Date of Award
Doctor of Philosophy (PhD)
Sharon N. Kioko
cash flow management, local government studies, local public finance, short-term debt, slack resources, working capital management
Social and Behavioral Sciences
This dissertation is composed of three essays which evaluate financial strategies used to manage cash flows and the broader working capital management process in local governments. The objective of this dissertation is to address unresolved questions in the literature regarding the use of short-term financial resources to improve a government’s internal operating process and successfully navigate challenging fiscal environments. Together, the three essays contribute to our understanding of cash flow management strategies and the consequences of their implementation in United States local governments.
The first essay, in Chapter 2, evaluates the motivating factors that encourage managers to use an external financing source, short-term debt. This research, conducted in collaboration with Professor Sharon N. Kioko, is the first empirical investigation of the factors that promote short-term debt use by a wide range of local governments. It is hypothesized that managers can issue short-term debt as one financial strategy to reduce financial uncertainty from the timing of cash receipts, expenditure flexibility, and favorable long-term debt market conditions. On the basis of data examined between 1996 and 2016 from a heterogeneous sample of New York general purpose governments, evidence suggests that fewer cash assets, a declining prior year budget surplus, higher proportions of federal aid, increases in salary and wages expenditures, more capital spending, as well as more use of long-term debt for bridge financing increase the likelihood of using short-term debt. These results, in turn, imply that managers need to be responsive to changes in the composition of short-term assets and revenues, and understand the cash flow implications of changes in operations, revenue projections, and budgetary spending flexibility. These findings both add to our knowledge of the factors that influence the use of one external source of financing as well as motivate curiosity about alternative strategies used by managers.
The second essay, in Chapter 3, extends our knowledge by evaluating various financial strategies that rely on internal resources and external sources of financing used throughout the working capital management process. Strategies that rely on internal resources (e.g., unrestricted cash, savings, interfund borrowing, interfund transfers, and delaying payments) and external sources of financing (e.g., speeding up collections of receivables, accessing a line of credit, direct lending, and issuing short-term debt) are used to mitigate cash deficits and promote sustained operations. In this first examination of the preference and use of public working capital management strategies, it is asserted that managers have a pecking order, or preference ranking, for strategies that use internal resources before external sources of financing. Using a 2016 survey of financial managers in New York local governments, findings suggest managers have a preference ranking for reducing unrestricted cash before delaying payments, speeding up the collections of receivables, issuing short-term debt, and not taking any action to mitigate cash flow uncertainty. Managers most often implement strategies that combine the use of unrestricted cash and short-term debt. Yet, rule-based policies and operating procedures regarding these resources lack sufficient development. Ultimately, a more complete understanding of financial strategies used for public working capital management is advanced. However, the extent to which these strategies can be impacted by the broader economic and fiscal environment can be explored in future research.
The third essay, in Chapter 4, asserts that the slack resource of excess taxing capacity influences the use of short-term resources. Specifically, this study systematically examines if excess taxing capacity (the difference between the levy limit and selected property tax level subject to the limit) impacts General Fund unrestricted cash and short-term borrowing. Using panel data from New York local governments between 1996 and 2016, I find suggestive evidence managers are more likely to reduce cash holdings and engage in short-term borrowing when excess taxing capacity increases. The implications of these findings are that managers likely leverage their internal cash and short-term borrowing capacity to accumulate external slack of their property taxing authority. Local government managers, therefore, are being prudent to not hoard cash and borrow in the short-term instead of continually utilizing more of their taxing authority. Overall, the findings represent an important addition to our knowledge of how a more visible slack resource, excess taxing capacity, influences the use of slack resources that are exclusively within the discretion of government managers, short-term resources.
Lofton, Michelle Lynn, "Three Essays on the Management of Local Government Cash Flows" (2018). Dissertations - ALL. 949.