Category Archives: State & Local Finance

Municipal bankruptcy

Source: Shayne Kavanagh, Government Finance Officer’s Association, Long Term Financial Planning Blog, September 22, 2010

Municipal bankruptcy is a topic of great interest to many local governments. This blog post presents the results of some of GFOA’s research into the topic.

GFOA recommends that municipalities make every effort to avoid bankruptcy. This is because, first, bankruptcy will exact a serious cost on the community’s reputation and the government’s creditworthiness. The harm to the community’s reputation could sap its economic vitality and will increase the government’s cost of borrowing. Besides these costs, the cash outlays required to go through the court proceedings are significant. Legal and consulting fees and staff time preparing for hearings and responding to requests for information could easily reach into the millions of dollars (and more for larger governments). Finally, bankruptcy is not a cure-all. As a practical matter, a judge is unlikely to completely void any of the municipality’s obligations (so debts and bondholders will still need to be paid). Also, as a matter of law, a judge cannot override provisions of state law that may be contributing to the municipalities financial distress, such as public employee pension benefits that are guaranteed by state law. Further, the municipal government is not dissolved by bankruptcy and although bankruptcy may provide some additional latitude to local government officials, in the end, it is the municipality’s management and elected officials who still must make the hard choices required to reach financial health.

Nevada Goes Bust

Source: Sasha Abramsky, The Nation, published online September 2, 2010

Most analysts believe that Nevada is facing a shortfall of about $3.4 billion for the coming two-year budget cycle–meaning it does not have the revenues to fund about 50 percent of its current obligations. The state thus confronts a crossroads moment: find ways to stabilize and increase its tax base to at least partially plug these holes or face a rollback of government services unprecedented in the modern era. The Silver State is constitutionally required to balance its budget and prohibited from imposing a state income tax; it does not have a stable, across-the-board business tax and is being buffeted by increasingly strong anti-tax winds from the Tea Party movement. For all these reasons, a 50 percent revenue shortfall means the state would face the fiscal equivalent of a St. Valentine’s Day massacre: line up large state programs, have them face the wall, mow them down….The situation is so brutal, says Mary Lau, president and CEO of the Retail Association of Nevada, that without new taxes Nevada’s decision-makers could eliminate all spending not related to education or health and human services–including all funding for police, prisons, highway patrol and the like–and still be left with a budget deficit.

Colorado Springs’ Do-It-Yourself Government

Source: Zach Patton, Governing, September 2010

The citizens of Colorado Springs must decide how much they want from their government, and how much they’re willing to pay for it.

…Times are tough in the Springs, as veteran residents call it. Like cities throughout the country, this town has been hit hard by the recession. But its fiscal problems are especially severe. The city is famously right-wing, and property taxes here are some of the lowest in the nation — in 2008, the per capita property tax was about $55. City revenue instead comes mostly from local sales taxes. As a consequence, Colorado Springs is feeling the downturn’s effects faster and more sharply than other cities. At the close of 2009, the city found itself facing a nearly $40 million revenue gap for this year.

Income Inequality and Local Government in the United States, 1970-2000

Source: Leah Platt Boustan, Fernando V. Ferreira, Hernan Winkler, Eric M. Zolt, NBER Working Paper No. w16299, August 2010
(subscription required)

From the abstract:
The income distribution in many developed countries widened dramatically from 1970 to 2000. Scholars speculate that inequality contributes to a host of social ills by weakening the public sector. In contrast, we find that growing income inequality is associated with an expansion in revenues and expenditures on a wide range of services at the municipal and school district levels in the United States. These results are robust to a number of model specifications, including instrumental variables that deal with the endogeneity of local expenditures. Our results are inconsistent with models that predict heterogeneous societies provide lower levels of public goods.

Think small, save big – Harnessing employees’ collective brainpower to reduce costs

Source: Jenni Spinner, Public Works, Vol. 141 no. 7, June 2010

Budget shortfalls are nothing new to public agencies, and they’re all too familiar to Michigan’s Genesee County Parks and Recreation Commission (GCPRC).

McMillan called her team together for a brainstorming session, encouraging employees at every level to spout out ideas that would save just $10 a year. The group started the session with the aim of creating 60 ideas in 60 minutes. But when their hour was up, they’d generated 80 ideas, ranging from reducing the frequency of mowings in some areas, using e-mail rather than the U.S. Postal Service to share information, and letting field employees wear their own jeans rather than agency-purchased uniform pants.

A number of the ideas were put in place that, combined, were expected to save $40,000 over one year. Instead, they saved four times that: $167,000.

The following measures have been taken as result of the cost-cutting ideas generated by the staff of Genesee County Parks.

Municipal Cost Index shows little change

Source: American City & County, August 16, 2010

American City & County’s Municipal Cost Index for August 2010 is available now. With a value of 212.2, the Municipal Cost Index is 2.9 percent higher than last year and has increased very slightly from the July value of 212.1.

The Municipal Cost Index, developed exclusively by American City & County, is designed to show the effects of inflation on the cost of providing municipal services.

Where States Get Their Money

Source: Catherine Rampell, New York Times, Economix Blog, August 30, 2010

The Tax Foundation recently broke down some new state and local tax data from the Census Bureau, and found some stark variations in where states get their tax revenue.

Below is an interactive map, showing what percent of each state’s tax revenue comes from each of the following sources: property taxes, general sales taxes, elective sales taxes, individual income taxes, corporate income taxes and licenses and other taxes.

Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries

Source: Sarah Leberstein, National Employment Law Project, June 2010

Employers increasingly misclassify their employees as independent contractors, denying them the protection of workplace laws, robbing unemployment insurance and workers compensation funds of billions of much-needed dollars, and reducing federal, state and local tax withholding and revenues. State-level task forces, commissions, and research teams are using agency audits along with unemployment insurance and workers compensation data to document the scope of independent contractor misclassification. Confirming the findings of earlier national studies, these state reports
show that 10 to 30% of employers, or even more, misclassify workers, and several million workers
may be misclassified. State and federal governments lose billions in revenues annually.

Dividing the Pie Evenly

Source: Ed Brock, American City and County, July 1, 2010

Tax dollars continue to be in scarce supply, and infrastructure costs remain high, leading many cities and counties to enter into tax-sharing arrangements that allow them to share both the benefits and costs of development. However, proponents of the plans may find some political resistance from those who feel they stand to profit more on their own.