State-Level Influences on Community-Level Municipal Sustainable Energy Policies

State and local governments engage each other in a broad set of complicated interdependent relationships. Yet, there is limited research on what these multilevel governance relationships mean for community-focused sustainability. This study applies a transaction cost federalism framework to examine the hierarchical influences of state fiscal support and policy actions on municipal commitments to sustainability at the community-level. An analysis of U.S. cities reveals that state investments in energy programs encourage municipal efforts for incentivized energy efficiency initiatives for local taxpayers. Larger percentages of state funding directed to energy programs lead to stronger municipal commitments to incentivized sustainability programs such as individual grants, direct loans, and tax incentives. The results suggest that stable and supportive multilevel governance systems are key for reducing political transaction costs inherent within vertical systems driven by coercive authority. These findings produce theoretical and practical implications for understanding community-level sustainability within the face of "contested federalism."