uses the terms recession and fiscal stress interchangeably.
A detailed examination of seven city budgets was evaluated to identify how cities address fiscal stress. Each city's budgetary response to the 2008 Great Recession and 2020 COVID-19 Recession were compared and reviewed from both expenditure and...