Fiscal First Aid

Step 6: Category 3: External, Political Causes of Financial Distress

In this category we address:

  • Poor Communication with the Public 
  • Interest Groups 
  • Decline in Local Fiscal Autonomy 


Poor Communication with the Public

Contributed by James Garnett

Failing to communicate with key constituencies to get direction and muster support can cause fiscal distress. This includes failure to listen to citizen feedback about the kind of community they want, including the appropriate mix of taxes and services, and the kind and quality of services demanded. Failure to inform and educate citizens about the importance of government services and their costs reduces public support when cuts are threatened.


  • Demand for services not aligned with willingness to pay taxes. Do citizen make demands on government that exceed their willingness to pay? Individuals who are consumers first and citizens second resist taxation that displaces private consumption.
  • Spread of disinformation. Does local government get information out to people quickly before misinformation moves in to fill the vacuum? Is the information government shares accurate and free of spin?
  • Poor results on measures of citizen attitudes towards government. Is there an increase in citizens complaining that their government does not listen to them? Does support at budget hearings or other public forums, or on surveys or referendums suffer?


Interest Groups

Interest groups can push for new services or expenditures that benefit a narrow segment of constituents and can resist reductions to favored programs. Therefore, interest groups can cause government to take on additional expenditures that do not benefit a broad constituency when times are good and constrain managerial flexibility when times are bad. 


  • Low levels of participation by the general public. Does the general public vote in elections, participate in civic groups, or otherwise get involved in local government? If not, there is more room for organized, narrow interests to assert themselves.
  • High levels of decentralization. Do multiple centers of power provide organized interest groups with more access to advocate for their favored policies? These decentralized power centers may be less sensitive to the desires of the general public, especially if the organized interest is that power center’s clientele.
  • Heterogeneous community. Is there is wide diversity in the preferences of the community such that at least some segments of the population would not be very satisfied with any given tax-and-service mix? If so, then there is incentive to form a group to lobby for the preferred mix. 
  • Political leaders have little information on the preferences of citizens. Do political leaders have little or nothing to counter the claims of organized, narrow interests that purport to represent a wider constituency?
  • Unclear lines of authority among governments. Is the public clear on what services are provided by which government level and what taxes are paid to whom?


Decline in Local Fiscal Autonomy

State laws or other legislation can place constraints on local government revenue or spending options. Declining local fiscal autonomy limits a government’s ability to respond to increasing service demands.


  • Constrained fiscal policy space. Does the local government have few options for new revenue sources or little flexibility to change tax rates?
  • Overdependence on intergovernmental revenues. Is there increasing reliance on intergovernmental revenues over time, or greater dependence on intergovernmental revenue relative to other jurisdictions?
  • Unfunded mandates. Does the state/provincial or federal government impose many service requirements on local government without a corresponding allocation of resources? Mandated activities can add to the budget and constrain flexibility. Alternatively, other levels of government can entice local governments to provide new services, funded through temporary transfers, then reduce or eliminate the funding in future years leaving the local government to either find permanent funding sources, or take the political hit for reducing or eliminating that service.