Fiscal Stress and the Allocation of Expenditure Responsibilities between State and Local Governments: An Exploratory Study

Abstract

fects allocation of expenditure responsi bilities between state and local governments. Fiscal condition refers to the capacity of governments to meet financial and service level obligations (Hendrick et al. 2006, 1). A decline in such capacity equates to fiscal stress. Studies that have looked at fiscal relationship between state and local govern ments often focus on how fiscal institutions such as tax and expenditure limits (TELs) have changed structure and size of state-local sector (see, for instance, Mullins and Joyce 1996). A few studies have provided a descriptive account of how recent state fis cal stress has affected fiscal relationship between states and their local governments. A single case study by Conant (2003) found that fiscal stress led to a reduction in state aid to local governments. Kalambokidis and Reschovsky (2005) observed that budget shortfalls from 2001 to 2004 forced states