91
CHAPTER 5 TRENDS IN STATE RESPONSES TO FISCAL STRESS
5.1 Introduction
Without consistent and comparable fiscal stress measures, analysis of state responses to fiscal stress has been piecemeal and subjective Dougherty and Klase 2009;
Jimenez 2009. Using the fiscal stress measures described in the previous Chapter allows for a systematic and multi-year analysis of state responses during fiscal stress. In this
Chapter, the relationships between state responses, fiscal stress levels, economic conditions, political dynamics and legal requirements are examined. Incorporating the
passage of time into this analysis also allows for the determination of the temporal order of responses to fiscal stress. Analysis of these issues will provide answers to the third
question posed in the introduction: Do certain characteristics affect states’ experience of fiscal stress andor influence the choice of responses?
States have a range of possible responses to fiscal stress: across-the-board cuts, tax andor fee increases, hiring freezes, employee furloughs, andor layoffs. Although
states receive revenue from a number of sources, including the federal government, taxes and fees are the only sources of revenue mostly under their control Wulf 2002.
Institutional, political and other factors influence a state’s choice of tactics. These factors include local and national economic conditions, legislation governing budget
deficits, and state spending and taxing powers. The combination of these factors results in a wide variety of state responses, the mix of which can indicate either a clear pattern of
decision making or an unstructured decision making process with no clear guiding principles. Despite tools available to state policy makers to smooth revenue volatility and
avoid abrupt shifts in spending and taxation e.g. more accurate revenue estimation techniques, multi-state rainy day funds, diversification of tax structures, states may lack
92 either the legal power or the political will to use these tools or implement them
consistently Thompson and Gates 2007; Willoughby 2007. In this Chapter, state responses to close budget deficits between 2002 and 2009 are examined. This analysis
teases out whether state responses in periods of fiscal stress differ among states with different political and legal arrangements. And, states will be compared according to
responses in periods of fiscal stress against those responses predicted by the theories of cutback management, incrementalism, and punctuated equilibrium.
5.2 Data and Methodology
Kategori