The Savings Behavior of Special Purpose Governments: A Panel Study of New York School Districts

Abstract

During the Great Recession, local governments experienced unprecedented fiscal stress. Among localities, special‐purpose governments are especially vulnerable to recessions due to their reliance on sole revenue sources. School districts are one example that depends heavily on state aid on top of property taxes. However, the literature is very thin on the savings behavior of special‐purpose governments. This paper contributes to filling the niche: it uses a 28‐year panel of fiscal and socio‐economic data for school districts in New York State to examine the determinants of fund balances. Our findings show that the savings of school districts are affected by their size, fiscal capacity, and revenue portfolio. The results are similar for reserved funds and unreserved funds, which suggests that school districts use reserved funds as a savings mechanism. However, the savings are not necessarily related to economic cycles.