Journal of Public Administration, Finance and Law Issue 5/2014 7 SCORING THE DEFAULT RISK OF LOCAL AUTHORITY Elena GORI University of Florence Florence, Italy elena.gori@unifi.it Silvia FISSI University of Florence Florence, Italy silvia.fissi@unifi.it Abstract: In the Nineties, almost all public administrations were affected by a change that made municipalities more responsible in using public resources. More recently, the global crisis and the gradual cuts in funding from the State led to significant repercussions on the budgets of local authorities with an increasing number of defaults. The Italian government introduced the procedure of “financial default” to rescue local authorities in financial difficulties from 1989. However, to date, a methodology to constantly monitor the local authorities’ "health" and to prevent financial defaults has not yet been formalized. As previous studies highlighted a close link between financial condition and service delivered to citizens, the study aims to construct a set of specific indicators to judge the default risk of Italian LAs in order to prevent defaults. In this research we use a deductive method. The research was carried out in eight different steps according to a logical process of identifying the risk indicators and the consequent risk ranges. The results are significant as they clarify the situation leading potentially to default and they propose a set of specific risk indicators to evaluate and to prevent the risk of default. This logical process could easily be adopted at an international level, with the necessary modifications for specific accounting regimes. Keywords: local authorities’ defaults, default risk ranges, default prevention, default indicators. 1. INTRODUCTION In the Nineties, almost all public administrations were affected by changes making local authorities (LAs) more responsible in the use of public resources and in meeting the Maastricht Treaty's objectives (Council of Europe, 2007). These reforms were inspired by the New Public Management theory (Pollitt & Bouchkaert, 2011). Financial health is a necessary condition under which governments must operate as there is a close link between financial condition and service delivered (Jones & Walker, 2007). At international level, literature concerning financial health in LAs is quite limited in number and, with few exceptions, is restricted to the Australian, Canadian and U.S. context (Holian & Joffe, 2013). Moreover, local governments are not self- contained entities existing by themselves; consequently, each governmental level affects the others (Coe, 2007: 68). Timely identification of early symptoms of difficulty is an extremely complex issue - and a very pertinent one nowadays.