Measuring the Fiscal Health of U.S. Cities

This paper uses a specially constructed data base on city finance that accounts for the revenues and spending of the constituent governments that provide public services in cities—municipal governments, school districts, counties, and special districts—to analyze the fiscal health of cities. This approach, called the Fiscally Standardized City (FiSC), permits comparisons of city finance between cities with widely different institutional structures. Fiscal health is defined in terms of the balance between expenditure needs and fiscal capacity. The expenditure need calculations are obtained from regressions of five separate categories of spending. The analysis allows us to identify variables that are likely to affect the cost of providing various public services. Our estimates of fiscal capacity of cities are based on the Representative Tax System approach. Our empirical analysis is based on a panel data set of 148 FiSCs for the years 2000 through 2014. We find that there are substantial differences in both the expenditure needs and fiscal capacity across cities and over time. When we put these two measures together to calculate overall fiscal health, we find wide variations across cities and between 2000 and 2014, with the variation in fiscal health across cities increasing between 2000 and 2014.