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The Politics of Fiscal Stress: Organizational Management of Budget Cutbacks.

In 1978, the voters of the state of California passed Proposition 13 in reaction to sudden and substantial increases in the property tax bills. Proposition 13 not only capped the property tax rate but carefully blocked circumvention of the tax cut. The immediate prospect for most local taxing jurisdictions was a cut of more than 22 percent in their operating funds. In response to the crisis, the state provided "bail-out" funds to local governments from its then swollen coffers and ultimately assumed a much higher share of the funding burden, but from 1979 to 1982, local jurisdictions struggled with unprecedented budget adjustments. Echoes of these struggles can be heard again across the land as state and local governments face dramatic revenue shortfalls resulting from the current economic slowdown, the shifting of program responsibilities from the federal to state governments and from there to the localities, and rapidly rising bills for Medicaid, roads, schools and corrections.

Landon Curry spent the years from 1978 to 1982 observing how three neighboring school districts on the eastern shore of San Francisco Bay - Berkeley, Richmond and Oakland - grappled with declining revenues, budgetary uncertainties, shifting political relationships and declining enrollment as families fled the public schools. He describes the results of his observations as a study in political or organizational anthropology rather than as quantitative analysis of response to fiscal stress.

The author characterizes the three communities by their unique, if incomplete, political features - Berkeley with the University of California and a long history of radical political activism; Oakland, home of the Black Panthers, with a high level of black political involvement; and Richmond with an active John Birch Society and a strong ultraconservative element.

The author tests several theories of cutback management against what he observed in the three districts. Theoretically, in a period of fiscal stress an organization will depend more heavily on its planning and financial core in order to direct its more limited resources toward the protection of its mission and long-term goals. This is considered more desirable than allowing short-term political concerns to come to the fore and deflect energy away from concern over substantive goals. Focusing on three variables - relative wealth, level of centralization of decision-making authority and critical internal conflict - the author tested expectations against the reality of the three cases.

Berkeley was clearly the best financed of the three in 1978 and the most aggressive in seeking funds. However, it tended to have a decentralized style of decision making, and it managed conflict within the district by funding special programs as they were demanded by one segment of the community or another. The resources devoted to education in Oakland were greater than in Richmond, but only because the district strained to produce more income from a smaller tax base. Over the previous decade the district had suffered from a high level of internal conflict, with the teachers fighting the board while the voters reacted to the fiscal strain in this poor district by rejecting five proposed tax increases. Richmond practiced great austerity, not even applying for federal funds for which it was eligible because of its conservative philosophy. The board generally refused to respond to community demands.

As a result of the fiscal crisis, as expected, decision making did become more centralized and conflict did increase in all districts. The Berkeley board with its history of avoiding hard choices had great difficulty in making any decisions. Delay in decision making and the apparent lack of legitimate premises to justify their decisions exacerbated conflict within the community and led the board to change superintendents.

Oakland, which entered the post-Proposition 13 period with a newly elected liberal board, found itself under even more fiscal stress than it had experienced in the previous decade. The school system did receive several large grants from community groups to save specific programs, and federal urban impact aid was directed to the district by the governor, but conflict over funding increased as old and new interest groups sought stability for their programs, stability that the board could not provide.

Richmond made its decisions quickly with little public discussion as it had long done, but in this case the unpopularity of its decisions finally strengthened community opposition to the board and led to its political overturn.

The most critical factor affecting decision making in these case studies is undoubtedly the prolonged duration of the funding uncertainties. For families with children, however, no public service cut will generate more intense interest than school cuts, and political pressure will inevitably be brought to bear on those charged with making the decisions.

The author suggests that these case studies raise questions about the adequacy of generally accepted theories about organizations facing declining resources. He concludes that "1) Relative wealth did not determine resilience in the face of fiscal stress. 2) The management of uncertainty effectively displaced concern over substantive goals of education as the focus of decision making. 3) Political considerations played a dominant role in the management of uncertainty."

Available for $19.95, plus shipping and handling, from IGS Press, Institute of Government Studies, University of California at Berkeley, 102 Moses Hall, Berkeley, CA 94720 (415/642-5537).
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Author:Field, Joanne
Publication:Government Finance Review
Article Type:Book Review
Date:Apr 1, 1992
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