I was wondering if you could you just briefly describe what fiscal stress labels are?

[They] are applied to school districts and local governments that are identified by the state as having projected deficits in their general fund for any of the next three years. And so then the Ohio Department of Education for school districts will flag districts that have these deficits and give them a chance to kind of offset these [shortages] either through [a] reduction in expenditures [or an] increase in local tax revenues. Districts that are unable to avoid these deficits are then placed into these special stress labels and so they can be placed into one of three categories: fiscal caution, fiscal watch or fiscal emergency, kind of based off of different criteria depending on how large the budget deficit is. And so districts that are between 2 and 8 percent of revenue are in fiscal caution, between 8 and 15 percent in fiscal watch and above 15 percent of revenue place into fiscal emergency. So districts that are placed into one of these labels are then required to implement a financial recovery plan that achieves balanced budgets in the future and so the state and the Ohio auditor will come in and give recommendations to these districts, how best to conduct these and where to make expenditure cuts. And then under fiscal caution and fiscal watch the districts will operate these by themselves and implement them. And then districts that fail to adopt these plans are then downgraded into fiscal emergency where we see the state coming in and taking over the district’s finances, largely like we’ve seen going on in Michigan where they’ve taken over Detroit. So the state will come over and take over the finances and are then placed in charge of conducting these recovery plans.

How did you get interested in fiscal stress labels?

It just happened as I was looking for other data sources. So I was doing a project on local elections in Ohio and so I was collecting data on that and then happened to come across data on these fiscal stress labels while conducting that other research. And so I got interested in that. It seemed like an interesting economic question. Something that would be [of] general interest, especially with what we’ve seen going on with the financial crisis. We’ve seen property values declining, tax bases eroding. It seemed like a very policy-relevant question for what we’ve seen going on in the current financial climate.

How do you feel that economics, if it can be applied, could be applied to educational or social issues?

Economics is becoming more involved in these social policies, educational policy issues and bringing some of the economic models to various education and social policy questions. So what we’ve really seen is a lot of very interesting educational policies are going into effect. And really, until recently, many economics researchers have left this just to education researchers and so there’s been kind of a big push to bring economic modeling techniques, kind of adapting them to social policy and educational policy questions.

Why has there been a push recently for that?

Arnie Duncan has really pushed to bring more funding for education research. There [have] been programs that work to create training programs that [prepare] economists [for] education research. And so there’s been a creation of a cohort that [has started looking] at this type of research.

How does your research apply in the more social sphere?

My research in general tackles these issues in local public finance and so really asking, ‘How best can we finance school districts? Are we doing it efficiently? Are there ways in which we can create outcomes for students more cheaply [or] in a more efficient manner? Can we rely less on taxes and things like that? And can we get superintendents and school boards to be better able to use the resources they have more efficiently to create better educational services? Do we see financial mismanagement especially in these financially troubled school districts? Are there social policies in place that could counteract that? And can we train these local officials to be better at managing money?’

Is there anything else you would like to add?

I would say that in addition to school districts, [this research is] also applied to local governments — so there’s future work. I’m going to be working on the labels applied to local governments that may have more policy relevance… The average resident is more likely to use public services from fire and police and EMS than school services.

Do you feel that this is an effective way of handling school districts?

It seems to be more effective than what we’ve seen in other states. So in Michigan we see the state only coming in in the most severe cases and so it’s led to these large financial calamities that we’ve seen, especially in the case of Detroit. Whereas in Ohio, the state will come in and give technical assistance and these recommendations to districts at all levels of fiscal stress. And so they’re able to target the financial problems before they become too severe. Since 2005 we’ve seen a [relatively large] reduction in the number of these labels, especially in the number of fiscal watch and fiscal emergency labels. So it seems that this early intervention has been able to at least limit the amount of time that these districts are in financial trouble, and, [if that continues,] we [can] eliminate the districts ever being placed on these labels.