How the Personal Profiles of US State Governors Impact on Financial Sustainability.

• Author: Munoz, Laura Alcaide

1. Introduction

   In the current socio-economic context, governments face the challenge of maintaining the sustainability of public services despite the budgetary restrictions caused by the necessary response to the COVID-19 pandemic. In most OECD countries, fiscal adjustments have been made and new strategies adopted to meet social needs and to control government debt and deficit (Padovani, Rescigno and Cecccatelli, 2018; Kluza, 2017). These issues call for urgent attention by public administrations (Buendia-Carrillo et al., 2020; Padovani, Rescigno and Cecccatelli, 2018; Gardini and Grossi, 2018; IMF, 2019a and 2019b; European Commission, 2019; FASAB, 2014; GASB, 2011) and if not dealt with appropriately could severely impact on financial stability, the provision of public services, economic growth, and economic freedom (Miller and Foster, 2012). This situation would endanger the sustainability of public services and hamper or prevent the achievement of Sustainable Development Goal No. 11 (Sustainable Cities and Communities) (UN, 2019). In this respect, academics and international organizations have highlighted the utility of financial statements as a means of measuring the financial sustainability of public services (European Commission, 2015; 2012a; IFAC, 2012; USAID, 2011; Padovani, Rescigno and Cecccatelli, 2018; Navarro-Galera et al., 2021). This question has been brought into sharp focus in recent years, following successive economic crises which have provoked widespread doubts regarding the capacity of governments to deliver public services effectively and efficiently (Kluza, 2017; Navarro-Galera et al., 2016, 2021; Rodriguez Bolivar et al., 2014).

   Political leaders produce a major impact on sustainability (da Silva Nascimento, Melo and Wanderley, 2014), often playing a crucial role in designing and implementing policies that are sustainable in terms of public revenue (Heinemann et al., 2009), spending (Besley and Case, 2003; Jacoby, 2006) and debt (Efobi et al., 2013; Jochimsen and Thomasius, 2014), i.e. the three dimensions of financial sustainability (IFAC, 2012). Therefore, the analysis of the personal profile of these leaders is an interesting and timely research question (Brandtner and Suarez, 2020; Buendia-Carrillo et al., 2020; Navarro-Galera et al., 2020; Rodriguez Bolivar et al., 2018). In the USA, although each State has a plural executive, including a Deputy Governor, Attorney General, Treasurer, and various State commissioners, the Governor is a powerful figure in determining financial policy (European Commission, 2015).

   Relevant aspects of political leaders' profiles include their skills, knowledge, experience, and mind-set (Navarro-Galera et al., 2020; Efobi et al., 2013). All of these characteristics may influence their approach to sustainability. Therefore, it would be useful to analyze the relationship between a government's policies for financial sustainability and the profile of its political leaders (Rodriguez Bolivar et al., 2018; Giosi et al., 2014).

   Accordingly, in this paper, we identify the elements of the political leader's profile that might influence governmental financial sustainability and hence the sustainability of public services. Financial sustainability is the ability to meet service delivery and financial commitments, now and in the future, without causing a long-term increase in debt (IFAC, 2014). According to Moldavanova (2016), long-term sustainability is the ability of public institutions to fulfill their purpose in the long run.

   Specifically, our analysis focuses on whether the US State Governor's profile influences financial sustainability. The USA is of particular importance in this context because it was the first country to experience the Great Recession (IMF, 2019a, 2019b). Moreover, its economic recovery seems to be solidly grounded and its gradual shift to self-sustaining growth is more advanced than in other developed countries (IMF, 2019a, 2019b). Therefore, our analysis could usefully inform OECD countries about questions related to financial sustainability, thus contributing to economic recovery and helping prevent the effects of future recessions, such as that provoked by the COVID-19 pandemic. In summary, these study findings would be of interest to voters, taxpayers, tax authorities, politicians, managers, and all stakeholders wishing to mitigate future economic recessions.

2. Research hypotheses

   Financial sustainability has been defined as the ability of governments to deliver current services without compromising their ability to do so in the future (GASB, 2011; IFAC, 2013; NAO, 2013). The governmental financial statement is a crucial instrument for evaluating the three dimensions of financial sustainability--revenue, expenditure, and debt (GAO, 2008; GASB, 2011; IFAC, 2013; Rodriguez Bolivar et al., 2014), which determine the ability to maintain the quantity and quality of public services over time (European Commission, 2012; GASB, 2011, 1990; IFAC, 2013; NAO, 2013; Padovani, Rescigno and Cecccatelli, 2018).

   Policymakers play an essential role in the management of public finance (Rodriguez Bolivar et al., 2018; Jochimsen and Thomasius, 2014), adopting certain financial policies and not others according to their knowledge and concern about the viability of public services (da Silva Nascimento, Melo and Wanderley, 2014; Navarro-Galera et al., 2020, 2021). In the same line, Barrilleaux and Berkman (2003) concluded that Governors influence spending policies via the budget process.

   We identify two major areas of the Governor's profile--personal characteristics and preparation (i.e., experience/qualifications)--that could influence management styles and decision-making, hence public spending, revenue, and debt and therefore financial sustainability (Besley and Case, 2003; Heinemann et al., 2009; Jacoby, 2006; Jochimsen and Thomasius, 2014; Mueller, 2003).

   2.1. Personal characteristics

   The State Governor's personal characteristics affect the political decisions taken (Jochimsen and Thomasius, 2014; Rodriguez Bolivar et al., 2018). In this respect, the variables most commonly studied are gender, birthplace, age, race, marital status, children, and ideology (Jacoby, 2006; Jochimsen and Thomasius, 2014).

   According to McGregor (1960), women are transformational leaders and tend to prefer action that favors the common good, adopting a people-oriented, empathic, motivational approach to meeting the organization's goals. Hence, female Governors are expected to pay special attention to social welfare policies (Heidbreder and Scheurer, 2013), especially education and health (Besley and Case, 2003). This outlook affects the composition of public spending (Svaleryd, 2009) and might endanger financial sustainability if it results in higher deficit and debt.

   Besley and Case (2003) reported that female Governors devoted twice as much agenda space to social welfare policies as their male colleagues. However, women are said to be more risk averse than men (Croson and Gneezy, 2009; Eckel and Grossman, 2008), and their less aggressive decisions could reduce spending and debt, thus benefiting financial sustainability. Therefore, we propose the following hypothesis:

   H.1 The presence of a female State Governor, which is associated with expansive social policies, worsens financial sustainability.

   Regarding the Governor's birthplace, Avellaneda (2015) concluded that policymakers elected to office in their home State were more strongly motivated to provide services promoting the community's development and public welfare. Therefore, when political leadership is exerted in the State where the Governor was born, this is associated with increased public expenditure and poorer financial sustainability, in the absence of specific measures to increase income and/or reduce debt. Therefore, we propose the following hypothesis:

   H.2 When a State Governor is elected in his/her home State, the resulting political management has a negative impact on financial sustainability.

   Studies have shown that older political leaders tend to be conservative in their financial decision-making and are associated with lower levels of public debt (Efobi et al., 2013; Jochimsen and Thomasius, 2014). This prudent behavior could benefit financial sustainability, since expenditure and debt are major dimensions of sustainability (IFAC, 2013). Therefore, our third hypothesis considers the impact of the Governor's age on financial sustainability.

   H.3 The age of the State Governor is positively associated with financial sustainability.

   Black Americans have stronger perceptions of racism and are usually less satisfied with the public services received (Van Ryzin, Muzzio and Immerwahr, 2004). Therefore, Black policymakers might experience pressures to adopt policies to combat discrimination, increase social spending (Jacoby, 2006), and implement redistributive policies (Alesina and La Ferrara, 2005). Accordingly, the Governor's race may be an important factor in the priorities expressed, impacting financial sustainability via spending and revenue policies. In this respect, we propose the following hypothesis:

   H.4 Financial sustainability is negatively affected when the State Governor is Black.

   Feeney (2007) observed that the family structure is relevant to a policymaker's characteristics and actions. Similarly, Hatemi (2013) found that marital status influences economic attitudes. In this regard, too, Roussanov and Savor (2012) argue that single CEOs take more risks and invest more aggressively than married ones. However, Efobi et al. (2013) found no relationship between the marital status of the policymaker and public debt. In view of these considerations, we test whether the Governor's marital status influences financial sustainability, in the view that taking less risky decisions would reduce spending and debt and confer greater security regarding tax revenues. Therefore, we propose the following...