Measuring the Fiscal Health of U.S. Cities
Municipal fiscal health can be measured in different ways. In a new paper for the Institute on Municipal Finance and Governance (IMFG), Howard Chernick and Andrew Reschovsky develop a measure of fiscal health that allows them to assess the ability of major American central cities to provide their residents with a standard bundle of public services at reasonable rates of taxation. They analyze 148 U.S. central cities between 2000 and 2014 using a specially developed fiscally standardized cities (FiSC) database. By accounting for the revenues and spending of all governments that provide public services within cities – municipal governments, school districts, counties, and special districts – Chernick and Reschovsky are able to compare municipal finances across cities with widely different governance structures.
The authors conclude that a substantial number of U.S. cities illustrated weak fiscal health, because their revenue-raising capacity, including intergovernmental transfers, falls short of their expenditure needs, leading to a fiscal gap. Fiscal disparities, measured as the variation in these gaps across cities, were large in both 2000 and 2014 and increased over that period. Moreover, on average, own-source revenue-raising capacity, such as taxes, fees and user charges, grew much faster than intergovernmental transfers. The largest single contributor to the increase in fiscal disparities was the uneven growth in own-source revenue-raising capacity across cities. Targeted increases in federal and state grants could help improve the fiscal health of U.S. central cities and reduce fiscal disparities.