A nonprofit sector that is quite active in the financing or production of public and human services could reduce the financial burdens on local governments to provide services. These governments could be considered more fiscally healthy than governments in communities with less active nonprofit sectors. Although an active nonprofit sector would seem to significantly affect a city's fiscal health, little statistical evidence exists to support this impression. Research reported here indicates that a measure of nonprofit sector service activity, along with accepted measures of fiscal health, effectively describes the distribution of bond ratings for the population of large U.S. city governments. Evidence is provided that (a) municipal bond ratings as of 1990 were an effective measure of fiscal health for large cities, and (b) nonprofit sector service activity was one of the most important determinants.
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