Do Governments Hide Resources from Unions? The Influence of Public Sector Unions on Reported Discretionary Fund Balance Ratios

Abstract

We explore whether municipalities with public sector unions exploit aspects of governmental (or “fund”) accounting to obscure the availability of discretionary resources in fund balance accounts, relative to municipalities without public sector unions. We first investigate whether governments with unions report higher proportions of discretionary resources outside of the general fund, a primary measure of financial health, and instead within less prominent fund types. Second, we explore whether governments with unions report lower ratios within accessible general fund balance account categories – that is, report lower proportions of unreserved fund balance. Primary findings are consistent with both hypotheses. Although somewhat mixed, cross-sectional analyses reveal that effects are magnified when unions have more bargaining power, as proxied by the ability to strike or the absence of state right-to-work laws. Further analysis corroborates cross-sectional findings by examining difference-in-differences specifications surrounding the quasi-exogenous shock of Wisconsin's 2011 weakening of state public sector union laws and Ohio's time-varying union contract negotiations. Overall, the evidence suggests that governments with unions shelter resources to avoid the appearance of large discretionary amounts available.