Category Archives: State & Local Finance

Fiscal Survey of the States – Spring 2019

Source: National Association of State Budget Officers, June 2019

From the overview:
With data gathered from all 50 state budget offices, this semi-annual report provides a narrative analysis of the fiscal condition of the states and data summaries of state general fund revenues, expenditures, and balances. The spring edition details governors’ proposed budgets; the fall edition details enacted budgets.

Governors’ recommended budgets for fiscal 2020 reflect stable state fiscal conditions, calling for investments in key priorities while saving for future challenges. Proposed spending plans would increase general fund expenditures by 3.7 percent in fiscal 2020, with 47 states proposing spending increases and governors directing the majority of new money to education.
Other key findings from the report:
– Governors proposed appropriation increases totaling $30.8 billion in fiscal 2020, including $14.1 billion in new money for K-12 education and $3.6 billion for higher education.
– States estimate general fund spending grew 5.8 percent in fiscal 2019, the fastest annual growth rate since fiscal 2007.
– No states made mid-year budget cuts in fiscal 2019 due to a revenue shortfall, and only 3 states made small mid-year reductions for other reasons.
– 28 states reported fiscal 2019 general fund revenue collections exceeding projections, with this number expected to grow after accounting for April receipts.
– Governors’ budgets are based on forecasted general fund revenue growth of 4.0 percent in fiscal 2020.
– Governors proposed a series of revenue actions consisting mostly of tax increases, including a number of proposals directed towards transportation, with a net revenue impact of $8.1 billion in fiscal 2020.
– The median rainy day fund balance as a share of general fund spending reached 7.5 percent in fiscal 2019, a new all-time high.
– Medicaid spending from all funds is expected to grow 4.0 percent in fiscal 2020, with state funds increasing 3.1 percent and federal funds growing 4.5 percent.

Kansas (State of) – Retained pension funding, vetoed tax relief are credit positive

Source: Matthew Butler, Moody’s, Issuer Comment, June 6, 2019
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On May 29, the Kansas legislature voted to override several spending vetoes that Governor Laura Kelly made when she authorized the state’s fiscal 2020 budget. One of the vetoes was of a supplemental payment to the Kansas Public Employees Retirement System (KPERS). The lawmakers’ action preserves a $51 million supplemental contribution to KPERS, a credit positive for the state. At the same time, the legislature failed to override a veto of an income tax relief bill that would have cost the state an estimated $240 million over three years. This is also credit positive, because it reduces the amount of budget reserves Kansas will use to make the supplemental pension payment, increase school funding and more quickly retire an internal loan.

The Great Recession’s Lingering Impact

Source: Rick Seltzer, inside Higher Ed, June 5, 2019

States and the public colleges they fund continue to feel the economic downturn’s effects, even after a decade of recovery, according to a new report that gives a sobering look at state funding.

Related:
‘Lost Decade’ Casts a Post-Recession Shadow on State Finances
Source: Pew Charitable Trusts, Issue Brief, June 4, 2019

Despite almost 10 years of national economic recovery, strains from the 2007-09 downturn still linger in many states

Evading the Catastrophic Costs of Nursing Home Care: A Theoretical Inquiry

Source: Gideon Yaniv, Public Finance Review, Volume: 47 issue: 4, July 2019
(subscription required)

From the abstract:
While many countries operate publicly funded programs to help care-needing elderly people finance the catastrophic costs of nursing home care, eligibility to public assistance may be means tested. To qualify for a means-tested program, applicants must first exhaust (spend down) their financial assets on privately paying for nursing home care, thereby wiping out their lifetime savings and children’s inheritance. They may naturally consider the possibility of hiding assets from the health agency, consequently shifting the financial burden to taxpayers. The present article adjusts two classical tax evasion models to capture the decision to evade the costs of nursing home care, focusing on the implications on the evaded costs and the program’s deficit of attempting to cope with the escalating costs of nursing home care by imposing a cost-sharing premium on the applicants’ adult children. Some insights on the socially optimal level of the cost-sharing premium are finally discussed.

2018 Annual U.S. Public Finance Default Study And Rating Transitions

Source: S&P Global Ratings, May 31, 2019
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– After rising for three straight years, the number of U.S. public finance (USPF) defaults fell to one in 2018 from 20 in 2017.
– In 2018, S&P Global Ratings raised its ratings on 1,427 USPF bonds and lowered 684.
– Local government, state government, utilities, and transportation had more upgrades than downgrades in 2018.
– Housing, higher education, health care, and charter schools had more downgrades than upgrades in 2018: This was the third consecutive year of negative rating trends for health care and housing and the eighth for charter schools.
– USPF ratings performance has been consistent with historical default trends, even at different time horizons. From 1986-2018, the one-, three-, five-, and 10-year average Gini coefficients were 94%, 87%, 81%, and 74%, respectively, when excluding housing. Gini values including housing were not as strong but still stable, with a one-year coefficient of 87%.

U.S. States Take Advantage Of A Prolonged Economic Expansion

Source: S&P Global Ratings, May 16, 2019
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– Consistent with a prolonged national economic expansion, overall state credit quality remains high.
– Even oil- and gas-reliant states have shown recent gains.
– Most states forecast improvement in fiscal 2019 fund balances, and preliminary indications are that April income tax collections will be strong.
– Most states project to build or maintain reserves in fiscal 2020, despite cautious revenue projections.
– Some states propose raising top taxpayers’ income taxes; others will increase gas taxes; and marijuana, sugary drinks, and plastics bags might become the new “sin” tax targets.
– Other state budgets will include funding for education, workforce development, and infrastructure.

Illinois Pension Consolidation: A Path Forward Or A Road To Nowhere?

Source: S&P Global Ratings, May 14, 2019
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– Illinois is considering consolidating numerous single-employer public safety plans as a possible remedy to its pension woes;
– While consolidation will likely lower long-term costs through the pooling of resources, we view these as benefits as marginal, and the current proposals leave major pension funding issues largely unaddressed;
– A proposal to reduce statutorily mandated funding to 80% from 90% and allow an additional 10 years to reach this goal would exacerbate existing pension funding weakness among these types of public safety pension plans.

Flat debt total signals cautious borrowing, despite infrastructure needs

Source: Ted Hampton, Chandra Ghosal, Emily Raimes, Nicholas Samuels, Timothy Blake, Moody’s, Sector Profile, State government – US Medians, June 3, 2019
(subscription required)

Total net tax-supported debt (NTSD) for the 50 states was virtually unchanged in 2018, as governments maintained a cautious approach to bond issuance and increased their reliance on operating revenue for transportation infrastructure. The $523 billion in NTSD marked the eighth straight year with minimal change, putting average annual growth at 0.6% since 2011.

What it Costs to Die

Source: Liz Farmer, Mattie Quinn, Governing, June 2019

Funerals have become a luxury that many Americans can’t afford. Cities and counties are paying the price….

…..What’s happening in Henry County is playing out in places across the country. Rising funeral costs and a lagging economy have made it increasingly hard for many low-income Americans to pay the necessary expenses to dispose of a body. The average cost of a funeral today is $7,400, a price tag that’s risen nearly twice as fast as inflation since the 1980s. (That cost doesn’t include flowers, obituaries and gravesite fees that can tack on another couple thousand dollars.) At a time when 40 percent of Americans can’t even afford an unexpected expense of just $400, according to the Federal Reserve, the notion of a proper funeral and burial has become, for many people, an unattainable luxury.

When family members can’t afford to claim a body, the burden falls on local governments to handle the remains. There’s no comprehensive data on the number of unclaimed bodies in morgues across the country, but everyone agrees it’s a problem that’s getting worse. The St. Louis Medical Examiner’s Office had to add mobile refrigerated trailers in 2017 to hold all its bodies. The Connecticut Office of the Chief Medical Examiner briefly lost accreditation in 2017 because it ran out of storage space. In Mobile County, Ala., annual spending on indigent burials has increased 300 percent over the last decade. In Kentucky, Pollard estimates that indigent burials have jumped 50 percent in just the past 18 months…..