Presented by: Kenneth A. Kriz, Ph.D., University Distinguished Professor of Public Administration, University of Illinois Springfield

Measuring the fiscal sustainability of local governments is an important component of understanding the threats that they face in delivering public services. There have been many attempts to do this; nearly all of them share a common approach. A handful of (mostly financial) indicators are chosen in a more or less ad hoc manner. What results is only a partial understanding of the fiscal challenges facing a jurisdiction, with little predictive power. We take a different path and build on the work of the Federal Reserve Bank and other central banks in building “stress testing” models. The model is based on a full simulation of the economic and financial condition of a jurisdiction. The results will allow officials to not only get an early warning about future financial stress but to better understand the forces creating the stress.