Category Archives: State & Local Finance

Helping America’s distressed communities recover from the COVID-19 recession and achieve long-term prosperity

Source: Timothy J. Bartik, Brookings Metropolitan Policy Program, September 2020

From the summary:
Even before the COVID-19 recession, distressed communities across the United States lacked sufficient jobs. The pandemic’s effects will further damage these local areas, while pushing even more places into economic distress. Without intervention, even a robust national recovery may leave many communities behind. Communities’ responses will be hindered by a lack of resources, and their residents will suffer from lower earnings and increased social problems.

As a solution, this paper proposes a new federal block grant to create or retain good jobs in distressed communities and help residents access these jobs. The block grant would provide long-term flexible assistance to increase local earnings and ensure those gains are broadly shared.

How Public Officials Can Use Data and Evidence to Make Strategic Budget Cuts

Source: Pew Charitable Trusts, Issue Brief, September 2020

From the overview:
Targeted spending reductions can help state, county leaders respond to shifting priorities amid pandemic. …. This issue brief provides a look at selected reforms officials made in the past, 10 years of revenue expansion that can be repurposed for more challenging fiscal conditions. The COVID-19 recession gives policymakers an opportunity to use these tools as they decide what services and programs to deliver and where to cut the budget in a more strategic way. ….

State and Local Government Pension Funding on the Eve of the COVID-19 Recession

Source: John G. Kilgour, Compensation & Benefits Review, OnlineFirst, August 5, 2020
(subscription required)

From the abstract:
This article examines the funding of public pension plans through 2019. Particular attention is paid to the impact of the Governmental Accounting Standards Board’s Standard No. 68. It addressed (1) discount rates, (2) amortization periods, (3) asset valuation and smoothing, and (4) the actuarial cost method used. The combined effect of these measures has been to increase the amount of public pension underfunding significantly. The actuarial funded ratio of the 126 plans in the Public Plans Database went from 101.9 in 2001 to 71.9 in 2019, on the eve of the COVID-19 recession. It will no doubt continue to worsen in the years ahead. The extent of that likely worsening is also explored.

The Economic Impact of Losing the Full Deductibility of State and Local Taxes in New York State

Source: Rockefeller Institute of Government and New York State Division of the Budget, May 14, 2020

From the summary:
Key findings are as follows:

  • The enactment of the cap on the SALT deduction reduces income available to New Yorkers. Each $1 reduction in personal income reduced total economic output in the state by $1.17.
  • If the 2017 SALT cap were eliminated, New York State’s economy would support 107,000 additional full-time jobs annually, on average, in the first seven years (2018–24). Most of the additional jobs would have been created in New York City (55,000) and the greater New York City metro area (45,000) compared with the rest of the state (8,000).
  • The employment losses are largest in the services, construction, and trade (wholesale and retail) sectors.
  • New York’s population would be 104,000 higher, on average, if the SALT cap were eliminated.
  • Total economic activity lost as a result of the SALT cap ranges from $14.4 billion to $24.5 billion annually depending on the methodological approach used for analysis.
  • Because housing prices and incomes are higher in New York City and the greater New York City metro area, these areas pay more in property and state income taxes, and take higher itemized deductions on their Federal taxes. As a result of the SALT cap, housing prices decline by 0.9 percent in New York City, 1.5 percent in the greater New York City metro area, and 0.2 percent in the rest of state on average in the first seven years.
  • The states that are most affected by the limit of the SALT deduction are those that annually contribute more to the Federal budget than they receive in program expenditures.
  • In 2018, New York ranked worst in the nation for its balance of payments, and bears the second largest increased burden as a result of the SALT deduction.

Framework for COVID-19 Recovery Strategies for States Facing Historic Budget Shortfalls

Source: Council of State Governments (CSG), July 2020

From the summary:
States plan for unanticipated events in the development of state budgets, but nothing could have prepared states for the shock the COVID-19 pandemic is inflicting on revenue and expenditures in such a short period of time. Based on the latest state-by-state estimates, states face an estimated $169-253 billion shortfall for the combined fiscal years ending in 2020 and 2021.

The Council of State Governments (CSG), with research and analysis support from accounting firm KPMG LLP, examined near-term budget impacts, the economic risk of ongoing pandemic effects and shutdowns, the resiliency of states to respond and strategies for fiscal recovery. CSG released its findings in the report, “COVID-19: Fiscal Impact to States and Strategies for Recovery.

How States Can Manage the Challenges of Paying for Natural Disasters

Source: Pew Charitable Trusts, Issue Brief, September 16, 2020

From wildfires in the West to hurricanes in the Gulf of Mexico and along the Eastern Seaboard, natural disasters are becoming more frequent and more severe throughout the United States. Ensuring that public funding is available to respond to, recover from, mitigate against, and prepare for these events involves a complex relationship across all levels of government: federal, state, and local. The rising cost and frequency of disasters, as well as the fiscal impacts of the COVID-19 pandemic, are putting pressure on budgets at all three levels, fueling debates that could affect the intergovernmental dynamics of the disaster funding system. This changing landscape has brought the critical but understudied role of states to the forefront.

In this context, research by The Pew Charitable Trusts has uncovered three actions that state policymakers can take to improve their understanding of the fiscal impact of natural disasters on state budgets and assess how resources might be better allocated for the long term:

Comprehensive tracking. States should track their spending on disasters across all of the agencies and disaster phases—response, recovery, mitigation, and preparedness.

Budgeting mechanism assessments. States should examine the budgeting methods they use to pay for disasters to determine if those approaches are meeting their needs.

Mitigation integration. States should consider how their spending and budgeting practices incorporate investments in disaster mitigation—efforts undertaken to reduce harm from future disasters; every mitigation dollar spent can save an average of $6 in post-disaster recovery costs.

How States Raise Their Tax Dollars: FY 2019

Source: Pew Charitable Trusts, Data Visualization, June 22, 2020

Taxes make up about half of state government revenue, with two-thirds of states’ total tax dollars coming from levies on personal income (37.9%) and general sales of goods and services (30.9%).

Broad-based personal income taxes are the greatest source of tax dollars in 30 of the 41 states that impose them, with the highest share—70.5%—in Oregon. General sales taxes are the largest source in 15 of the 45 states that collect them. Florida is the most reliant on these taxes, at 62.5%. Other sources bring in the most tax revenue in a handful of states: severance taxes in Alaska and North Dakota, property taxes in Vermont, license taxes and fees—such as franchise taxes that companies pay to incorporate in a state—in Delaware, and selective sales taxes on particular goods and services—such as tobacco and hotel rooms—in New Hampshire.

This infographic illustrates the sources of each state’s tax revenue.

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What Is the Remedy for State and Local Fiscal Squeeze During the COVID-19 Recession? More Debt, and That Is Okay

Source: James W. Douglas, Ringa Raudla, The American Review of Public Administration, Special issue: Double Issue Dedicated to COVID-19, Volume 50 Issue 6-7, August-October 2020
(subscription required)

From the abstract:
The COVID-19 crisis is placing a tremendous fiscal squeeze on state and local governments in the United States. We argue that the federal government should increase its deficit to fill in the fiscal gap. In the absence of sufficient federal assistance, we recommend that states suspend their balanced budget rules and norms and run deficits in their operating budgets to maintain services and meet additional obligations due to the pandemic. A comparison with Eurozone countries shows that states have more than enough debt capacity to run short-term deficits to respond to the crisis.