Limits of fiscal federalism: How narratives of local government inefficiency facilitate scalar dumping in New York State

Abstract

US local governments are responsible for a variety of services, based on the assumptions of fiscal federalism that local governments can deliver residents the services they want at the lowest cost. However, an austerity narrative that calls for shrinking public budgets emerged after the 2008 global financial crisis and higher levels of government are dumping fiscal stress down to the local level in a process of “scalar dumping.” How do local governments respond to these austerity pressures and why do we see weak pushback from local governments? Focus groups with local government officials across New York State show local responses are constrained by the combination of a state-level limit on local property taxes and a narrative of local government inefficiency. Although local governments have the legal authority to raise revenues, they are reluctant to use this authority due to political pressure from the state and voters. These pressures encourage local governments to maintain services without adequate revenues. Pushback is weak as local governments lack institutional power in a state-based federal system and the heterogeneity among local governments makes collective action difficult. Fiscal federalism promises efficiency and effectiveness in a decentralized governance system, but has limited ability to counter “scalar dumping” that erodes fiscal sustainability. More balance of power in state–local relationships and a narrative that better connects local taxes and services are necessary.