The Municipal Budget Part 2: What is fiscal sustainability?

Fiscal sustainability and how it applies to local units of government.

Municipal fiscal sustainability is the ability of government to sustain its current spending and tax policy without threatening solvency or default. A framework for municipal fiscal health is based on state policies (constitutional and statutory), local debit management, and the local economy. (Scorsone, Director, MSU Center for Local Government Finance and Policy). Scorsone states fiscal health is based on the long-term sustainability of a government’s finances and operations, measured by assets, revenues, and spending per capita, and the ability to provide services.

Based on Scorsone’s framework for analyzing municipal fiscal health, he states that local economic factors are mediated via tax and spending policies, which translates into the local fiscal health. Other factors at the local level include unemployment rates, income, business and industry diversification, and housing and business growth.

Another component of the municipal fiscal health framework according to Scorsone is examining your local management and decision-making process by analyzing:

  • Local policies on debt issuance and management
  • Local budgeting practices and culture
  • Local spending commitments and pressures
  • Intergovernmental relations
  • Relations with neighboring jurisdiction

Finally, Scorsone states the third component of the municipal fiscal health framework is the analysis of State policies both constitutional and statutory, which includes:

  • Budget and Accounting Standards
  • Debit issuance and management policy
  • Local tax options (own source revenue)
  • State-imposed tax restrictions
  • State mandates for local spending
  • Collective bargaining and labor policies
  • State aid to your local government

Scorsone’s municipal fiscal health framework is a tool that local units of government can use to analyze the fiscal health of their municipality. For more information on this topic visit MSU Center for Local Government Finance and Policy.

Those in Michigan State University Extension that focus on land use provide various training programs on planning and zoning, which are available to be presented in your county.  Contact your local land use educator for more information.

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