Predicting Significant Operating Deficits in Municipalities Using Economic Indicators

Abstract

This study investigates economic activity associated with the operating results of municipalities surrounding and including the great recession of 2007-2009. The model hypothesizes that poor operating performance, as measured by a significant operating deficit, is related to four primary drivers of a local economy--employment, investment, industrial output and wealth. The findings indicate that municipalities with significant operating deficits have (statistically speaking) significantly lower job growth (employment) and GDP growth (industrial output) and marginally fewer housing permits issued (investment). The ensuing model was able to correctly predict up to 84% of the municipalities as either having significant budget deficits or not.