Predicting fiscal distress in special district governments

Abstract

This paper uses survival analysis to investigate fiscal distress in special district governments. We hypothesize that fiscal distress is positively correlated with revenue concentration and debt usage, and negatively correlated with organizational slack and entity resources. Our model addresses differences in district functions, financing and legislation. Our regression model predicts the likelihood of fiscal distress and correctly classifies 93.4 percent of the districts as fiscally distressed or not. The results show that the most important indicator of fiscal distress is a low level of capital expenditures relative to total revenues and bond proceeds. The information needed to predict fiscal distress is publicly available, making our model useful in the prevention, detection, and mitigation of fiscal distress in U.S. districts.