The Intersection of Flexible Budgeting and Cutback Management: Factors Affecting the Responses of Selected States to Recent Economic Recessions

Abstract

One important dimension of flexible budgeting involves the ability of a government to deal with adversity. This study examines adversity in the form of economic downturns and their impact on state budgets. It focuses on the role that economic shocks play in the application of flexible budgeting approaches in selected states. Eight contiguous states in the Mid-Atlantic and East Central regions of the U.S. are the focus of this study: Delaware, Maryland, New Jersey, North Carolina, Ohio, Pennsylvania, Virginia, and West Virginia. These states represent a broad sample of diverse states, almost all of which previously had significant budget deficits in the recession of the early 2000s. The research compares the responses of the selected states to the recession in the early 2000's with responses to the recession which started in 2007. Utilizing an historical analysis of responses by the states, the proposed research examines what those responses were and how they differ between the two recessions. It further evaluates to what degree the severity of the recession played a role in the nature of the responses.

This comparative analysis of the responses of the selected states to the two recessionary periods provides a basis for examining what factors affected their responses. Responses by states to adverse economic conditions have been described as involving the application of a range of possible cutback management approaches. This study examines what aspects of the budget environment in the selected states contributes to their ability to undertake particular cutback management measures. It considers what attributes enabled states to have sufficient flexibility to respond to the recessionary impacts. It also examines the degree to which flexibility in response is affected by the severity of the recession.