Category Archives: State & Local Finance

Funding Challenges in Transportation Infrastructure

Source: Pew Charitable Trusts, May 5, 2014

Roads, bridges, and transit are funded through a partnership of the federal government, states, and localities. Over the past 10 years, all levels of government have experienced challenges in funding transportation infrastructure. Revenue for the highway trust fund, the source of most federal funding for the country’s roads and transit infrastructure, has fallen short of expenditures for more than a decade.

These gaps are expected to continue growing in future years. To date, the federal government has made up the difference through a combination of drawdowns from trust fund balances and, starting in 2008, transfers from the general fund. The Congressional Budget Office projects that, by the latter half of 2014, balances in the trust fund will be so low that payments to states and localities may need to be delayed and that in fiscal year 2015, balances will be completely exhausted.1 And the challenges extend beyond the federal level; state funding for roads and transit fell by one-fourth in real terms between 2003 and 2011.

The federal and state governments are having difficulty maintaining transportation investments in large part because they rely heavily on the gas tax, a declining revenue source, to pay for road and transit infrastructure. This revenue has fallen substantially in real terms across all levels of government over the past decade as a result of changing driving habits and increased fuel efficiency. In addition, federal and many state gas taxes remain a fixed amount per gallon, even as transportation construction costs increase. This means that the revenue generated by each gallon of gas doesn’t go as far as it did in the past in paying for transportation needs.

Ultimately, understanding the nation’s transportation funding challenges requires recognizing the role that each level of government plays in supporting this critical infrastructure….

The Detroit Bankruptcy, Pre-Eligibility

Source: Melissa B. Jacoby, University of North Carolina (UNC) at Chapel Hill – School of Law, UNC Legal Studies Research Paper No. 2436555, May 13, 2014

From the abstract:
The City of Detroit commenced the largest chapter 9 municipal bankruptcy in American history on July 18, 2013. This brief article details the first few months of the case, the public part of which I followed in almost-real time by listening to digital audio recordings of court hearings and reviewing primary source documents as they were filed.

Following the Money 2014: How the 50 States Rate in Providing Online Access to Government Spending Data

Source: Benjamin Davis, and Phineas Baxandall, U.S. PIRG Education Fund, April 2014

From the summary:
…Last year was the first time that all 50 states operated websites to make information on state spending accessible to the public. These web portals continue to improve. For instance, in 2014, 38 states’ transparency websites also provide checkbook-level detail on subsidies for economic development. Many states are also disclosing information that was previously “off budget” and are making it easy for outside researchers to download and analyze large data sets about government spending.

This report, U.S. PIRG Education Fund’s fifth annual evaluation of state transparency websites, finds that states are making progress toward comprehensive, one-stop, one-click transparency and accountability for state government spending. Over the past year, new states have opened the books on public spending and several states have adopted new practices to further expand citizens’ access to critical spending information. Many states, however, still have a long way to go to provide taxpayers with the information they need to ensure that government is spending their money effectively….

The Condition of Education 2014

Source: Grace Kena, Susan Aud, Frank Johnson, Xiaolei Wang, Jijun Zhang, Amy Rathbun, Sidney Flicker-Wilkinson, Paul Kristapovich, Liz Notter, Virginia Rosario, National Center for Education Statistics, NCES 2014083, May 2014

The Condition of Education 2014 summarizes important developments and trends in education using the latest available data. The report presents 42 indicators on the status and condition of education. The indicators represent a consensus of professional judgment on the most significant national measures of the condition and progress of education for which accurate data are available. These indicators focus on population characteristics, participation in education, elementary and secondary education, and postsecondary education.

This year’s Condition shows that about 90 percent of young adults ages 25 to 29 had a high school diploma or its equivalent in 2013, and that 34 percent had a bachelor’s or higher degree. As in previous years, in 2012, median earnings were higher for those with higher levels of education—for example, 25- to 34-year-olds with a bachelor’s degree earned more than twice as much as high school dropouts. Also, the unemployment rate was lower for bachelor’s degree holders in this age range than for their peers with lower levels of education…..

Fiscal Survey of States, Spring 2014

Source: National Association of State Budget Officers, 2014

From the summary:
State budgets are expected to continue their trend of moderate growth in fiscal 2015 according to governors’ spending proposals. Consistent year-over-year growth has helped states achieve relative budget stability, but progress remains slow for many states. With each passing year of slow improvement, more and more states are moving beyond recession induced declines and returning to spending and revenue growth. According to executive budgets, general fund spending is projected to increase by 2.9 percent in fiscal 2015. This growth rate is less than the historical average, although inflation is also currently low. This means budget growth will likely outpace inflation in many states, presenting an opportunity to accelerate fiscal progress. Governors in most states have recommended additional spending for core services such as K-12 education. However, spending continues to be impacted by limited gains in revenue. Budgetary challenges also linger from a long recovery in the national economy, unemployment rates higher than policy makers want and stagnant wages. As the economy continues along a trajectory of relatively slow growth, many states will continue to face difficult budgetary choices in fiscal 2015 and beyond. In fiscal 2015, general fund expenditures are projected to increase by 2.9 percent, a slower rate of growth than the estimated 5.0 percent increase in fiscal 2014. …

Beyond Shovel-Ready: The Extent and Impact of U.S. Infrastructure Jobs

Source: Joseph Kane and Robert Puentes, Brookings Institution, Metropolitan Policy Program, May 2014

From the summary:
An analysis of occupational employment data for the United States reveals that:
– In 2012, 14.2 million workers were employed in infrastructure jobs across the country, accounting for 11 percent of national employment. ….
– Infrastructure occupations tend to offer more equitable wages compared to all occupations nationally, paying over 30 percent more to workers at lower ends of the income scale. ….
– More than 80 percent of workers employed in infrastructure occupations typically have short- to long- term on-the-job training, but only 12 percent hold a bachelor’s degree or higher and generally need less education to qualify for these jobs. ….
– Infrastructure occupations are projected to increase 9.1 percent during the next decade, including the need to replace more than 2.7 million workers. ….

…This report sheds new light on the widespread contributions that infrastructure jobs make to the nation’s economy, including their importance at the metropolitan level. Since many of these jobs offer more equitable wages, require less formal education for entry, and are projected to grow over the next decade, they represent a key area of consideration for policymakers aiming to address the country’s ongoing infrastructure and jobs deficit….

The Funding of State and Local Pensions: 2013-2017

Source: Alicia H. Munnell, Jean-Pierre Aubry and Mark Cafarelli, Center for Retirement Research at Boston College (CRR), State and Local Pension Plans, Number 39, June 2014

The brief’s key findings are:
∙ Despite a strong stock market, the funded status of public plans in 2013 remained unchanged at 72 percent for two reasons:
– actuarially smoothed assets grew modestly; and
– CalPERS, one of the nation’s largest plans, significantly revised its reported funded ratio.
∙ An encouraging sign is that sponsors appear to be paying a larger share of their annual required contribution.
∙ Going forward, the funded ratio is projected to gradually move above 80 percent, assuming historical stock market returns.

Local Sales Taxes as a Means of Increasing Revenues and Reducing Property Tax Burdens: An Analysis Using Propensity Score Matching

Source: Whitney B. Afonso, Public Budgeting & Finance, Vol. 34, Issue 2, Summer 2014
(subscription required)

From the abstract:
In keeping with previous literature, local option sales taxes (LOSTs) are shown to reduce property tax burdens as well as increase own source revenue, although the magnitude is larger than previously estimated. This article advances the literature by using more sophisticated econometric techniques to minimize self-selection bias concerns. It also addresses some of the lingering questions from previous studies. Using county data from 35 states over the time period of 1983–2004, counties with LOSTs are matched to counties that have the same estimated propensity to adopt a LOST but are precluded by their states from doing so.

The Influence of Accounting Information Disclosed Under GASB Statement No. 34 on Municipal Bond Insurance Premiums and Credit Ratings

Source: Earl D. Benson, Barry R. Marks, Public Budgeting & Finance, Vol. 34, Issue 2, Summer 2014
(subscription required)

From the abstract:
This paper examines the impact of accounting information on first the cost of municipal bond insurance and secondly on the credit rating awarded on municipal debt, using data disclosed under Statement No. 34 of the Governmental Accounting Standards Board (GASB 34) for insured general obligation debt issued by Texas cities. It finds that both governmental fund and government‐wide financial information is related to the cost of municipal bond insurance and the credit rating on municipal debt. The paper also shows that the utilization of accounting information by bond insurers is not identical to its use by a bond rating agency.

Offshore Shell Games 2014 – The Use of Offshore Tax Havens by Fortune 500 Companies

Source: Richard Phillips, Steve Wamhoff, Dan Smith, Citizens for Tax Justice and U.S. PIRG Education Fund, June 2014

From the summary:
Many large U.S.-based multinational cor­porations avoid paying U.S. taxes by using accounting tricks to make profits made in America appear to be generated in offshore tax havens—countries with minimal or no taxes. By booking profits to subsidiaries registered in tax havens, multinational corporations are able to avoid an estimated $90 billion in fed­eral income taxes each year. These subsidiaries are often shell companies with few, if any em­ployees, and which engage in little to no real business activity.

Congress has left loopholes in our tax code that allow this tax avoidance, which forces ordinary Americans to make up the difference. Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt.

This study examines the use of tax havens by Fortune 500 companies in 2013. It reveals that tax haven use is ubiquitous among America’s largest companies, but a narrow set of compa­nies benefit disproportionately.

∙ Most of America’s largest corporations maintain subsidiaries in offshore tax ha­vens. At least 362 companies, making up 72 percent of the Fortune 500, operate subsid­iaries in tax haven jurisdictions as of 2013….

∙ Approximately 64 percent of the companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands—two notorious tax havens. Fur­thermore, the profits that all American multi­nationals—not just Fortune 500 companies—collectively claim were earned in these island nations in 2010 totaled 1,643 percent and 1,600 percent of each country’s entire yearly economic output, respectively.

∙ Six percent of Fortune 500 companies ac­count for over 60 percent of the profits re­ported offshore for tax purposes. These 30 companies with the most money offshore—out of the 287 that report offshore profits—collectively book $1.2 trillion overseas for tax purposes.

∙ Only 55 Fortune 500 companies disclose what they would expect to pay in U.S. taxes if these profits were not officially booked offshore. All told, these 55 companies would collectively owe $147.5 billion in ad­ditional federal taxes. To put this enormous sum in context, it represents more than the en­tire state budgets of California, Virginia, and Indiana combined….