Theory and Practice of Decision-Making in State and Local Governments During Fiscal Stress: The Case of East Cleveland

Abstract

This article examines how fiscal stress shaped decision-making processes in the City of East Cleveland, Ohio, one of the most persistently distressed municipalities in the United States. Drawing on theories of bounded rationality, institutional failure, and austerity urbanism, it explores why decades of oversight and recovery planning have failed to restore fiscal stability. Using qualitative analysis of audit reports, public records, and media coverage, the study reveals how limited administrative capacity, political instability, and corruption constrain local governments’ ability to implement recovery plans, even under state supervision. East Cleveland’s experience challenges staged models of municipal recovery that assume a gradual transition from austerity to pragmatic municipalism. Instead, it illustrates how small, structurally disadvantaged cities can become trapped in perpetual fiscal emergency, where procedural oversight substitutes for effective governance. After decades in fiscal emergency, East Cleveland remained without consolidation or receivership until recent state action in 2025. The case contributes to the literature on emergency financial management and institutional theory by demonstrating that the most instructive lessons may come not from best practices, but from persistent failures. It highlights what not to do when navigating fiscal stress.