Measuring fiscal distress at local municipalities

Due to the rise of New Public Management (NPM), accounting systems and organizational best practices have changed greatly in the public sector. The idea promotes the public sector adopting processes and methods from the private sector. This widespread paradigm has a tremendous effect on the importance of measurement of the efficiency, effectiveness, and economic performance of the public sector. However, traditional profitability indicators provide a misleading picture of the financial viability of municipalities. The financial performance of local government can be better evaluated with the level of their fiscal distress. Besides these new approaches, the financial problems of large American cities called for better monitoring systems several decades ago. Recently, the global crises of the last decade have drawn attention to the importance of this issue. However, there is no universally accepted model for measuring fiscal distress. Due to the special characteristics of the public sector, the measurement of financial distress should be customized for the sector. The goal of this research is to introduce and compare definitions, models, and theories which describe the importance of the evaluation of the fiscal health of the local governments