Environmental Spending and IGR Growth by Florida County Type

Introduction

The past few decades have seen a trend towards decentralization of revenue-raising and spending responsibilities from the national government to subnational levels — that is, state and local governments (Minassian, 2003). Several reasons account for this trend. Minassian (2003) argues that decentralization enhances more participatory and democratic forms of government, making political leaders at the subnational level more accountable and responsive to the people who elected them. When revenue-raising and spending decisions are made at the subnational level, elected leaders have more room to influence the composition, quality, and quantity of public goods and services in line with the needs of their electorate (Minassian, 2003). Proponents also argue that such decentralization fosters efficiency in the allocation of resources (Minassian, 2003).

At the same time, decentralization presents significant challenges. Subnational governments have an edge in the provision of public services, while the central government has an edge in revenue-raising, as it has access to more productive revenue sources (Kim & Smoke, 2001). Thus, subnational governments face a mismatch between available local resources and the expenditure that the public expects them to undertake (Kim & Smoke, 2001). Further, subnational jurisdictions have different revenue-raising capacities (Kim & Smoke, 2001). If decentralized units were to operate exclusively on locally generated revenues, less wealthy states and counties would be disadvantaged and may be unable to provide essential services and infrastructure to their electorate (Kim & Smoke, 2001). This raises equity concerns and affects the efficient use and allocation of public resources. Additionally, due to limitations in revenue-raising sources, subnational units may not adequately meet basic national priority needs such as sanitation, roads, education, and health, which may ultimately increase poverty rates (Kim & Smoke, 2001).

All these challenges point to the need for subnational governments to broaden their revenue sources in order to more effectively meet the needs of their electorate. According to the United States Census Bureau, one way subnational jurisdictions can increase their revenue is by growing their intergovernmental revenue (US Census Bureau, n.d.).

Using the State of Florida as a case study, this study seeks to determine the factors influencing intergovernmental revenue growth in county governments. The findings will go a long way towards informing policy at both the state and national government levels. Policymakers will gain clearer insights on where to focus their efforts to ensure that counties advance at a comparable pace in intergovernmental growth and are able to meet basic national priority needs. The national priority need selected for analysis in this study is environmental sustainability.

The study seeks to answer three research questions:

RQ3: Is there a significant difference in the percent of total spending that is environmental spending between coastal counties and non-coastal counties?

RQ4: Is there a significant difference in the intergovernmental revenue growth rate (IGR) based on county type (metro/suburban/rural)?

RQ5: Controlling for political orientation, is there a significant difference in the intergovernmental revenue growth rate (IGR) based on county type (metro/suburban/rural)?

Literature Review

This literature review is divided into three sections. The first covers the definition of intergovernmental revenue and what categories of funds are reported as such. The second reviews literature on the factors influencing government spending on environmental protection, while the final section reviews literature on the factors influencing revenue mobilization and growth in counties.

The US Census Bureau defines intergovernmental revenue as all funds received from other jurisdictions, including shared taxes, grants, proceeds of reimbursement for services performed for other governments, advances from other governments toward particular functions, advances received as general financial support, and contingent loans received from other governments to run projects in the receiving jurisdiction (US Census Bureau, n.d.). Funds received from other governments for utility services and property sales are not categorized as intergovernmental revenue, as they are reported in a separate revenue category (US Census Bureau, n.d.). Intergovernmental revenue also excludes insurance trust funds or funds paid to the recipient government as the employer share of pension contributions (US Census Bureau, n.d.). Governments classify intergovernmental revenue by the origin of funds — local, state, or federal (US Census Bureau, n.d.). Funds received by local governments from the federal government through the state government are recognized as state intergovernmental revenue (US Census Bureau, n.d.).

Studies identify several factors that influence a jurisdiction's attitudes towards the environment and, consequently, environmental spending. In one of the earliest studies, Foster and McBeth (1996) measured attitudes towards environmental quality of life and economic development among 187 development officials drawn from a range of urban and rural cities. The study characterized an urban city as one with a population exceeding 50,000 and rural cities as those with populations below 50,000. Respondents answered a series of questions assessing the importance of the environment relative to economic development. Results of a chi-square test of association showed a statistically significant difference between developers in rural and urban areas, with the former demonstrating a greater appreciation for environmental protection than their urban-based counterparts. The study found this finding interesting given that urban-based developers were younger and more educated, and thus expected to be more concerned about the environment (Foster & McBeth, 1996).

A primary weakness of the Foster and McBeth (1996) study is that it covers policy developers rather than actual rural and urban populations. Salka (2003) partly addresses this weakness in a study focused on identifying why some counties place more emphasis on environmental protection than others when voting. That study compared respondents' concern for environmental protection based on whether they lived in an urban or rural county, along with individual attributes, party affiliation, economic conditions, and age. Regression results showed that all of these factors strongly predicted residents' focus on environmental protection. Respondents were drawn from counties across five states — Oregon, Michigan, Florida, Colorado, and California. Unlike Foster and McBeth (1996), this study found that urban counties were more supportive of environmental issues than their rural counterparts, a finding the researchers attribute to higher levels of education among urban residents. However, the effect of a county's rurality was minimal compared to other factors such as economic conditions and individual attributes.

To some extent, these findings mirror those of a study by the Duke Nicholas Institute for Environmental Policy Solutions, which sought to understand the attitudes of rural residents towards environmental conservation (Bonnie et al., 2020). Using survey data gathered from 606 urban-based voters, 1,005 rural-based voters, and interviews with 36 community leaders from rural counties, the study measured the extent to which rural citizens prioritize environmental protection relative to their urban counterparts. Ordinary least squares regression results showed that Democrats generally paid more attention to environmental conservation than Republicans and independents. However, the study did not find significant differences in environmental attitudes between urban and rural voters, leading researchers to conclude that place of residence did not strongly influence environmental attitudes. Like Salka (2003), this study concluded that county of residence was a weaker predictor of environmental attitudes than individual attributes such as political affiliation.

Other studies have gone beyond residents' characteristics to focus on entire jurisdictional economies. Zhang et al. (2019) conducted a study to determine how foreign direct investment (FDI) influences jurisdictions' spending on environmental protection. The study compared expenditure on environmental protection between 2007 and 2016 with the FDI trend over the same period for 30 administrative regions in China. Using the spatial correlation test, the study found a positive correlation between FDI and government spending on environmental protection, both in terms of quality and quantity (Zhang et al., 2019). Regions with high FDI equally spend more on environmental protection, leading the study to conclude that local governments could enhance the quality and efficiency of their environmental spending by pursuing FDI (Zhang et al., 2019).

Dewees et al. (2003) posit that as intergovernmental relationships change, local governments must develop innovative strategies to enhance the well-being of their communities. Their study sampled 222 local governments on the rural-urban continuum around the Ohio River Valley to identify the economic and extra-economic activities that local governments undertake to mobilize revenues locally. The final sample comprised 148 county officials, representing a 67 percent response rate. Among respondents, 35 percent identified their counties as rural-adjacent, 32.4 percent as rural non-adjacent, and 33 percent as metro. The study found that local governments run a variety of local development activities to generate income, including business incubators, worker training programs, revolving loan funds, industrial parks, and tax abatement programs. Extra-economic activities across the surveyed counties included industrial foundations, county fairs, annual festivals, community beautification clubs, county strategic plans, and community visioning programs (Dewees et al., 2003).

Chi-square tests of association found significant differences in local development and extra-economic activities among the three groups of counties. Metro counties were more likely to engage in such activities than rural-adjacent and rural non-adjacent counties. Logistic regression results showed that urban counties were more likely than non-urban counties to implement economic development programs. Additionally, rural-adjacent counties performed better than rural non-adjacent counties in running economic development programs. The study attributes these observations to lower levels of poverty and higher literacy levels in urban counties compared to rural counties (Dewees et al., 2003).

These findings mirror those of Veneri and Ruiz (2016), who used data from the OECD regional database collected between 2000 and 2008 to analyze how proximity to urban centers influences economic growth in rural regions. Using a cross-section of OECD countries, regression results showed a backwash effect in which rural areas close to urban areas benefit from growth occurring in neighboring urban areas. The study found a negative relationship between an area's proximity to an urban center and both its population and economic growth rate, with that association weakening as distance increased (Veneri & Ruiz, 2016). Thus, while rurality weakens access to revenue mobilization, this relationship is moderated by proximity to urban areas, with rural-adjacent areas enjoying better opportunities for growth and economic development than rural non-adjacent areas.

Baskaran and Hessami (2015) conducted a study testing the extent to which political alignment influences intergovernmental transfers. Using the case of a German state, the study hypothesized that state governments' revenue allocations to county governments are driven by two goals: helping municipalities aligned with a particular political side win the next election, and influencing unaligned municipalities that may interfere with the state government's policy agenda (Baskaran & Hessami, 2015). Analytical tests found that political alignment is a strong predictor of intergovernmental revenues that local counties obtain from state governments. Correlation tests showed a significant positive relationship between alignment with local political parties and state intergovernmental support. Thus, "aligned local governments always tend to receive larger transfers from state governments" (Baskaran & Hessami, 2015, p. 1).

In sum, substantial literature exists on intergovernmental revenue, factors influencing government spending on environmental protection, and factors influencing revenue mobilization in local governments. Rurality, proximity to urban areas, and political affiliation emerge as significant predictors of revenue mobilization and growth in counties. However, studies focused specifically on Florida counties are limited, creating a knowledge gap for policymakers in the state. On the question of whether rural counties pay more attention to environmental conservation than their urban counterparts, studies give varied results, opening avenues for research such as this to explore and offer additional insights. The findings of this study will go a long way towards informing policy decisions about where to focus efforts in both environmental conservation and intergovernmental revenue enhancement to improve communities' welfare.

Methods

The study uses secondary data collected from the Florida County Government Survey. The sample includes 60 counties: 30 categorized as metro, 12 as suburban, and 18 as rural. The independent variables for the three research questions are county type (coastal/not coastal) for RQ3, and county type (metro/suburban/rural) for RQ4 and RQ5. The dependent variables are the percent of total spending allocated to environmental protection for RQ3, and the intergovernmental revenue growth rate (IGR) for RQ4 and RQ5. Political orientation serves as a covariate in RQ5, which examines its influence on the relationship between county type and IGR growth rate. RQ3 is analyzed using an independent samples t-test, while RQ4 and RQ5 are analyzed using one-way ANOVA and ANCOVA tests, respectively.

Conclusion

This study found that coastal counties spend significantly more on environmental protection efforts than their non-coastal counterparts. Further, the study found no statistically significant differences in intergovernmental revenue growth by county type (metro/suburban/rural), even after adjusting for political orientation. The study's findings provide crucial insights for policymakers at both the local and state levels. At the local level, the findings provide an avenue for policymakers to enhance their focus on environmental protection as a means to attract FDI, given the established positive association between FDI and environmental spending. At the state level, the findings suggest that Florida policymakers could increase support for local governments through targeted intergovernmental revenue directed toward clean energy promotion and environmental protection education, as a means to make counties more self-sustaining. The findings also offer useful benchmarks for counties beyond those surveyed, which could conduct comparative visits to identify ways of mobilizing more local revenues and reducing over-dependence on intergovernmental aid.

References

Baskaran, T., & Hessami, Z. (2015). Political alignment and intergovernmental transfers in parliamentary systems: Evidence from Germany. Public Choice.

Bonnie, R., Diamond, E., & Rowe, E. (2020). Understanding rural attitudes towards the environment and conservation in America. Duke Nicholas Institute for Environmental Policy Solutions.

Dewees, S., Lobao, L., & Swanson, L. E. (2003). Local economic development in an age of devolution: The question of rural localities. Rural Sociology, 68(2), 182–206.

Foster, R. H., & McBeth, M. (1996). Urban-rural influences in US environmental and economic development policy. Journal of Rural Studies, 12(4), 387–397.

Kim, Y., & Smoke, P. (2001). The role and challenges of intergovernmental fiscal transfers in Asia. Asian Development Bank.

Minassian, T. (2003). Intergovernmental fiscal relations in a macroeconomic perspective: An overview. International Monetary Fund.

Salka, W. M. (2003). Determinants of countywide voting behaviour on environmental ballot measures: 1990–2000. Rural Sociology, 68(2), 253–277.

United States Census Bureau. (n.d.). Chapter 4: Revenue. Author. https://www2.census.gov/govs/class06/ch_4.pdf

Veneri, P., & Ruiz, V. (2016). Urban-rural population growth linkages: Evidence from OECD TL3 regions. Journal of Regional Science, 56(1), 3–24.

Zhang, J., Qu, Y., Zhang, Y., Li, X., & Miao, X. (2019). Effects of FDI on the efficiency of government expenditure on environmental protection under fiscal decentralization: A spatial econometric analysis for China. International Journal of Environmental Research and Public Health, 16(1), 1–19.