State and local governments provide an array of services to their residents, such as primary and secondary education, libraries, police and fire services, social programs, roads and other infrastructure, public colleges and universities, and more. These subnational governments may face fiscal stress similar to the federal government. Given the nature of the partnership among levels of government in providing services to Americans and the economic interrelationships among levels of government, understanding potential future fiscal conditions of the state and local government sector is important for federal policymaking. To provide Congress and the public with this broader context, we developed a fiscal model of the state and local sector. This report describes this model and provides (1) simulations of the state and local government sector’s long-term fiscal outlook, (2) an analysis of the underlying causes of potential fiscal difficulties for the sector, (3) a discussion of the extent to which the long-term simulations are sensitive to alternative assumptions, and (4) an examination of how the state and local government sector could add to future federal fiscal challenges.
Grants to state and local governments have long been an important way in which the federal government supports and administers programs efficiently. The new budget, however, continues to significantly erode those grants. This leaves states and localities the option of either curtailing services or increasing their own taxes to compensate for declining federal funds. These cuts would come at a particularly difficult time, when many states already are cutting programs to balance their budgets and half of the states face budget gaps for the upcoming fiscal year of more than $34 billion.
Every state except Vermont operates under some sort of balanced budget requirement. That means that to serve the increased need of distressed populations during recessions, states must either increase revenue or reallocate resources dedicated to other programs. Similarly, when revenue declines, states must raise taxes or reallocate resources. This report examines the extent to which rainy day and general fund savings were a significant factor in helping states cope with fiscal stress during and after the 2001 recession, a possible explanation for the lower than expected legislated tax increases and social welfare cuts.
At least twenty-five states, including several of the nation’s largest, face budget shortfalls in fiscal year 2009. Of these 25 states, 19 have already made specific estimates; the combined deficits of these 19 states are expected to total at least $32 billion for fiscal 2009 — which begins July 2008 in most states. Another 3 states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected. Many of the other states have not yet released information about their fiscal status.
Source: National Center for Education Statistics
This edition of Projections of Education Statistics provides projections for key education statistics, including enrollment, graduates, teachers, and expenditures in elementary and secondary schools. Included are national data on enrollment and graduates for the past 15 years and projections to the year 2016, as well as state-level data on enrollment in public elementary and secondary schools and public high school graduates to the year 2016.
Source: Center on Budget and Policy Priorities
According to a new report, thirteen states, including several of the nation’s largest, face a combined budget shortfall of at least $23 billion for fiscal 2009. Another 11 states expect budget problems next year or the year after. The initial reports for 2009, which runs from June 2008 to June 2009 for most states, suggest states are returning to a time of budget deficits.
Some of the fiscal problems are due to economic conditions outside states’ control. The bursting of the housing bubble has reduced state sales tax revenue collections from sales of furniture, appliances, construction materials, and the like. Property tax revenues have also been affected, and local governments will be looking to states to help address the squeeze on local and education budgets.
In many states, however, these economic problems are being magnified by endemic budget weaknesses created by past state decisions about taxes and expenditures. Some states have relied on one-time revenues (such as the sale of state assets) to balance their budgets, have enacted tax cuts — often multi-year — without accurately assessing their affordability, and have failed to address structural weaknesses in their budgets.
Source: Campaign for Tobacco-Free Kids, American Heart Association, American Lung Association and American Cancer Society Cancer Action Network
Since the November 1998 multi-state tobacco settlement, we have issued regular reports assessing whether the states are keeping their promise to use a significant portion of their settlement funds – expected to total $246 billion over the first 25 years–to attack the enormous public health problem posed by tobacco use in the United States.
This year, we find that the states have made important progress by increasing funding for tobacco prevention and cessation programs by 20 percent to a total of $717.2 million in fiscal year 2008, which is the highest level in six years. However, most states still fail to fund tobacco prevention programs at minimum levels recommended by the U.S. Centers for Disease Control and Prevention (CDC), and altogether, the states are providing less than half what the CDC has recommended.
Complete Report (PDF; 5.7MB)
Individual state reports and supporting materials also available.
Source: Congressional Budget Office
In preparing its analysis, the Congressional Budget Office (CBO) reviewed 29 reports published over the past 15 years that attempted to evaluate the impact of unauthorized immigrants on the budgets of state and local governments. (See the bibliography for a complete list of those reports.) CBO did not assess the data underlying those estimates or the validity of the models used to prepare them. The estimates — whether from formal studies, analyses of data on particular topics, or less-formal inquiry — show considerable consensus regarding the overall impact of unauthorized immigrants on state and local budgets. However, the scope and analytical methods of the studies vary, and the reports do not provide detailed or consistent enough data to allow for a reliable assessment of the aggregate national effect of unauthorized immigrants on state and local budgets…. After reviewing the estimates, CBO drew the following conclusions:
+ State and local governments incur costs for providing services to unauthorized immigrants and have limited options for avoiding or minimizing those costs.
+ The amount that state and local governments spend on services for unauthorized immigrants represents a small percentage of the total amount spent by those governments to provide such services to residents in their jurisdictions.
+ The tax revenues that unauthorized immigrants generate for state and local governments do not offset the total cost of services provided to those immigrants.
+ Federal aid programs offer resources to state and local governments that provide services to unauthorized immigrants, but those funds do not fully cover the costs incurred by those governments.
Full report (PDF; 318 KB)
Source: National Governors Association/National Association of State Budget Officers
From press release:
Although states experienced stable finances in 2007, overall revenue growth has slowed and tighter fiscal conditions are expected in 2008, 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 (PDF; 649 KB), NGA and NASBO found that while most states experienced healthy revenue growth during fiscal 2007, some states already have seen significant deterioration of their fiscal conditions and expect revenue and expenditure growth to slow significantly in fiscal 2008. States expect continued expenditure pressures from a variety of sources, including increased funding demands related to health care and Medicaid and to long-term challenges such as demographic shifts, employee pensions and infrastructure. In addition, most states will feel the pinch of the nation’s weakening housing market, both directly from lower sales tax revenues and indirectly as local governments struggle with declining property values and decreasing property tax revenues.
Many public finance officials worry that a series of new accounting rules will burst their budgets.
Source: PENELOPE LEMOV
When public finance officers met this summer in Anaheim, their association’s outgoing president kicked off the convention with an all-out assault on an accounting board. Thomas J. Glaser spent the lion’s share of his opening-day address ticking off the follies of the Government Accounting Standards Board’s recent rules and what the Government Finance Officers Association intended to do about them. GASB’s “time has come and gone,” Glaser told the 3,000 or so members in attendance, some of whom interrupted the speech with their applause.
The attack on GASB was more than a little ironic, given that when the organization came into being in 1984, the finance officers’ group played a major role in persuading the Financial Accounting Foundation, which oversees financial reporting standards for the private and nonprofit sectors, to set up a special branch for government accounting. In subsequent years — especially in the early years when it really mattered — GFOA worked to build its membership’s respect for and acceptance of GASB and the standards it set.
Today, GASB is a powerful entity. Its financial-reporting rules have the potential to bring a government’s budget to crisis. Refusal to follow its accounting precepts could lead to a downgrade in a credit rating or a shunning by the financial community.
But it is also an agency under pressure — and not just from GFOA. There is a threat to its financial-reporting hegemony: At least one state and several of its localities are set to defy a major GASB accounting rule. What’s more, the chairman of the Securities and Exchange Commission has suggested that the SEC participate in the selection of some GASB board members. Such a move could impinge on the organization’s independence and bring it, along with state and local accounting rules, closer to federal purview.