Category Archives: State & Local Finance

Getting in Sync: State-Local Fiscal Relationships for Public Safety

Source: Pew Charitable Trusts, Public Safety Policy Brief, No. 6, July 2008

Some offenders need to be put in prison. Others can be managed safely on probation in the community. But judges and prosecutors often face the difficult task of figuring out what to do with defendants who don’t fit cleanly into either group.

Borrowing Against the Future: Are Lottery Bonds the Best Way To Close the Budget Gap?

Source: California Budget Project, Budget Brief, June 2008

As part of the May Revision to his 2008-09 Proposed Budget, the Governor proposes to sell $15 billion of bonds that would be repaid with future lottery revenues; $5.1 billion of this amount would be used to help balance the 2008-09 budget, and the remainder would be deposited in a new reserve. The Assembly’s budget also assumes the sale of $15 billion of bonds backed by lottery proceeds. The Assembly would use $3.6 billion to pay 2008-09 General Fund obligations and the remainder to pay and prepay outstanding debt. Both proposals assume that lottery revenues can be substantially increased over a relatively short period. This Budget Brief examines the assumptions regarding increased lottery sales, whether the California lottery is underperforming, and policy issues raised by lottery bond proposals.

Growth Behind Bars

Source: Mikel Chavers, State News, August 2008
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States’ prison populations are expected to grow in the next decade and prison costs are projected at almost too much to afford. With so many people behind bars, some states are employing strategies to keep people from returning to prison and spending money on treatment programs, while some states face a future of building expensive jails.

New York City Reconsiders Congestion Pricing

Source: Billy Hamilton, State Tax Notes, August 26, 2008

“Congestion pricing will come, in New York and lots of other cities, because it is the only way where you were going to do the two things that you need to do: reduce people driving and find money for mass transit,” Bloomberg told reporters at the National Conference of State Legislatures Legislative Summit in New Orleans in late July.

Hard Times Hit Schools

Source: Michele McNeil, Education Week, August 25, 2008

These hard-to-grasp dollar amounts are forcing real cuts in K-12 education at a time when the cost of fueling buses and providing school lunches is increasing and the demands of the federal No Child Left Behind Act still loom large over states and districts.

But that may be a difficult task in the dozen states–including Alabama, Kentucky, Rhode Island, and Nevada–that have made targeted cuts to certain education programs, according to a June report by the Denver-based National Conference of State Legislatures.

States Worry About Dwindling Road Funds

Source: Stephen C. Fehr,, July 23, 2008

The two main sources of state transportation money are falling precipitously this summer as Americans cut back on driving, threatening to delay or halt crucial work on roads, rails and bridges and breeding an election-year issue for Congress and the presidential candidates.

Both the federal Highway Trust Fund and state road funds rely on federal and state taxes collected on each gallon of gasoline, but revenues are dropping because people are not buying as much gas now that prices top $4 a gallon. The slippage exacerbates a looming crisis with the $40 billion federal highway fund, already projected to run out of money before the start of the next budget year Oct. 1.
Includes graphs.

The True Cost of McCain’s Oil Industry Subsidies for Every State

Source: Ben Furnas, Daniel J. Weiss, Center for American Progress, August 11, 2008

Oil and gasoline prices are setting all-time records, helping the five biggest publicly traded oil companies in the world earn a staggering $148 billion in profits over the past year. At the same time, the U.S. government continues to provide massive subsidies to oil companies.

If elected, John McCain would preserve and create $39 billion in federal help to the oil and gas companies over the next five years. These same dollars could be better spent investing in efficiency and alternative sources of energy that would save American families money, create thousands of new jobs, and help to power millions of homes with clean, renewable sources of energy.

This report shows the state-by-state costs to taxpayers both in lost tax revenue and in lost opportunities to invest in renewable energy and create new jobs.

Latest IRS Data Reveal Fundamental Mismatches in the States

Source: Institute on Taxation and Economic Policy, August 2008

Most Unequal States Either Don’t Have a Personal Income Tax or Have One in Need of Improvement

Data released late last week by the Internal Revenue Service (IRS) indicate that 10 states have greater concentrations of reported income among their very wealthiest residents than the country as a whole. Unfortunately, the tax systems in those ten states generally ignore that very important reality. Of those ten states:
– four lack a broad-based personal income tax;
– three either impose a single, flat rate personal income tax or have a rate structure that all but functions in that manner; and
– three use a graduated rate structure, but two have cut income taxes for their most affluent residents substantially over the past two decades and are now struggling to close multi-billion dollar budget gaps.

The failure to use sufficiently progressive personal income taxes — or to levy any personal income tax at all — results in an overall tax system that is unsustainable, inadequate, and unfair over the long-run. Indeed, of these ten states, over half face severe or chronic budget shortfalls. Reforms to improve the personal income tax — or simply to institute one — should be on the agenda in each of these states.

Disentangling Preferences for Component Groups Within Medicaid: How State Governments Tradeoff Eligibility and Benefits

Source: Larry L. Howard, University of Houston – Department of Economics, January 2008

From the abstract:
This paper uses a panel of U.S. states over 20 years to examine state government demand for the provision of low income public health care through the Medicaid program. Reallocation of expenditure within the program and between other expenditure is modeled using the demand system developed in Deaton and Muellbauer (1980). I disaggregate the recipient population of Medicaid into distinct demographic groups consisting of the elderly, the disabled, and families, and estimate inter-group substitution patterns between the recipient and benefit dimensions of programmatic design. Several hypotheses of state government behavior are tested and the resulting estimates provide an important cautionary tale to major policy changes in public health care provision as significant cross price elasticities are found for all three of the component groups considered.

In this research I push to understand how state governments in the U.S. adjust their Medicaid programs in response to program cost increases, such as an increase in the number of recipients or in the cost of health care services. It is imperative to develop a clearer characterization of state response to budgetary pressure in order to accurately evaluate policies affecting public programs jointly administered by federal and state governments. This paper takes an important step towards quantifying the extent to which state governments reallocate expenditure when faced with cost increases, and shows that major changes in public health policy can have unintended consequences beyond legislative objectives.