Mississippi counties\u27 unreserved fund balance: what factors influence change?

Today, governments function in an “anti-government era” and are forced to provide more services with fewer financial resources (Watson, 1997, p.1). To deal with this situation, they are creating savings or a budgetary cushion (e.g., unreserved fund balances) to stabilize taxes and expenditures (Wolkoff, 1987, Tyer, 1993, Shelton et al, 2000). But, prior research suggests that the recommended benchmark of savings is not adequate for stabilization. To move beyond this benchmark, researchers are seeking to identify those factors that influence the level of savings maintained by governments (Hendrick, 2006). Because there is no consensus on those factors, this research seeks to address this gap in the literature by using the Bounded Fiscal/Demographic perspective used by Marlowe (2004) to examine fiscal and demographic factors. It uses the Politico-Structure perspective also used by Marlowe to examine political factors. Moreover, it uses the organizational financial obligations perspective used by Hendrick (2006) to examine organizational factors that affect the accumulation of unreserved fund balances for Mississippi’s 82 counties. It focuses on the change in the unreserved fund balance as a percent of current general fund expenditures by examining the change between FY 1995 to FY 1999 of the unreserved fund balance during a period of fiscal plenty and the change between FY 2000 to FY 2004, a period of fiscal stress. Overall, Mississippi counties are maintaining either too much or too little of an unreserved fund balance. Their unreserved fund balances ranged from less than their current expenditures to over 10% of their current expenditures. Marginal support was also found for the Bounded Fiscal/Demographic, Politico-Structure, and Organizational Financial Obligations perspectives used to explain the behavior of the unreserved fund balances. More specifically, the findings suggest that Mississippi counties build reserves during times of fiscal plenty and dispense those funds during times of fiscal stress. Counties also showed a tendency to address short-term needs and demands of their residents when revenues were plentiful. However, during fiscal stress, they showed a tendency to be more cost-conscious by focusing more on maintaining rather than expanding current expenditures