Local Government, Fiscal Autonomy and Fiscal Stress

This working paper defines and extends the concepts of local government autonomy and local government fiscal autonomy, examining them as potential necessary conditions for a Tiebout equilibrium. It then uses these concepts to investigate the effects of fiscal stress on local governments in California as they attempt to maintain their autonomy. The revenue and expenditure patterns of California counties and a sample of California cities are then examined, both before and after fiscal stress. In order to more closely understand the state/local fiscal relationships in the light of stress, a detailed examination of development fees and school financing is undertaken. Finally, the paper describes, in a series of seven mini-case studies, city and county actions to mitigate stress and maintain fiscal autonomy.