How Does Variation in City Fiscal Health Affect Its Degree of Innovation?

Fiscal pressures faced by American cities from the late 1970s to the early 1980s renewed the attention of fiscal policy analysts to the financial health of local communities. As a result, numerous efforts were made to evaluate various governments’ fiscal conditions, and to identify new forms of activity that could assist in maintaining the fiscal health of the communities. Essentially, fiscal difficulties faced by U.S. cities stimulated their governments to innovate. However, from the perspective of the literature on innovation, innovation is an expensive process that requires upfront and continuous investments. Given these two sets of arguments, the question arises as to whether or not the availability of financial resources is a determinant of innovative government activity. This study examines the relationship between the fiscal health of U.S. city governments and the scope of their adopted innovation. The importance of the availability of slack resources as an incentive for governments to innovate is analyzed. A multifaceted index of government fiscal health and a measure of the scope of innovation are developed in the course of this case study of a randomly selected sample of cities in North Carolina (U.S.A.) with populations above 25,000. This study concludes that fiscally healthy city governments in North Carolina are more likely to engage in innovation activities than fiscally stressed city governments. Logically, higher slack resource availability in a government is usually associated with some stage of innovation implementation, although without any traceable consistency.