Category Archives: State & Local Finance

Interpreting Local Government Financial Statements

Source: Stephen J. Gauthier, Government Finance Review, Vol. 23 no. 3, June 2007

The published financial report of a local government provides a wealth of information to anyone with an interest in the government’s economic condition. Taking advantage of this information, however, poses a real challenge to many users of these reports. This article aims at helping potential users of local government financial statements to meet this challenge.

Fiscal Management Implications of the TABOR Bind

Source: Christine R. Martell and Paul Teske, Public Administration Review, Vol. 67 no. 4, July/August 2007
(subscription required)

Following a wave of state-adopted tax and expenditure limitations (TELs), in 1992 the state of Colorado amended its constitution with the strictest TEL to date. Called the Taxpayer Bill of Rights and known as TABOR, the amendment has limited the size and scope of Colorado governments. Praised as a restraint on unbridled government growth in good economic times, TABOR reared its highly restrictive head as the state economy turned downward. The central issue explored is how binding tax and expenditure limitations affect the state’s ability to weather economic recessions and employ sound fiscal management practices. As in most institutional arrangements, the devil is in the details. The analysis presented here reveals that binding limitations create perverse incentives for budgetary actors to earmark, privatize, and shift responsibilities to other jurisdictions, which ultimately combine to reduce the state government’s ability to perform and to maintain sound fiscal management practices.

The Problems With Property Tax Revenue Caps

Source: Karen Lyons and Iris J. Lav, Center on Budget and Policy Priorities, June 21, 2007

Several states (Connecticut, Florida, Minnesota, New Jersey, Rhode Island, and Texas) have recently considered imposing severe caps on property tax revenue. These caps restrict the amount that property tax revenue can increase from year to year to a low fixed percentage, a formula based on the inflation rate, or some combination of the two.

While such caps may hold down property taxes, they are likely to impair local governments’ ability to provide education, public safety, and other services residents demand and need. They also are likely to make the local revenue system more regressive.

Property tax caps do nothing to change the main drivers behind higher property taxes. They cannot slow the increase in the cost of health care or fuel, for example, which reflects forces outside of the control of local officials. Nor do they change the demand for local public services, such as quality K-12 education, public safety, and good roads.

The Illinois Public Pension Funding Crisis: Is Moving from the Current Defined Benefit System to a Defined Contribution System an Option That Makes Sense?

Source: Jourlande Gabriel and Chrissy A. Mancini, Illinois Retirement Security Initiative, A Project of the Center for Tax and Budget Accountability, 2007

from the press release:

Springfield, IL (Monday, May 7, 2007) – A new study released today at the Statehouse has found that – contrary to widespread perception – switching from Illinois’ current defined benefit system to a defined contribution system will do nothing to solve the state’s $40.7 billion unfunded pension liability and would likely result in much lower retirement benefits for public employees and higher costs for taxpayers.

The study, “The Illinois Public Pension Funding Crisis: Is Moving from the Current Defined Benefit System to a Defined Contribution System an Option that Makes Sense?”, was conducted by the Illinois Retirement Security Initiative, a project of the Center for Tax and Budget Accountability. The study finds that the conventional wisdom that switching to a defined contribution system will solve the state’s massive unfunded public employee pension liability is provably false.

The Fiscal Cost of Low-Skill Immigrants to State and Local Taxpayers

Source: Robert E. Rector, The Heritage Foundation, Testimony Before the Subcommittee on Immigration of the Committee on the Judiciary of the United States House of Representatives, Delivered May 17, 2007

In FY 2004 there were around 4.5 million low-skill immigrant households in the U.S. containing 15.9 million persons. About 60 percent of these low-skill immigrant households were headed by legal immigrants and 40 percent by illegal immigrants. The analysis presented here measures the total benefits and services received by these “low- skill immigrant households” compared to the total taxes paid.

In FY 2004, the average low skill immigrant household received $30,160 in direct benefits, means-tested benefits, education, and population-based services from all levels of government. By contrast, low-skill immigrant households paid only $10,573 in taxes in FY 2004. A household’s net fiscal deficit equals the cost of benefits and services received minus taxes paid. The average low-skill household had a fiscal deficit of $19,588 (expenditures of $30,160 minus $10,573 in taxes).

At the state and local level, the average low skill immigrant household received $14,145 in benefits and services and paid only $5,309 in taxes. The average low skill immigrant households imposed a net fiscal burden on state and local government of $8,836 per year.

The fiscal burden imposed by low skill immigrant households is slightly greater at the state and local level than at the federal level. The annual fiscal deficit for all 4.54 million low skill immigrant households at the state and local level in 2004 was $49.1 billion. Over the next ten years the state and local fiscal deficit caused by low skill immigrants on state and local governments will approach a half trillion dollars.

Restoring Prosperity: The State Role in Revitalizing America’s Older Industrial Cities

Source: Jennifer S. Vey, The Brookings Institution, Metropolitan Policy Project, 2007

With over 16 million people and nearly 8.6 million jobs, America’s older industrial cities remain a vital-if undervalued-part of the economy, particularly in states where they are heavily concentrated, such as Ohio and Pennsylvania. They also have a range of other physical, economic, and cultural assets that, if fully leveraged, can serve as a platform for their renewal.

Across the country, cities today are becoming more attractive to certain segments of society. Meanwhile, economic trends-globalization, the demand for educated workers, the increasing role of universities-are providing cities with an unprecedented chance to capitalize upon their economic advantages and regain their competitive edge.

Many cities have exploited these assets to their advantage; the moment is ripe for older industrial cities to follow suit. But to do so, these cities need thoughtful and broad-based approaches to foster prosperity.

“Restoring Prosperity” aims to mobilize governors and legislative leaders, as well as local constituencies, behind an asset-oriented agenda for reinvigorating the market in the nation’s older industrial cities. The report begins with identifications and descriptions of these cities-and the economic, demographic, and policy “drivers” behind their current condition-then makes a case for why the moment is ripe for advancing urban reform, and offers a five-part agenda and organizing plan to achieve it.

One More Thing in Life That’s Certain: Fees

Source: Andrea Martinez, Fedgazette, Vol. 19 no. 2, March 2007

Government fees are on the rise at both state and local levels.

The theme of these rising expenses is that they are all government fees. While fees don’t have the scale or the visibility of taxes, their presence and overall cost have been on a steady incline. And if you’re a user of these services, you can no more avoid these price hikes than you could the tax man.

Libraries Key to Building Local Economic Base

Source: PA Times, Vol. 30 no. 3, March 2007
(subscription required)

Evanston, IL-Public libraries build a community’s capacity for economic activity and resiliency, says a new study from the “Urban Institute. Making Cities Stronger: Public Library Contributions to Local Economic Development” adds to the body of research pointing to a shift in the role of public libraries-from a passive, recreational reading and research institution to an active economic development agent, addressing such pressing urban issues as literacy, workforce training, small business vitality and community quality of life. The study was commissioned by the Urban Libraries Council (ULC) and funded by the Bill & Melinda Gates Foundation and Geraldine R. Dodge Foundation.

Our Fractured Fiscal System

Source: Carl Tubbesing and Vic Miller, State Legislatures, Vol. 33 no. 4, April 2007
(subscription required)

Fiscal relations between the states and federal government may be at an all-time low.

For two decades, unfunded federal mandates have symbolized the growing fracture in state-federal fiscal relations. Most legislators can readily name the current offenders—the Individuals with Disabilities Education Act, No Child Left Behind, the Help America Vote Act and homeland security. And they are girding for the possibility of the next huge one, the Real ID act. The National Conference of State Legislatures estimates that the federal government has shifted $100 billion in costs to states over the past four fiscal years—not including the $11 billion that Real ID could cost states over the next five years