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Studies of policing and prisons often analyze how various motivations like public safety or racial threat change criminal justice practices. Rarely does research consider the capacity of criminal justice systems to act on those motivations. I analyze municipal capacity by asking whether cities experiencing revenue shortfalls increased arrest rates and criminal justice expenditures. Did cities and towns increase policing during fiscal crises, perhaps to generate fine revenue and to reassert social control? Or, did their budget shortfalls compel them to cut even criminal justice spending, thereby limiting their capacity for arrests? To address these questions, I gather data on 733 municipalities from 1991 to 2011. Using fixed effects regression models, I find declines in a city’s total revenue were related to fewer misdemeanor arrests, net of crime rates and other controls. I also find cities experiencing fiscal crises decreased their criminal justice spending in absolute terms, but increased it relative to other expenditures. Fiscal capacity, then, is an important predictor of policing. Further, austerity cuts degrade carceral capacities, but less so than with other government functions.