ABSTRACT
Since the Reagan Administration’s devolution policies, cities and towns have sought other sources of revenues in addition to property and sales taxes, such as user fees, wage taxes and the commuter tax. These alternative sources have been sought because existing traditional tax bases are growing at a slower pace than the cost for fixed levels of municipal services. Technically, this implies that revenue elasticity of the town’s tax base is much lower than budgetary obligations. Even with the adoption of alternative revenue sources, many communities have constantly encountered budgetary strain. Fiscal strain means the gap between existing revenue streams and budgetary obligations for the maintenance of existing service levels. If the community is in constant fiscal strain, it is likely experiencing fiscal stress. Fiscal stress can be viewed as the inability of government to balance its budget. Often, this imbalance can be attributed to the unwillingness of local officials to modify the town’s tax-raising capacity to meet existing municipal service expenditure levels (Clark and Ferguson, 1983; Pagano and Moore, 1985; Mattson, 1990; 1991; 1994, 2014). Thus, fiscal stress is defined as a funding gap between the budgetary obligations for existing public service needs and the expectations of the town’s residents to meet these ongoing public service levels without raising existing taxes, fees, or other local revenue enhancement sources. Fiscal distress is when a city has not balanced its budget for at least two successive annual budgetary appropriations and has reached its statutory limitations for raising own-source revenues. It is at this point that the city must adopt retrenchment policies that require the curtailing of existing service levels.
