Category Archives: State & Local Finance

$228 Million Paid to County Governments as Compensation for Lost Taxes on Federal Lands

Source: U.S. Department of the Interior, Press release, June 12, 2008

Secretary of the Interior Dirk Kempthorne announced today that local governments with tax-exempt federal land in their jurisdictions will receive $228.5 million this year in compensation for forgone tax revenue.

Under the federal Payments in Lieu of Taxes (PILT) Program, the money is distributed to about 1,850 county and other local governments around the nation to help pay for essential services, such as firefighting and emergency response and to help improve school, road and water systems.

The Department of the Interior annually collects about $4 billion in revenue from commercial activities on federal lands, such as livestock grazing, timber harvesting, and oil and natural gas leasing. Some of these revenues are shared with states and counties in the form of revenue-sharing payments. The balance is deposited in the U.S. Treasury, which in turn pays for a broad array of federal activities, including annually appropriated PILT funding to counties.

Eligibility for PILT payments is reserved for local governments (usually counties) that contain nontaxable federal lands and provide government services related to public safety, housing, social services, transportation and the environment.

By law, the payments are calculated using a mandated formula, based on the number of acres of federal entitlement land and the population within each county or jurisdiction. These lands include the National Forest and National Park Systems, National Wildlife Refuge System as well as lands managed by the Bureau of Land Management and those affected by U.S. Army Corps of Engineers and Bureau of Reclamation water resource development projects, and others.

Fiscal Survey of the States

Source: National Governors Association and the National Association of State Budget Officers, June 2008

From the press release:
Fiscal 2008 marked a turning point in state finances, with a significant increase in the number of states experiencing fiscal difficulties after several years of relative stability, according to the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO).

In a report released today, The Fiscal Survey of States, NGA and NASBO found that while fiscal conditions varied dramatically across states, overall expenditure growth rates declined in fiscal 2008 and the number of states experiencing revenue shortfalls increased. States expect continued expenditure pressures from a variety of sources, including health care and Medicaid, employee pensions and infrastructure. In addition, because states historically have continued to feel the impact of national economic downturns even after recovery begins, states could face even more difficult financial conditions in fiscal 2009 and beyond.

In Your Own Backyard: How NIH Funding Helps Your State’s Economy

Source: FamiliesUSA, June 2008

From the press release:
The National Institutes of Health has a legacy of great medical accomplishments, including victories over diseases like measles, rubella, and whooping cough. Now a report from a national health care advocacy organization reveals how NIH funding to states creates jobs, helps develop communities that are focused on advanced biomedical research, and sustains America’s leadership in medical research.

Titled “In Your Own Backyard,” the report from Families USA, the national organization for health care consumers, details the actual benefits of NIH research awards to all 50 states. In 2007, the NIH awarded almost $23 billion in research grants and contracts. This funding created more than 350,000 new jobs nationwide, generated more than $18 billion in wages from those new jobs, and spurred more than $50 billion in business activity in the states.

The Families USA report, however, describes a downside. Several years of flat funding of the NIH by Congress is now crippling research on global health threats, stunting economic activity, and jeopardizing U.S. preeminence in biomedical research.
See also:
State Fact Sheets
Key Findings

The Impact of Extending Marriage to Same-Sex Couples on the California Budget

Source: Brad Sears and M.V. Lee Badgett, Williams Institute, UCLA School of Law, June 2008

This analysis estimates the impact of the California Supreme Court’s recent decision to extend marriage to same-sex couples on state and local government revenues in California. Using the best data available, we estimate that allowing same-sex couples to marry will result in approximately $63.8 million in revenue for the state of California over the next three years. The weddings of same-sex couples will generate new economic activity for the state’s businesses and over the next three years, the direct spending from same-sex couples on weddings and tourism will generate over $63.8 million in revenue for state and local governments.
Related:
The Impact on Iowa’s Budget of Allowing Same-Sex Couples to Marry

Tax Policy Center Establishes “Opportunity Fund” to Support Tax System Research and Analysis

Source: Urban Institute, June 18, 2008

From the press release:
The Urban-Brookings Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, has launched a new intellectual venture capital fund to help policymakers, the public, and the media better understand the U.S. tax system and the policy challenges facing the nation over the next decade. The Opportunity Fund has been awarded a $2.5 million challenge grant from the Gates Foundation, which will match one dollar for every three dollars the fund receives before April 1, 2011…
…The Tax Policy Center envisions using the Opportunity Fund to develop prototype tax reform options and clear assessments of their pros, cons, tradeoffs, and burdens; strengthen its capacity to analyze state, local, corporate, and international taxes; model the macroeconomic effects of current budget policies and escalating government debt; and allow users of www.taxpolicycenter.org to customize tables based on the center’s data and analysis, letting the public see how proposed and enacted legislation affect them and others.

Facing deficits, many states are imposing cuts that hurt vulnerable residents

Source: Center on Budget and Policy Priorities

From the summary:
To date, at least 18 states have made or proposed budget cuts that threaten vital services for many residents, including some of the state’s most vulnerable residents. Examples include:
+ Public health programs: At least 12 states have implemented or are considering cuts that will affect low-income children’s or families’ eligibility for health insurance or reduce their access to health care services. For example, Rhode Island’s governor has proposed eliminating health coverage for nearly 7,400 low-income parents; New Jersey’s governor has proposed cutting funds for charity care in hospitals by 15 percent; and California’s governor has proposed requiring many low-income families to pay more for their children’s health care.
+ Programs for the elderly and disabled: At least five states are cutting or proposing to cut medical, rehabilitative, home care, or other services needed by low-income people who are elderly or have disabilities, or significantly increasing the cost of these services. For example, Florida has frozen reimbursements to nursing homes and relaxed staffing standards and Rhode Island is requiring low-income elderly people to pay more for adult daycare.
+ K-12 education: At least 10 states are cutting or proposing to cut K-12 education; three of them are proposing cuts that would affect access to child care. For example: Florida cut school aid by an estimated $130 per pupil; Nevada eliminated funds for gifted and talented programs, and Arizona is considering eliminating child care subsidies for approximately 3,200 children in low-income working families.
+ Colleges and universities: At least 14 states have implemented or proposed cuts to public colleges and universities. For example, Florida has cut university budgets and community-college funding; and Kentucky and Virginia have cut university funding for the current fiscal year by 3 percent and 5 percent, respectively. Colleges and universities in these states are increasing tuition by 5 percent to 9 percent.
+ State workforce: At least 11 states have proposed or implemented reductions their state workforce. Workforce reductions often result in reduced access to services residents need. It also ads to states’ woes by contracting the state economy. New Jersey has proposed reducing the workforce by 3,000 employees through early retirement, lay-offs and attrition, leading an independent monitor to express concern about the impact on abused or neglected children losing experienced caseworkers; in Kentucky, the public defender will eliminate 10% of positions and decline certain types of cases; hiring freezes have been instituted in Arizona, California, Delaware and Minnesota.
When states cut spending, they lay off employees, cancel contracts with vendors, reduce payments to businesses and nonprofits that provide services, and cut benefit payments to individuals. All of these steps remove demand from the economy, which only worsens a downturn. Tax increases also remove demand from the economy by reducing the amount of money people have to spend.

Full Report (PDF; 71 KB)

Hidden Consequences: Lessons From Massachusetts For States Considering A Property Tax Cap

Source: Phil Oliff and Iris Lav, Center on Budget and Policy Priorities, May 21, 2008

From the summary:
In 1980 Massachusetts voters approved Proposition 2 ½, which mandates that property tax revenues not exceed 2.5 percent of a community’s assessed value and that a community’s property tax revenue not grow by more than 2.5 percent a year.

Budget Management Capacity of State Governments: Issues and Challenges

Source: Katherine G. Willoughby
Public Performance & Management Review
Volume 31, Number 3 / March 2008

Dramatic events early in the new millennium offer an especially interesting period for consideration of how state governments in the United States have coped. In the years since the September 11 terrorist attack, states have been beset with economic recession, a federal focus on homeland security, and the war in Iraq, as well as debilitating natural disasters. How well have states managed through these fiscal, political, economic, natural, and international storms? This research examines state government budget management capacity as measured by a 50-state survey to understand the challenges faced by states, the advancements made to support best practices in budgeting, and the problems that remain. Findings tease out bright spots–states have worked hard to reach and maintain a long-term budgeting perspective, particularly by improving the accuracy of revenue and expenditure estimates. Also, many states have improved budgeting transparency by increasing citizen access to budget information, documents, and budget discussions. On the other hand, state budget management progress suffers from the politics of budgeting: More states are having difficulty passing the budget on time, antiquated tax structures are intransigent, and political expediency takes precedence over principles of good budget management. In the end, the political discipline necessary to reach compromise regarding the budget, and to work toward budget balance, will suppress state budget management progress.

Hidden Consequences: Lessons From Massachusetts For States Considering A Property Tax Cap

Source: Phil Oliff and Iris Lav, Center on Budget and Policy Priorities, May 21, 2008

From the summary:
In 1980 Massachusetts voters approved Proposition 2 ½, which mandates that property tax revenues not exceed 2.5 percent of a community’s assessed value and that a community’s property tax revenue not grow by more than 2.5 percent a year.

Over the two and a half decades Proposition 2 ½ has been in effect, Massachusetts’ level of property taxation has declined. Between 1980 and 1985, property taxes as a percentage of income fell from 76 percent above the national average to 13 percent above the national average, where it stands today. (Massachusetts localities rely more on the property tax than localities in much of the rest of the country because they are not permitted to levy sales or income taxes or various other forms of taxes.

Because Proposition 2 ½ lowered property taxation in Massachusetts, advocates of limited taxation often cite it as a model for reform. But the story is far more complicated than that. State aid has helped fill in some of the gaps in local funding the law created, but not all of them and not reliably over time. Furthermore, the local “overspending” that proponents claimed Proposition 2 ½ could curb did not exist in the imagined quantities, and necessary public services have been jeopardized.

“Why Don’t Some States and Localities Pay Their Required Pension Contributions?”

Source: Alicia H. Munnell, Kelly Haverstick, Jean-Pierre Aubry, and Alex Golub-Sass, Center for Retirement Research at Boston College, Issue in Brief, SLP #7, May 2008

The brief’s key findings are:
• Over 40 percent of plans in our sample failed to make their annual required contribution (ARC) in 2006.
• Two thirds of these plans faced legal constraints on their contributions, but many are gradually adjusting their limits.
• For the unconstrained plans, the following factors are associated with a failure to make the ARC:

o The plan uses a less rigorous cost method;
o The plan is large; and
o The plan is in a state with a relatively high debt burden.