Does benchmarking encourage improvement or convergence? Evaluating North Carolina's fiscal benchmarking tool

Abstract

Several states monitor the fiscal health of their local governments by "benchmarking" them - using a suite of financial indicators to track performance over time. Benchmarking of public organizations can facilitate performance management, leading to the spread of best practices and improved organizational performance. It is also possible that benchmarking, absent other performance routines, could create isomorphic pressures that encourage local governments to adopt policies that converge performance or financial indicators towards the group mean. This article tests these hypotheses using the introduction of North Carolina's financial benchmarking tool in 2010. We construct a panel of the 14 indicators used to assess and compare the financial positions of North Carolina county and municipal governments from fiscal year 2008 to 2014. We find support for isomorphism as the dispersion of several indicators declined in the post-implementation period without offsetting beneficial changes in the mean indicator value. These findings pose a dilemma for the quantitative evaluation of both benchmarking and performance management systems; could offsetting changes result in null findings at the mean of the distribution?