ABSTRACT
One of the most heavily investigated and controversial areas in public finance is state and local government fiscal health. The fiscal shortfalls facing New York at the end of the 1980s were not out of step with what was happening in the entire state and local government sector. Three types of fiscal health measures are considered: surplus/deficit measures; bond ratings and debt ratios; and measures of underlying fiscal capacity and expenditure need. The most comprehensive private sector measures of government financial health are the credit ratings developed by Standard & Poor's and Moody's Investors Service. This chapter presents the available evidence on fiscal capacity, expenditure needs, and standardized fiscal health for the total state and local sector in New York and for specific local governments. It considers the external events that are federal aid reduction; federal macroeconomic policy; the longer run effects of the 1986 federal tax reform; state industrial policy; and poverty and the underclass.
