A Spatial Analysis of Florida County Governments' Unreserved General Fund Balances

The most recent Great Recession brought our attention to the issue of fiscal sustainability of local governments, who need to maintain the stability of their public service delivery over the economic cycle of boom and bust.... [ view full abstract ]

The most recent Great Recession brought our attention to the issue of fiscal sustainability of local governments, who need to maintain the stability of their public service delivery over the economic cycle of boom and bust. Local governments often rely on their general fund balances to deal with contingencies and economic downturns. Empirical research, however, produces mixed results and is inconclusive about what determines the size of local savings. No previous research on this topic has considered strategic interactions and the spatial relationship among local governments. This study examines the factors that affect the size of unreserved fund balances and empirically tests the spatial effects concerning local fund balance policies in Florida. With access to local government financial reporting provided by Florida’s Chief Financial Officers, we construct a panel data set consisting of all the county governments in Florida from 2007 to 2011. This research assumes that the size of unreserved general fund balances is affected by three categories of variables, including financial situation, socioeconomic conditions, and political environment. Findings of this research will enhance our understanding of local financial management practices and potentially help them formulate better fund balance strategies to maintain fiscal sustainability.