In “Preventing Local Government Fiscal Crises” Charles Koe discusses the relation between the state and local governments over preventing fiscal emergencies.
The main reasons for fiscal distress are i) economic decline ii) tax base erosion iii) demographics change iv) federal & state mandates v) federal revenue cuts vi) state tax levy limits vii) recessions viii) mismanagement.
States help local governments prevent fiscal emergencies by i) monitoring local government finances ii) assisting local government in ameliorating fiscal problems (by i) providing technical assistance ii) loan iii) grants iv) backing of local government debt v) temporarily waiving state property tax limits) and iii) assistance notwithstanding (if situation becomes grave, require strong remedial measures like tax increase and expenditure cuts).
States should measure local fiscal condition by analyzing the operating budget and the annual financial report to detect fiscal condition at the beginning of fiscal year.
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