Local Government Responses to State Fiscal Controls: The Effects of Fiscal Preemptions on the Methods of Local Service Delivery

Abstract This study aims to investigate how local governments strategically respond to fiscal controls imposed by state governments. Specifically, we explore the effects of state fiscal preemptions on the way local governments deliver public services—that is, contracting out. Using negative binomial regressions, we found that state fiscal preemptions increase the tendency of local governments to contract out public services. However, the dynamics of contracting out depend on the local government’s current municipal fiscal status and the type of service provider. When local governments perceive a high level of fiscal stress, they tend to take a passive stance to contracting out. Moreover, the relationship between fiscal preemptions and contracting out varies contingent on the type of service provider. In sum, the findings suggest that local governments actively respond to institutional limitations on municipal fiscal activities in order to overcome supply and demand challenges, although the choice of service delivery method varies depending on fiscal conditions and the type of service provider.