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JPBAFM
30,4
384
Received 7 August 2018
Revised 9 August 2018
Accepted 9 August 2018
Journal of Public Budgeting,
Accounting & Financial
Management
Vol. 30 No. 4, 2018
pp. 384-401
© Emerald Publishing Limited
1096-3367
DOI 10.1108/JPBAFM-08-2018-0080
Municipal response to
the Great Recession
Evidence from small- to medium-sized
cities in Georgia and Florida
Cary Christian and Jonathan Bush
Department of Public and Nonprofit Studies,
College of Behavioral and Social Sciences, Georgia Southern University,
Statesboro, Georgia, USA
Abstract
Purpose – The purpose of this paper is to examine the impact of the Great Recession on small- to
medium-sized municipalities within the states of Georgia and Florida using a newly developed set of
quantitative indices.
Design/methodology/approach – An examination of the methods and strategies utilized by individual
cities to maintain public service levels despite distressed revenues is performed. From the data, performance
measures are developed and used to evaluate the efficacy of the various strategies used by the cities.
Outcomes of Georgia municipalities were compared to similarly sized Florida municipalities to study how
underlying differences in tax structures and economies might have affected those outcomes.
Findings – Georgia and Florida municipalities relied on very different strategies for surviving the recession
and its aftermath. Enterprise activities were critically important in both states with transfers to or from
governmental activities rationalized in various ways. While Georgia is generally anti-property tax, more than
half the Georgia municipalities relied on property tax increases to survive. Municipalities were unable to
count on increased intergovernmental revenues during the recession. Finally, even with a tourist activity
advantage, Florida municipalities fared only marginally better during and just after the recession, and fared
worse four to six years post-recession.
Practical implications – The measures developed in this study provide a new, customizable methodology
for the evaluation of financial condition that does not require in-depth comparisons to peers.
Social implications – Small- and medium-sized cities, and especially those in rural areas, are worthy of
targeted research to better understand their unique problems.
Originality/value – This research is novel in utilizing a fiscal condition methodology that can be applied to
a single municipality and does not require comparisons to peers for validity. However, it represents a very
intuitive and customizable tool for making comparisons between municipalities of any size when such
comparisons are desired. Additionally, the focus of this study is on small- to medium-sized municipalities
which generally do not receive as much research attention as larger cities.
Keywords Great Recession, Financial index, Municipal finance, Revenue capacity, Revenue effort
Paper type Research paper
Introduction
The Great Recession, which “officially” lasted from December 2007 through June 2009, has
had a well-documented impact on the nation’s economy and the fiscal position of the states.
There is now a small body of research focused on larger cities and targeted impacts on
specific taxes and bonding activity, but the full impact of the recession on smaller
municipalities has been largely ignored. For Georgia municipalities, revenue losses due to
slow or negative growth during the years 2010 through 2015 dwarfed losses realized during
the official recession period.
The authors would like to voice deep appreciation for the Georgia Municipal Association for the
support and encouragement they have provided during the early phases of this project. They are an
immensely effective organization staffed by incredibly talented people who have a passion for helping
cities perform at the highest level possible.
 In this paper, the impact of the Great Recession on these smaller municipal Municipal
governments is explored using a series of newly developed indices to measure an response to
individual municipality’s ability to weather emergencies entering the recession, the state the Great
of the local economy before, during and after the recession, operating results during the
recession and the strength of the municipal response to fiscal stress. These indices can Recession
also be used to compare municipalities in one jurisdiction to municipalities in other
jurisdictions. In this study, we compare Georgia municipalities to a group of Florida 385
municipalities of roughly comparable size to demonstrate how the indices can be used for
comparison. We have also calculated index scores for larger municipalities in both states
to help understand the differences between large and small city ability to weather the
recession. Data from 63 Georgia municipalities and 30 Florida municipalities were used
in the analysis.
We found that the fiscal condition of both Georgia and Florida municipalities suffered
substantially during the Great Recession requiring strong responses to address fiscal
distress. The effects of the recession lasted longer in Georgia than in Florida, but cities in
both Georgia and Florida continue to struggle six years after the purported end of
the recession. Specific traits of the local economy contributed to a municipality’s strength
or weakness during this period, as would be expected, such as having a generally
wealthier population and/or having profitable enterprise operations that helped subsidize
overall operations.

Literature review
Many studies have been undertaken to explore the fiscal health of local governments.
These studies tend to be holistic approaches to identify serious financial problems as an
early warning system for impending emergencies. One of the first approaches was
developed by the Advisory Commission on Intergovernmental Relations (1973) which
included six financial indicators. Many other studies followed including efforts by the
MFOA (1978) with 29 indicators and the International City/County Management
Association with 36 indicators. Brown (1993) put forth ten ratios that could be used in the
aggregate to provide an overall view of financial condition. Kloha et al. (2005) offered a
model that includes nine factors. Wang et al. (2007) developed an evaluation of financial
condition composed of ratios covering solvency in four domains: cash, budgetary, long
run and service. Hendrick (2004) noted that many of these approaches to the analysis of
fiscal health suffer from the lack of a theoretical framework to aid in interpretation of
component measures and suggests strategies for addressing fiscal issues that consider
the differing circumstances of the governments under analysis. Hendrick goes on to
propose a framework that addresses four dimensions of fiscal health using 24 separate
factors. Bird (2014) noted that the indicators of fiscal health cannot replace analysis that
addresses specific cases even though they may provide some useful signals to inform
such analysis. It is notable that there is no agreement on best practices for measuring
financial health.
There are several problems with using combinations of the ratios and data used to
model financial distress. First, interpretation of each ratio can be difficult. For example,
one might argue that low revenues per capita are bad. But if expenditures per capita are
also low, operating margins are sufficient, and the population being served is satisfied
with the level of services provided, then low revenue per capita is not a negative indicator
under these circumstances. In fact, if it is a community that values low taxes over high
service levels, this indicator might be quite positive. Second, many of these models require
comparison to other governments to determine what is “good” and what is “bad” in an
indicator. It has been notoriously difficult to create a model that works by applying it only
to a single entity. Kloha et al. (2005) claimed this as one of their goals, but their model
JPBAFM includes a component for “size of general fund balance” that refers to standard deviations
30,4 from the mean. Component calculations based on standard deviations require access to
significant amounts of data from a number of other entities to complete. Third, many of
the models require analysis of too many components. It becomes unclear where a city
stands if they “fail” only a few of the components but do well on the rest. Are certain
components more critical than others? To what extent? Does the meaning of the indicator
386 change based on the value of other indicators? If so, which ones, and is that always the
case or just in certain situations? Clark (2015) raised a number of issues related to the
reliability and validity of these types of indices, such as arbitrary and flexible weighting
systems, problems with sample selection, and the use of subjective opinions in
interpretation and in the selection of an appropriate set of indicators. The interpretation of
any particular component may vary depending on the environment, so rather than a
subjective test, these models really represent a starting point for more detailed analysis.
If that is indeed true, then much simpler starting points can be envisioned. The financial
ratios and other types of data used in previous studies have value individually.
Considering groups of ratios can provide a comprehensive view of fiscal condition at a
point in time and can highlight specific weaknesses that must be addressed. However,
generalizing the interpretation of those ratios to a wide range of entities that operate in
differing environments is problematic.
In a study of the impact of falling property values on local government finance,
Alm et al. (2011) pondered whether local governments can continue to rely on property taxes
as a primary source of revenue. They found that the overall negative impact of falling
property values varied widely between state and local governments, and that overall
property taxes have been an advantage for many local governments during the recession,
including local governments in Georgia. Chernick et al. (2011) in a study of large cities from
1997 to 2008 also found that, while revenue diversification was important, it was the
property tax that played the most crucial role during recessionary times. Sacco and Bushee
(2013), on the other hand, found that revenue diversification was of more importance in
boosting net assets while reliance on property tax alone was associated with falling net
assets. In a 15-year panel study of Florida cities, Doerner and Ihlanfeldt (2011) found that
increases in housing prices resulted in a small increase in revenue but that decreases in
housing prices did not result in decreased revenues. Cromwell and Ihlanfeldt (2015) and Lutz
et al. (2011) provided additional support for this result noting that the lag between decreases
in market value and assessment of taxable value provides time to adjust millage rates to
offset the decrease in property value.
Pandey (2010) argued that the Great Recession may be considered an “era of cutback
management” that includes greater usage of reserve funds, challenges to job security and
employee motivation, and more reliance on intergovernmental revenues. The author warns
that simply “wielding the budget axe” to balance budgets without consideration of the long-
term impacts of the cuts is folly. While local governments certainly rely on
intergovernmental revenues to a certain extent, Trussel and Patrick (2013) found that
such reliance is the most important signal of a coming reduction in public services.
There are some questions whether state and local governments have the revenue-raising
capacity to address the fiscal stress caused by deep recessions and maintain expenditures
required to properly provide needed community services (Ladd and Yinger, 1989). Hou and
Moynihan (2008) suggested greater investment in countercyclical fiscal capacity to develop
reserves to meet community needs during recession. However, both revenue capacity and
the ability to develop reserves may differ greatly depending on whether the local
government is rural or urban (Cigler, 1989; Shields, 2004).
Propheter et al. (2017) found that states increased their reliance on revenue provided by
user fees during the Great Recession to offset the impact of falling sales tax revenues.
Local governments appear to have increased reliance on user fees from enterprise activities. Municipal
In a study of 100 Georgia cities between 2005 and 2009, Arapis (2013) found that enterprise response to
activities were an important contributor to increased own-source revenues but tended to the Great
decrease governmental expenditures. This finding goes against findings by DiLorenzo
(1982), Deno and Mehay (1988), and Tyer (1989) who found that enterprise operations Recession
allowed government the ability to spend more. Vogt (1978) found rather a substitution
effect, where enterprise surpluses are used to replace other own-source revenues. Rubin 387
(1988) found that among enterprise activities, electric utilities were the most profitable while
water and sewer utilities tended to be less profitable and therefore less able to support
governmental activities through interfund transfers, but electric utilities and water and
sewer utilities were found to be the two most profitable enterprise activities by Tyer (1989).
Real median household income in the USA finally pushed past its 2007 peak as of
January 1, 2016 (US Census Bureau, 2016). As a national average, state tax revenue
exceeded its peak from the third quarter of 2008 in the second quarter of 2013, but Florida
and Georgia state tax revenues have not yet recovered to their peak revenue levels. As of the
first quarter of 2017 Florida tax revenue was 16.6 percent below and Georgia was
0.5 percent below peak recession level revenues (The Pew Charitable Trusts, 2017). Housing
prices nationally recovered to their recession peak ( first quarter of 2007) in the third quarter
of 2016 (US Federal Housing Finance Agency, 2017). These statistics indicate that the
recovery from the Great Recession has been slow and negative impacts have carried far
beyond the technical end of the recession. These factors contribute to the increasing
public sentiment against raising taxes and the rise of populism. It has become clear that
public enterprises represent a means of financing governmental activities off budget and
avoiding voter outrage over tax increases while still meeting balanced budget requirements
(Denhardt and Denhardt, 2000, 2007; Stumm, 1996).
The following are questions raised by the literature and questions of general interest that
we will attempt to address through this analysis of the impact of the Great Recession on
Georgia and Florida municipalities:
(1) How severe was the impact of the recession on city operations and how soon
after the technical end of the Great Recession did cities begin to see improvement
in their operations?
(2) Did cities in metropolitan areas perform better than rural cities?
(3) What actions did the cities take to soften the impact of the recession?
(4) Did these small cities cut services indiscriminately to keep budgets balanced?
(5) Was revenue diversification important to these entities in weathering the recession?
(6) How well did the property tax function for small general governments in Georgia
and Florida during and after the recession?
(7) How much reliance have Georgia and Florida municipalities placed on
intergovernmental revenues historically and did such reliance result in service
reductions during the recession?
(8) How important were enterprise activities in supporting government spending
during the extended recession?

Methodology
Our goal in this project is not to create a methodology that presents overall fiscal health at a
point in time. Rather, we propose the use of specialized indices that measure very simple
concepts to provide a high-level view of the impact of economic changes, including
JPBAFM recessions, on city operations. Analysis of the components of the index allows drill down to
30,4 other factors that may be either explanatory or worthy of further study. The components of
the indices are tailored to the specific circumstances and environments under which the city
operates, so the indices are customized to each city reviewed. While this sounds complicated
in application, it is done simply by defining a simple “standard” of operations desired and by
equating index adjustments to a common underlying measurement that is unique to each
388 city: monthly expenditures. Additionally, it is our goal that this methodology can be easily
duplicated by individual cities for internal analysis. Finally, the indices provide a simple
point of comparison between cities of any size.
We chose 63 cities in Georgia and 30 cities in Florida for this analysis. The 30 Florida
cities were chosen as being somewhat comparable to the cities in the Georgia group.
However, Florida cities tend to be larger and more urban overall than the Georgia cities.
The small Georgia municipalities in this study were selected based on the availability of
financial reports covering all years in the study. Hundreds of small municipalities had to be
excluded because of a lack of availability of these reports. Since there are not that many
large cities in Georgia, all of them were included to allow comparisons between large and
small cities. Four of these cities have populations between 100,000 and just over 200,000
residents, and Atlanta has a population in excess of 400,000.
All financial information was accumulated from the Comprehensive Annual Financial
Reports or audited financial statements for each city for the years 2004 through 2015.
All financial data used in the analysis were adjusted to 2003 dollars to isolate real increases
and decreases in amounts. Data related to the economy were pulled from other sources
where needed, including the US Census Bureau (2000–2015); US Department of Labor,
Bureau of Labor Statistics (2000–2015); and the US Department of Commerce, Bureau of
Economic Analysis (2000–2015). Property tax assessments data and sales tax distribution
data were retrieved from state Department of Revenue websites (Georgia Department of
Revenue, 2000–2015a, b; Florida Department of Revenue, 2005–2015). Data related to
Florida electric rates were found on the Florida Municipal Electric Association (2005–2015)
website. Electric rate data for Georgia municipalities were obtained from the Georgia Public
Service Commission (2005–2015) Residential and Commercial Rate Surveys. Water and
wastewater rate structures for Georgia municipalities were obtained from the University of
North Carolina Environmental Finance Center (2005–2015), while Florida rate structures for
water and wastewater activities were developed from town websites, CAFRs and other
general online sources since no usable single source of rate information could be found.

General description of the indices

We have developed four indices for evaluation of the impact of the Great Recession on
municipal governments as described in Table I.
Each index is composed of one or more components except for the reserve index which
is simply a measure of the amount of reserves available before and during the recession.
The components of each index and how they are used in the analysis are fully described in
the Appendix. It should be noted that all indices are based on the accrual basis
government-wide financial statements. Accrual basis results provide the clearest
measurement of operations and should be used for this type of analysis. Modified accrual
financial results might be appropriate in those cases where short-term liquidity is of more
concern, but accrual basis statements give a more accurate view of the results of operations.
Further, some readers may be concerned that we use primary government financial results
as the basis for the indices rather than segregating governmental and enterprise activities.
We noted that there were substantial transfers between governmental and enterprise
activities during the period under review and looked to state law for limitations on the
ability to transfer. Such limitations are very general where they exist and there are many
Index Description
Municipal
response to
Reserve index Number of months expenditures in reserve the Great
Operations index Based on a scale of 10 where 10 means to operating margins are equal to a defined standard.
For this analysis, the standard is defined as 2 percent real growth in own-source revenues Recession
and 2 percent real growth in expenditures. Each 1-point adjustment is equal to a deviation of
one-month average expenditures. This index includes components for creation or use of
reserves, own-source operating margins, service solvency and service maintenance 389
Environment Based on a scale of 10 where 10 is an environment equal to a defined standard. For this
index analysis, the standard is defined as a 5 percent unemployment rate; real increases in
property values of 2 percent per year; real increases in personal income of 2 percent per
year; and poverty rate equal to the pre-recession poverty rate
Strength of Based on a scale of 10 where 10 represents the extent of use of six predefined responses to Table I.
response index fiscal stress Description of
Note: Each index is described in detail, with examples, in the Appendix the indices

rationales presented in the notes to the financial statements that support the ability to
legally make these transfers. For example, in some cases, municipalities charged franchise
fees and allocated indirect expenses. In others, the municipalities did not formally charge
these fees or separately compute the allocations of indirect expenses but referred to the
ability to charge them as justification for the transfers. In all, we found 23 different
justifications for these transfers and saw no indication that the ability to transfer funds
between governmental and enterprise activities was limited to any extent whatsoever. As a
result, there is no reason to segregate governmental and enterprise activities for this
analysis even though it is possible to do so.

Results
Cities have been placed into tiers based on population to compare results based on city size
as well as by state. Tier 1 represents the largest cities and tier 6 represents the smallest.
Tiers 1–3 represent cities with populations over 88,000 and tiers 4–6 represent cities with
populations under 88,000. The average scores for each index are presented in Table II by
state and by tier.

Georgia Florida
Tiers Tiers
Index Period 1–3 4–6 1–3 4–6

Reserve Pre-recession 6.57 5.50 3.60 6.08

During recession 5.63 5.02 3.01 6.08
1–3 years after recession 4.48 4.79 2.43 5.17
4–6 years after recession 2.67 4.60 −0.34 4.42
Operations Pre-recession 9.84 10.05 9.07 9.69
During recession 8.66 7.63 7.88 8.38
1–3 years after recession 8.46 7.04 7.33 8.09
4–6 years after recession 6.77 7.07 5.40 6.55
Environment Pre-recession 10.30 10.69 12.13 12.32
During recession 8.68 9.55 8.97 8.30
1–3 years after recession 7.50 7.27 6.59 6.42 Table II.
4–6 years after recession 8.49 8.21 9.29 9.23 Comparison of
Response During recession 3.63 3.61 3.52 2.84 average index scores
1–3 years after recession 3.85 4.06 5.15 4.89 by population tier
4–6 years after recession 4.37 5.24 7.24 6.33 and state
JPBAFM The reserve index shows that large and small cities in Georgia had about six months of
30,4 expenditures in unrestricted reserves at the beginning of the recession with the larger cities
using reserves at a more rapid pace. Larger Florida cities entered the recession with only
3.6 months expenditures in reserves and had negative reserves six years after the recession.
Small cities in Florida fared slightly worse than small Georgia cities with respect to reserves
maintaining 72 percent of their pre-recession reserves vs 84 percent in Georgia.
390 The environmental index shows that the economy in Florida was better than in Georgia
prior to the recession but was worse during and one to three years after the recession.
However, the economy improved more in Florida during the period four to six years after
the recession than in Georgia.
The response to the recession was similar for Georgia and Florida cities during the
recession, but the response in Florida was much stronger throughout the six years
following the recession for both large and small cities. Because of this stronger response,
small Florida cities fared better during the recession and one to three years after but
lagged small Georgia cities in the period four to six years after the recession. Large Florida
cities fared worse than large Georgia cities throughout the recession and the six years
following. With respect to question 1, it appears that the impact of the recession on city
operations was severe in both states and that operational performance has not returned to
pre-recession levels through 2015.
Among small Georgia cities, there is a belief that municipalities situated close to major
cities likely fared better during and after the recession than rural municipalities. Table III
compares the index values of small cities vs large cities to test this assumption.
The economic environment in Georgia was very similar when comparing cities in metro
areas to rural cities but the operations index shows that rural cities struggled more
throughout the recession. Part of the explanation of this difference lies in the strength of
response index which shows that rural cities did not respond as strongly to the effects of the
recession. In Florida, the economic environment was weaker in rural cities during the
recession and in the three years after but improved dramatically in the period four to six
years after the recession for both metro and rural cities. The strength of response after the
recession by both metro and rural cities was significantly higher in Florida and, within
Florida, was significantly higher in rural cities after the recession. It should be noted that in
many cases rural cities simply do not have similar options available to them for
responding to the recession, such as having substantial enterprise activities to support

Georgia Florida
Index Period Metro Rural Metro Rural

Reserve Pre-recession 5.96 5.17 5.35 5.09

During recession 5.52 4.57 5.11 5.02
1–3 years after recession 4.73 4.81 4.76 3.58
4–6 years after recession 4.34 4.57 3.43 1.88
Operations Pre-recession 10.32 9.71 9.43 9.59
During recession 7.90 7.51 8.07 8.57
1–3 years after recession 7.25 7.04 8.01 7.53
4–6 years after recession 7.28 6.79 6.25 6.08
Environment Pre-recession 10.74 10.56 12.00 12.63
During recession 9.45 9.51 8.96 7.82
1–3 years after recession 7.28 7.30 6.54 6.33
Table III. 4–6 years after recession 8.30 8.15 9.21 9.29
Comparison of index Response During recession 3.75 3.44 3.12 3.16
values, large vs 1–3 years after recession 4.28 3.78 4.62 5.54
small cities 4–6 years after recession 5.25 5.08 6.43 6.89
overall operations. It is notable that rural cities in Florida depleted substantial portions of Municipal
their reserves during the recession while rural Georgia cities reduced reserves by about half response to
as much. To answer question 2, rural cities did struggle more during the recession, though the Great
perhaps not as much as some have believed. For small Georgia cities, it appears that having
fewer response options creating an inability to mount a more aggressive response is more Recession
the culprit than the depth of the recession, and this contributes to the feeling that the
recession was worse for rural cities. 391
As noted in the Appendix, the individual components of the reserve and operations
indices can be directly converted to loss numbers since they are based on monthly
expenditures. Table IV shows the losses from standard during and after the recession based
on the operating margin component of the operations index.
Revisiting question 1, the loss numbers in Table IV are useful for understanding
the severity of the impact on operations of cities in these two states during and after
the recession. It becomes quite clear that the effects of the recession did not subside once the
recession technically ended but have continued unabated in some cases up to six years after.
Based on the per capita loss numbers, the losses realized during and after the Great
Recession have been substantial for both large and small cities.
Addressing question 3, responses to the recession by cities in each state were quite
different overall and changed over time as the recession wore on. Table V compares the
response strategies of cities from the two states during and after the recession.
Cities in both states relied heavily on increasing utility rates indicating the importance of
enterprise activities in maintaining operations and answering our eighth question. Florida
cities relied much more heavily on cutting expenditures and increasing property taxes than
Georgia cities. Georgia cities preferred increasing other taxes more than property taxes,
although most Georgia cities that did increase property taxes increased them early and
during every stage presented. Other strategies varied as to preference during different
periods. With respect to the fourth question, Florida cities engaged in expenditure cutting,
and therefore an assumed reduction in services, to a much greater extent than Georgia cities.
Revenue diversification has been named as a factor in ability to weather downturns in
the economy (Schunk and Porca, 2005; Sacco and Bushee, 2013). With respect to the fifth
question on the impact of revenue diversification, Table VI shows average revenue
diversification scores for cities in each state before, during and after the recession.
The scores have been calculated using the modification of the Hirschman–Herfindahl Index
of Concentration (Hirschman, 1964) adopted by Hendrick (2002) and is calculated using four
revenue categories. A score of 1 represents perfect diversification and 0 represents reliance

Georgia Florida
Tiers Tiers
Index/Component Period 1–3 4–6 1–3 4–6

Total losses from standard for each time period

In millions
Operations/Operating Margin During recession 127 396 1,081 220
1–3 years after recession 444 637 2,097 464
4–6 years after recession 660 494 1,565 331
Total losses 1,233 1,528 4,744 1,015
N 5 58 12 18
Per capita losses from standard Table IV.
During recession 115 285 377 261 Operating margin
1–3 years after recession 411 446 740 566 losses during and
4–6 years after recession 589 332 538 393 after the recession
JPBAFM Georgia Florida
30,4 Period Strategy No. % No. %

During recession Cut expenditures or employees 16 25.4 17 56.7

Used reserves 29 46.0 10 33.3
Increased property tax 25 39.7 3 10.0
Increased other taxes 48 76.2 20 66.7
392 Increased non-tax revenue 28 44.4 16 53.3
Increased electric rates 13 (max 13) 100.0 2 (max 2) 100.0
Increased water and sewer rates 42 (max 51) 82.4 17 (max 23) 73.9
1–3 years after recession Cut expenditures/employees 39 61.9 28 93.3
Used reserves 32 50.8 16 53.3
Increased property tax 30 47.6 27 90.0
Increased other taxes 27 42.8 10 33.3
Increased non-tax revenue 14 22.2 7 23.3
Increased electric rates 10 (max 13) 76.9 2 (max 2) 100.0
Increased water and sewer rates 50 (max 51) 98.0 20 (max 23) 86.9
4–6 years after recession Cut expenditures/employees 35 55.6 24 80.0
Used reserves 30 47.6 24 80.0
Increased property tax 35 55.6 29 96.7
Table V. Increased other taxes 42 66.7 7 23.3
Comparison of city Increased non-tax revenue 19 30.2 19 63.3
responses to Increased electric rates (max 2) 13 (max 13) 100.0 1 (max 2) 50.0
the recession Increased water and sewer rates (max 23) 50 (max 51) 98.0 18 (max 23) 78.3

on a single source of revenue. The four revenue categories included are property tax, sales
tax, other tax and non-tax revenues as a percentage of total own-source revenue. Only
governmental revenue sources are considered in this calculation.
Surprisingly, Georgia cities in this study have more diversified revenue streams than their
Florida counterparts, with the greatest differences between the larger cities, but revenue
diversification was not found to have a significant impact on the cities’ ability to weather the
recession. The State of Georgia limits property tax assessments to 40 percent of fair market
value and cities often add additional exemptions of their own. The State of Florida uses fair
market value as the assessment limitation. Many Georgia cities have eliminated the property
tax and many others claim a desire to follow suit. This alone would lead one to conclude that
Georgia revenues should be less diverse. Despite this bias against property taxes, Table VII
indicates that property tax increases were important to Georgia cities.
To answer our sixth question, while used more broadly by Florida cities, it is safe to say
that property tax increases were an important response to the recession for cities in both
states, especially as the impact of the recession carried over into years beyond the technical
end of the recession.
With respect to our seventh question, intergovernmental revenues were not a significant
source of relief for cities in either state even though they were important. Table VIII shows

Georgia Florida
Tiers 1–3 Tiers 4–6 Tiers 1–3 Tiers 4–6

Pre-recession 0.9704 0.9119 0.8881 0.8975

Table VI. During recession 0.9692 0.9152 0.8734 0.8794
Revenue 1–3 years after recession 0.9642 0.9086 0.8857 0.8803
diversification scores 4–6 years after recession 0.9635 0.9214 0.8932 0.8853
the average percentage of revenues from other governments received before, during and Municipal
after the recession by cities in each state. response to
Intergovernmental revenues dropped during and after the recession for all cities other the Great
than tier 4–6 cities in Georgia, where such revenues essentially remained flat. During a time
when additional assistance from the state and federal government was most important, Recession
none was forthcoming for these Georgia and Florida cities.
Full index results for all cities in this study are available upon request from the authors. 393
Conclusion
There are a few important takeaways from this study. First, as most researchers know, the
Great Recession did not end with the “technical” end of the recession. Almost all cities
continued to suffer through at least 2015, and there is no reason to believe that conditions
have improved dramatically since. We may very well be seeing the “new normal” for local
government as envisioned by Martin et al. (2012).
Second, enterprise activities were critically important during and after the recession as
noted in arguments by Arapis (2013), DiLorenzo (1982), Deno and Mehay (1988), Tyer (1989)
and Vogt (1978). While there are some limitations on transfers from enterprise activities,
they were found to be easily circumvented. Cities can and did transfer funds between
governmental and enterprise activities at will. In both Georgia and Florida, with few
exceptions enterprise transfers were substitutive in that they merely replaced lowered
revenue from other sources which supports the findings of Vogt (1978) and Arapis (2013).
Enterprise transfers did not generally fund increased expenditures over baseline as was
predicted by DiLorenzo (1982), Deno and Mehay (1988) and Tyer (1989). It should be
recognized that the substitutive nature of enterprise revenues noted here may follow this
pattern during periods of recession or slow economic growth when the focus is on
maintaining operations at a reasonable level but may result in increased expenditures
during expansions or moderate- to high-growth periods.
Third, many Georgia cities voice the desire to reduce or eliminate property taxes, but more
than half of the Georgia cities in this study relied on property tax increases to survive. Such
increases were more expected in Florida, where property taxes enjoy a much more prominent
role, but the number of cities in Georgia that raised property taxes and the extent of the
increases was surprising. This supports the findings of Alm et al. (2011) that property taxes

Georgia (N ¼ 63) Florida (N ¼ 30)

Property tax increased Number Percent increase Number Percent increase
Table VII.
During the recession 25 13.99 3 10.69 Property tax increases
1–3 years after the recession 30 11.91 27 15.85 during and after
4–6 years after the recession 35 21.78 29 21.92 the recession

Georgia Florida
Tiers Tiers
1–3 4–6 1–3 4–6

Pre-recession 0.130 0.142 0.176 0.148 Table VIII.

During recession 0.097 0.143 0.163 0.121 Intergovernmental
1–3 years after recession 0.102 0.137 0.154 0.104 revenue percentage of
4–6 years after recession 0.099 0.141 0.133 0.111 total revenues
JPBAFM have been an advantage for many local governments during the recession and Chernick et al.
30,4 (2011) who found that the property tax played the most crucial role during recessionary times.
Both large and small cities in each state were not able to count on intergovernmental
receipts to help them weather the recession. While such receipts were important to those
cities who received them, intergovernmental revenue either dropped or remained flat as the
recession drug on. This supports the findings of Trussel and Patrick (2013) who found that
394 reliance on intergovernmental revenue was the most important signal of a coming reduction
in public services, primarily because such revenues are rarely increased, and may well
decrease, when most needed.
We had fully expected for this comparison to show that Florida cities had a much easier
task in addressing the impact of the Great Recession. Florida has a far larger tourist
industry that regularly provides outsized out-of-state sales tax receipts to state and local
coffers. Additionally, the smaller cities in Florida included in this study are much closer to
major metropolitan areas than most of their Georgia counterparts. In fact, Georgia has only
one metropolitan area that qualifies as a large city and only five cities statewide that have
more than 100,000 residents. Yet, it appears that small Florida cities did only marginally
better than small Georgia cities both during and one to three years after the recession and
were actually worse off four to six years after the recession. Additional research will be
required to fully understand why this is so.
Finally, it is the authors’ belief that more research needs to be focused on small cities,
and particularly cities in rural areas. These entities have far fewer resources at their
disposal to weather downturns like the Great Recession and, from all appearances, a
“new normal” that appears to have emerged means that these cities may continue to
struggle for many years. It is important to find the ingredients that help the hardiest of
these small cities adapt to fiscal stress and help those struggling to replicate those efforts
in their own jurisdictions.

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Appendix Municipal
The following is a detailed discussion of each index used in this analysis.
response to
Reserve index
the Great
This index measures the reserves available to meet emergency needs operationalized as the number of Recession
months expenditures in unrestricted net position. This reserve is primarily of importance at the
beginning of the recession but has been tracked as a snapshot of where the community stands at
the end of each given year. 397

Operations index
The operations index is composed of two separate components for operations and service capacity that
purport to show the impact of the recession on operations. Each of these components also contains two
components. The operations index is constructed as shown in Table AI and the components are more
thoroughly discussed below the table.

Growth in unrestricted net position

The growth in unrestricted net position component of the operations index is the annual use or
supplement to the reserve balances indicated in the reserve index. It represents the ability of operations
to add to the reserves each year or an indication of the amount of reserves used to supplement
operations for the year. The growth or use of reserves is divided by monthly expenditures to yield the
number of months expenditures in reserves added or used.

Own-source operating margin

The own-source operating margin is a measurement of how well operations match a baseline computed
assuming a user-defined standard of performance. The index can be easily modified as needed to reflect
different standards within a specific municipality. All of these indices are designed to be standalone, quickly
calculated measures of operations under fiscal distress that can be quickly tailored to specific operating
environments. As such, this specific index can be customized to any standard that makes sense for the
particular region or state. For this study, the standard adopted is 2 percent real growth in both revenues and
expenditures, a level that should allow the municipality to maintain stability in financial condition and
support service improvement without unduly taxing reserves. This standard is consistent with historical
revenue and expense growth in these two states and this is the basis for choosing this standard.
The own-source operating margin is a comparison of the actual operating margin to the baseline
operating margin. The revenue baseline is constructed as follows:
(1) if necessary, any built in operating deficits in the base year (2004) is adjusted to reflect an
actual minimal operating margin of 5 percent;
(2) the base year is calculated as a per capita revenue amount; and
(3) the revenue baseline for 2005 through 2015 is calculated based on per capita revenue increases
of 2 percent per year.

Panel A: operating components

Growth in unrestricted net The use of or growth of reserves during the year divided by expenditures
position per month
Own-source operating Actual operating margin (including intergovernmental operating grants) vs a
margin baseline margin, divided by baseline expenditures per month
Panel B: service components
Service solvency Overall actual expenditures in excess of 105 percent of baseline expenditures
plus IGR operating grants, divided by baseline operating expenditures per month Table AI.
Service maintenance Actual expenditures less than 95 percent of baseline expenditures divided by Components of the
baseline operating expenditures per month operations index
JPBAFM Building the baseline in this manner assures the baseline operating margin is positive and grows not
30,4 only based on the real growth assumption but also grows with the population as well.
The expenditure baseline for use in the own-source operating margin calculation is constructed
as follows:
(1) per capita expenditures for the base year are calculated based on actual expenditures for 2004; and
(2) the expenditure baseline for 2005 through 2015 is calculated based on per capita expenditure
398 increases of 2 percent per year.
Any extraordinary items present in the actual operating results are adjusted and do not impact
either the baseline or the actual operating margin used in calculating the own-source operating
margin. The difference between the actual operating margin and the baseline operating margin
is divided by baseline expenditures per month to calculate the adjustment point value for the
index. Basing the index adjustment on monthly expenditures allows the index to be rapidly
transformed into a total gain or loss amount for each year by multiplying the index point value by
monthly expenditures.

Service solvency
Higher expenditures per capita are generally viewed as a negative, indicating that government is more
expensive, and a higher level of expenditures is more difficult to maintain over time (Wang et al., 2007).
In this component, expenditure growth results in no index adjustment for increases up to 5 percent in a
given year plus any intergovernmental operating grants that were received for that year. This allows a
municipality to incur a reasonable amount of additional expenses in a year without penalty. The
additional 5 percent allowance is on a per year basis and is not cumulative. The baseline expenditures
for this calculation are per capita real growth at 2 percent annually plus the amount of
intergovernmental operating grants received. Expenditures over the baseline are divided by baseline
monthly expenditures to calculate the adjustment point value for the index. This adjustment is a
negative index adjustment only.

Service maintenance
While higher expenditures per capita are generally viewed as negative, extreme reductions in
expenditures can compromise service levels. This component represents expenditure levels falling
below 95 percent of baseline expenditures. Expenditures less than 95 percent of baseline are divided by
baseline monthly expenditures to calculate the adjustment point value for the index. This adjustment is
also a negative index adjustment only.
The service solvency and service maintenance components together provide that over time
expenditures should fall within a range of 5 percent on either side of the baseline plus any
intergovernmental operating grants that are received. These parameters can be adjusted to suit the
specific environment if required.
The adjustments for each component are added or subtracted from a base of 10 to indicate where
the municipality ranks on the operations index. A score of “10” indicates the municipality is operating
at the standard level of operations chosen, in this case, 2 percent growth in revenues and expenditures,
and expenditure levels within 5 percent of baseline plus intergovernmental operating grants.
It should be noted that since all adjustments are made with respect to monthly expenditures, all scores
can be converted to dollar values simply by multiplying the index score by the monthly expenditures for
the municipality. Since comparison to a baseline builds in the impact of prior year’s deviations from
baseline, this index is ideally suited to quantifying the impact of a recession in dollars over time.

Environmental index
The environmental index is designed to measure the strength of the recession in each specific
municipality. It recognizes that the impact of the recession can vary greatly between smaller
jurisdictions within counties and states. This index provides perspective to the operating index results
and the strength of the municipal response to the recession represented by the strength of response
index discussed next. The environmental index is composed of four components computed as follows.
Unemployment Municipal
This component of the index is computed based on the difference between the actual unemployment response to
rate and an “optimal” rate. We have chosen an optimal rate of 5 percent. One point is subtracted for
each 1 percent increase over the optimal rate or one point is added for each 1 percent decrease under
the Great
the optimal rate. Recession
Percentage change in property values
This component of the index is computed based on the difference between the actual real increase 399
or decrease in property values vs an “optimal” increase. We have chosen a real increase of
2 percent per year as the optimal increase. One point is subtracted for each two percentage points
under a 2 percent increase or one point is added for each two percentage point increase in excess
of 2 percent.

Percentage change in personal income

This component is computed based on the difference between the actual increase or decrease in
personal income vs an “optimal” increase. We have chosen a real increase of 2 percent per year as the
optimal increase. One point is subtracted for each two percentage points under a 2 percent increase or
one point is added for each two percentage point increase in excess of 2 percent.

Poverty rate vs pre-recession poverty rate

Growth in poverty can represent a larger burden on municipalities in the form of lower tax and other
revenue and greater required subsidization of services. One point is subtracted for each 2 percent
increase in the poverty rate over the pre-recession rate or one point is added for each 2 percent decrease
in the poverty rate under the pre-recession rate.
The environmental index also has a base of 10 where a score of 10 means that the municipality
realized real growth in property values and personal income of 2 percent for the year, the
unemployment rate remained at 5 percent and poverty is at pre-recession levels.

Strength of response index

This index provides a measure of the strength of the response by the municipal government to the
impact of the recession. The response will vary by city and should correlate to the environment created
by the recession and the operating results the city has obtained in this environment. In other words, if
the actions measured in this index were not taken, then one would assume the operating results
measured by the operating index would be worse. Additionally, if the actions measured in this index
are not strong, then one would assume that the environmental index would not be as severe. A weak
score on the environmental index accompanied by a strong score on the strength of response index
should yield an operations index much closer to standard. There is a negative correlation between the
environmental index and the strength of response index of r ¼ −0.5399, p ⩽ 0.000.
In this study, we have only considered responses that can be calculated from readily available
data in the comprehensive annual reports or information available from the Census Bureau, Bureau
of Labor Statistics, and state agencies or other online resources that may compile data on utility-
related enterprise activities. The responses considered and the points assignments are presented
in Table AII.
The total score for a city from the above point assignments is divided by the total possible
maximum score (adjusted to consider whether or not the city has an electric and/or water and sewer
utility) and the result is multiplied by 10 to achieve a composite strength of response score where a
10 score equals the maximum response available based on the specific options included in the index.

Summary of index meaning

Assume that a city has the following scores for the period one to three years after the
recession (Table AIII).
The reserve index means that the city has 6.61 months of expenditures in reserve. The operations
index means that the city is functioning at about 71 percent of the standard level desired.
JPBAFM The environment index means that the economic environment is considerably poorer than the
30,4 standard defined (6.15 out of the standard at 10). The strength of response index shows that the city
has mounted a strong response to the recession (6.67 out of a maximum response of 10). The
individual components of each index also have a story to tell. Note that the operations index of 7.11 is
calculated by adding or subtracting the component scores from 10 (10 minus 0.5 minus 2.16 minus
0.23 equals 7.11). The own-source operating component of the operations index is −2.16. Let us
assume monthly expenditures for this city and for this year are $4.2m. The index tells us that the city
400 has lost operating margin of $9.072m for the year in comparison to the baseline (−2.16 times $4.2m).
The service solvency component is −0.23, so we understand that the city spent $966,000 (−0.23 times
$4.2m) more than the defined baseline (baseline plus five percent plus intergovernmental operating
grants in this case). If the service maintenance component had been −0.23 instead, then we would
understand that the city spent $966,000 less than the amount required to maintain service levels at
95 percent of our defined baseline. Note that the service solvency and service maintenance indices are
mutually exclusive since a city cannot both spend more than the baseline and less than the baseline
in the same year.

Index scores for sample cities

While these indices have been developed with comparison as a key feature, they can be used to
evaluate the impact of the recession on a single city without a comparison point for benchmarking.
Interpretation of the four indices quickly tells a story about the city it represents and points the way
toward perhaps more insightful evaluation of why a specific city scored the way it did. Table AIV
presents indices for several individual cities in Georgia and Florida, including four cities that ranked
high and four that ranked low.
As noted in the case of Union City in Georgia and Palm Bay, Gainesville, and Winter Park in
Florida, cities do not necessarily meet the standard defined during the pre-recession period, which
generally means that more effort will be required during and after the recession to maintain
operations. Even cities that meet standards before the recession may require an extraordinary
response to maintain acceptable operations as noted in the cases of Brunswick, Georgia and Miami
Gardens, Florida. With respect to cities ranking high in the operations index, further investigation
reveals the factors that contribute to their ability to withstand the recession. In the cases of Elberton,
Georgia and both Gainesville and Winter Park, Florida, each city operates electric utilities that make

Points
Response to recession 0–5% 6–15% 16–25% 26–35% 36–50% 51–75% W75%

Used reserves 1 2 3 4 5 6 7
Reduced expenditures or employees 1 2 3 4 5
Increased taxes 1 2 3 4 5
Table AII. Increased non-tax revenue 1 2 3 4 5
Strength of response Increased electric rates 1 2 3 4 5
index components Increased water and sewer rates 1 2 3 4 5

Reserve index 6.61

Operations index 7.11
Reserve growth/use −0.50
Operating −2.16
Service solvency −0.23
Table AIII. Service maintenance 0
Sample city index Environment index 6.15
scores for example Strength of response 6.67
Panel A: sample cities with high rankings in each state
Municipal
Georgia Florida response to
Index Period Elberton Avondale Estates Gainesville Winter Park the Great
Reserve Pre-recession 1.39 7.15 0.60 1.36
During recession 2.03 10.06 1.43 1.42
Recession
1–3 years after recession 3.10 11.25 2.68 3.55
4–6 years after recession 3.55 10.22 2.36 3.31
Operations Pre-recession 9.78 11.10 9.06 8.11 401
During recession 9.74 11.97 10.82 9.51
1–3 years after recession 9.77 10.42 10.66 10.01
4–6 years after recession 9.40 10.54 8.65 7.61
Environment Pre-recession 9.26 9.35 11.97 11.32
During recession 7.85 8.32 9.42 9.76
1–3 years after recession 7.14 6.82 8.54 7.68
4–6 years after recession 7.81 9.33 9.21 9.89
Response During recession 0.94 2.27 5.00 3.13
1–3 years after recession 1.56 2.27 4.06 4.06
4–6 years after recession 2.19 2.27 3.75 3.44
Panel B: sample cities with low rankings in each state
Georgia Florida
Index Period Brunswick Union City Miami Gardens Palm Bay
Reserve Pre-recession 13.06 4.04 2.14 3.59
During recession 5.33 2.83 2.38 4.02
1–3 years after recession 2.71 1.19 0.17 2.27
4–6 years after recession −1.07 1.11 −1.54 −1.32
Operations Pre-recession 10.33 8.39 10.24 7.37
During recession 5.07 2.47 3.35 7.27
1–3 years after recession 5.33 4.17 4.20 5.96
4–6 years after recession 4.50 8.15 5.50 3.81
Environment Pre-recession 10.32 12.02 13.62 13.25
During recession 9.85 7.82 10.22 6.16
1–3 years after recession 6.01 7.30 4.34 5.24
4–6 years after recession 7.08 6.99 7.82 8.98
Response During recession 5.56 5.19 4.55 1.11 Table AIV.
1–3 years after recession 8.89 8.15 8.18 6.67 Selected individual
4–6 years after recession 8.15 10.00 10.00 7.41 city rankings

meeting standards easier since these utilities are generally very profitable in both states. Gainesville,
Florida also benefits from being the home of Florida’s flagship university. Winter Park,
Florida and Avondale Estates are both upscale suburbs of major metropolitan areas, Orlando and
Atlanta, respectively.

Corresponding author
Cary Christian can be contacted at: pchristian@georgiasouthern.edu

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