Managerial capacity, meant as available potential for managerial resources to be deployed when needed, can be considered 'slack'in a public organization during normal times, but recent developments in the research literature of public administration suggest that such capacity can sometimes contribute to public program performance. Does managerial capacity help to dampen or eliminate the effects of sizeable and negative budget shocks on the outcomes of public organizations? This question is investigated in a set of 1,000 organizations over an eightyear period. For the most part, and largely due to managerial adjustments, budgetary shocks of 10 percent or more have only limited or no negative impacts on performance in the short term. They do, however, cause a drop in performance for certain outcome measures, both immediately and in the following year. Sufficient managerial capacity, however, mitigates these negative performance effects. The findings point toward a key question with which public managers must wrestle: how to balance the costs of slack against the benefits that capacity-as-slack can generate when environmental shocks threaten to disrupt the operation of public programs. 2010 Taylor & Francis.
