The Role of Slack in Local Government Finances

The research presented here adopts an organizational approach to develop three regression models that examine why local governments accumulate slack in the form of unreserved fund balances, and what is the impact of slack resources on local governments' short-term fiscal conditions and decisions about spending and revenues. Using data on Chicago suburban municipalities and their governments, the first model estimates the effects of long-term and short-term conditions (fiscal and governing) on unreserved fund balances. The second and third models examine the impact of slack resources and other factors on yearend deficits or surpluses and changes in spending and own-source revenues. The results show that ending balances, expenditures (size), and long-term fiscal conditions have the greatest effect on fund balances, and that slack and current fiscal conditions have the greatest effect on ending balances and changes in revenues and spending.