Category Archives: State & Local Finance

Undercounting Hispanics in the 2020 Census will result in a loss in federal funding to many states for child and family assistance programs

Source: David Murphey, Dana Thomson, Lina Guzman, Claire Kelley, Child Trends, Issue Brief, August 14, 2019

This brief examines the potential reduction in funding to states for five critical federal programs that could result from an undercount of Hispanics in the 2020 Census. More than 300 federal programs allocate funding based on Census-derived data. The five programs we examine serve children and families and account for almost half of all federal funding to states. Hispanics are the largest racial or ethnic minority group in the United States and are especially at risk for being undercounted a problem which research indicates may be exacerbated by ongoing concerns about efforts to link citizenship status to Census respondents. ….

….. The interactive maps and tables below illustrate low, medium, and high estimates of potential losses of federal funding to states for five programs: the Medical Assistance Program (Medicaid, children only), the Children’s Health Insurance Program (CHIP), Title IV-E Foster Care, Title IV-E Adoption Assistance, and the Child Care and Development Block Grant (CCDBG). The low-estimate scenario is based on published research by the Urban Institute, and assumes a Census count that proceeds as planned by the U.S. Census Bureau. The medium and high estimates (based on research published by the Census Bureau and Harvard University researchers, respectively) assume that participation will be reduced due to data-privacy and other concerns resulting from federal efforts to determine the citizenship status of Census respondents. …..

…. Under existing federal funding formulas, a total of 37 states will forfeit a portion of federal funds for the five aforementioned child and family programs as a result of a Hispanic undercount in the 2020 Census. ….

State and Local Financing of Public Schools

Source: Rebecca R. Skinner, Congressional Research Service, CRS Report, R45827, July 23, 2019

The funding of public elementary and secondary schools in the United States involves a combination of local, state, and federal government revenues, in proportions that vary substantially both across and within states. According to the most recent data, state governments provide 47.0% of these revenues, local governments provide 44.8%, and the federal government provides 8.3%. Over the last several decades, the share of public elementary and secondary education revenues provided by state governments has increased, the share provided by local governments has decreased, and the federal share has varied within a range of 6.0% to 12.7%. The primary source of local revenues for public elementary and secondary education is the property tax, while state revenues are raised from a variety of sources, primarily personal and corporate income and retail sales taxes, a variety of “excise” taxes such as those on tobacco products and alcoholic beverages, and lotteries in several states.

The Returns to Lobbying: Evidence from Local Governments in the “Age of Earmarks”

Source: Steven Gordon, Public Finance Review, OnlineFirst, Published July 22, 2019
(subscription required)

From the abstract:
I measure the returns to lobbying for US local governments in terms of federal earmarks. Because a local government’s decision to lobby may be endogenous to receiving an earmark, I instrument for lobbying with local housing prices. Since the time period of my analysis covers the Housing Crisis, I argue that the variation in housing prices over this time was largely exogenous to federal earmark distributions. The strong correlation that I find between housing price growth rates and lobbying provides evidence that local governments lobbied to buffer against impending property tax losses. I find no evidence that lobbying is associated with increased earmark awards overall. However, conditional on selection into receiving an earmark, I do find evidence that lobbying served to increase the size of earmark awards.

Political Economy of the Parcel Tax in California School Districts

Source: Soomi Lee, Public Finance Review, OnlineFirst, Published July 16, 2019
(subscription required)

From the abstract:
This article examines the effect of home price distribution on the likelihood of parcel tax adoption in California school districts. A parcel tax is a regressive tax imposed as the same amount per unit of property regardless of property values and requires a two-thirds supermajority vote to be adopted. Despite the growing role that local parcel taxes have in funding public education, it has not been fully understood how their regressive nature influences adoption. I argue that because the regressive tax imposes different marginal property tax rates for voters, the distribution of home prices within a district determines the likelihood of parcel tax adoption. Using the Heckman selection models with California school district–level data, I find that a large gap in home values within a district significantly lowers the likelihood of parcel tax adoption.

Fiscal Consolidation and Public Wages

Source: Juin-jen Chang, Hsieh-Yu Lin, Nora Traum, Shu-Chun Susan Yang, International Monetary Fund (IMF), IMF Working Paper No. 19/125, June 2019

From the abstract:
A New Keynesian model with government production, public compensation, and unemployment is fit to U.S. data to study the macroeconomic and fiscal effects of public wage reductions. We find that accounting for the type of government spending is crucial for its macroeconomic implications. Although reductions in public wages and government purchases of goods have similar effects on total output and the fiscal balance, the former can raise private output slightly, in contrast to the substantial contractionary effects of the latter.In addition, the baseline estimation finds that exogenous public wage reductions decrease private wages. Model counterfactuals show that sufficiently rigid nominal private wages can reverse the response of private wages, as the rigidity dampens the labor reallocation effect from the public to private sector that exerts downward pressure on private wages.

Public Wealth in the United States

Source: Fabien Gonguet, Klaus-Peter Hellwig, International Monetary Fund (IMF), IMF Working Paper No. 19/139, July 2019

From the abstract:
We analyze the US public sector balance sheet and project it forward under the assumption that current policies remain in place. We first document the history of the balance sheet and its components since World War II, with a detailed account of its evolution during and after the global financial crisis. While, based on assets and liabilities alone, public sector net worth is negative, additional challenges arise from commitments to future spending implied by current legislation and demographic trends. To quantify the risks to the balance sheet, we then apply the macroeconomic scenarios from the Federal Reserve’s bank stress test to the public sector balance sheet.

Do Small Local Governments Fare Well? A Survey of Villages in New York

Source: Pengju Zhang, Marc Holzer, The American Review of Public Administration, OnlineFirst, July 25, 2019
(subscription required)

From the abstract:
Public administration studies have not adequately discussed governance challenges for small local governments. Given that more than 10% of villages have, unprecedentedly, voted on dissolution in New York over the past 10 years, this article exclusively and comprehensively investigates how well villages are faring in New York. Using a representative survey of village governments, coupled with a rich secondary data set, it finds institutional and political tensions between villages and their underlying town(s). It also suggests intergovernmental fiscal factors have threatened the organizational and fiscal health of some village governments. In addition, villages have extensively established service-sharing mechanisms with town(s) to mitigate fiscal stress. The majority of village officials remain skeptical about dissolution as an effective approach to cost savings.

US Public Pension Landscape Series – July 24, 2019

Source: Thomas Aaron, Timothy Blake, Moody’s, Sector In-Depth, June 24, 2019
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Many US states and local governments, though certainly not all, face heightened credit challenges stemming from exposure to pension obligations, resulting in a highly varied and complex landscape. The severity of public pension challenges can differ substantially between, and even within, states.

Unfunded liabilities in many cases have reached historic highs, rising costs increasingly pressure some budgets, and aging demographics leave government finances increasingly susceptible to pension asset volatility. Yet in some cases, low or declining levels of pension risk bolster the credit profile of a given state or local government.

Governments grappling with pension challenges must often navigate legal protections for employee benefits that can limit reform options. However, litigation on a variety of pension reforms continues to work its way through courts across the country, offering the potential for precedent-setting decisions.

This series provides a state-by-state, in-depth review of the key issues related to pensions facing state and local governments. ….

State listing:
California
Colorado
Connecticut
Florida
Illinois
Louisiana
Minnesota
New York
Ohio
Oregon
Pennsylvania
Tennessee
Texas
Wisconsin

Late budgets reflect governance weakness

Source: Genevieve Nolan, Joshua Grundleger, Pisei Chea, Baye Larsen, Marcia Van Wagner, Nicholas Samuels, Emily Raimes, Timothy Blake, Moody’s, Sector Comment, State government – US, July 3, 2019
(subscription required)

Five states lack an adopted budget more than a week after their new fiscal years began on July 1. While it is unlikely that the delays will pose any risk of missed debt payments, late budgets expose local governments to missed state aid…..