Evaluating the Effect of Differences in Revenue Systems on the Fiscal Health of Large U.S. Cities

Sustainable fiscal health is crucial for cities. To do this, they must be able to generate flows of revenue over time sufficient to pay for needed services, even as the cost of those services grows. These two sides of fiscal health are referred to as expenditure need and fiscal capacity. In this project, I analyze both expenditure need and fiscal capacity over the period 2000–2013. I use the Lincoln Institute of Land Policy’s Fiscally Standardized Cities (FiSC) database, merged with housing market data from CoreLogic and Census data on the income and demographic characteristics of cities, to study the effects on spending of population change, density, and intergovernmental aid. On the revenue side, I examine the effect of diversification in tax sources, limitations on the property tax, and state and federal aid. The revenue and expenditure analyses are to investigate changes in city fiscal health over time. The analysis finds a strong business cycle effect on city fiscal stress, a secular increase in fiscal disparities between 2000 and 2013, and a sharp decline in the fiscal health of cities in the aftermath of the Great Recession.