The Relationships between Public Finance Issues, Financial Management Issues, and Conditions of Fiscal Stress in Small and Rural Governments: The Case of West Virginia

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ABSTRACT. Small and rural communities face severe fiscal constraints. Many factors affect governance in these localities. Because of this, a vital concern are the relationships between "Fiscal Stress" and other factors. Multivariate analysis techniques are utilized to examine these relationships based on data collected from a survey of West Virginia local public officials. The analysis showed that "Public Finance" and "Financial Management" factors affect Fiscal Stress while external factors, such as professionalism, population, and metropolitan status, have little to no impact on Fiscal Stress. Additionally, Public Finance and Financial Management issues are critical to explaining Fiscal Stress in small and rural governments and Fiscal Stress is critical in explaining Public Finance and Financial Management issues. However, the relationships are not of equal strength; Fiscal Stress and Public Finance influence each other more strongly than Financial Management factors.

INTRODUCTION

Small and rural communities face severe fiscal constraints. These problems often go unrecognized because of the much greater concern with the continuing urban crisis (Clark et. al., 1986). The nature of needs and problems in small and rural local governments cannot be assumed to be the same as those of larger governmental units, just on a smaller scale (Banovetz and Nolan, 1990). Rural conditions make the administration of rural governments different from urban governments. Their small populations, low population densities, and isolation from urban influences cause differences in the cost, amount, and quality of public services (Reid, 1984). The nature of the evolving devolution of governmental responsibilities and emerging demographic trends have heightened the necessity of examining the financial problems of these small and rural local governments which are a vital part of the American landscape.

A number of factors affect governance in small and rural jurisdictions: geographic isolation, low population density, mobility disadvantages, scarcity of fiscal resources, lack of expertise and human resources, personal familiarity, resistance to innovation, and lack of ancillary services (Honadle, 1983). Rural government capacity is commonly thought to depend on institutions with sufficient authority, adequate financing, and good leadership to insure governmental authority and resources are used wisely (Reid, 1984). These circumstances are frequently lacking and research links the problems of small and rural local governments to the lack of adequate rural management capacity, fiscal stress, and changing intergovernmental roles resulting from devolution under the "New Federalism" (Cigler, 1987). The sparse population of small rural communities poses unique financial problems and difficulties in securing professional staff, but most local problems have their roots in the lack of availability of fiscal resources (Banovetz and Nolan, 1990). Thus problems continue to revolve generally around several central issues: changes in rural demographics, economic problems of rural areas, inadequate financial resources, and inadequate expertise (Brown, 1980).

FISCAL STRESS IN SMALL AND RURAL LOCAL GOVERNMENTS

Population trends in recent years have indicated a reversal in the historical movement of people from rural to urban areas in virtually all areas of the United States. Rural (nonmetropolitan) areas grew faster than urban (metropolitan) areas, and migration from cities exceeded migration to cities in the 1970s (Cigler, 1984). This reversal of population migration patterns has been characterized as a "rural renaissance" or the 11 new ruralism. " In the 1980s, nonmetropolitan areas experienced diminished growth but underwent another upturn in population growth rates by the end of the decade (Johnson and Beale 1994). This population growth in nonmetropolitan continued as many areas in the United States have seen population increases so far in the 1990s. …