Category Archives: State & Local Finance

Star-struck states waste millions of tax dollars on Hollywood productions, USC study finds

Source: Emily Gersema, University of Southern California – Sol Price School of Public Policy, Press Release, August 18, 2016

Many states such as New Mexico see returns of less than 15 cents on the dollar and attract no long-term employment opportunities, yet state lawmakers continue to invest millions in the filmmaking incentives.

Nearly all 50 states have lured Hollywood productions with millions of dollars in special tax incentives for filmmaking, but new USC research shows they fail to deliver the long-term economic benefits promised by industry lobbyists and lawmakers.

…..Thom has led two studies of the motion picture industry incentives that most states have enacted on the premise that hosting productions could grow their economies, create full-time steady jobs and improve wages.

The first study, published in July by the journal The American Review of Public Administration, examined the impact of the programs on states’ motion picture industry employment and wages. Thom found that the incentives had no sustained impact on wage growth and little effect on employment. The programs also failed to prompt an expansion or relocation of filmmaking businesses from concentrations in California and New York.

The second study, published recently by the journal American Politics Research, examined why states kept or terminated their incentives from 1999 to 2015. Thom and Ph.D. student Brian An of the USC Price School of Public Policy found a half dozen states ended the incentives as the Great Recession eased. States that slashed the incentives already had spent very little or had grown skeptical that the program wasn’t working, the researchers found…..
Lights, Camera, but No Action? Tax and Economic Development Lessons From State Motion Picture Incentive Programs
Source: Michael Thom, The American Review of Public Administration, Published online before print June 5, 2016
(subscription required)

Fade to Black? Exploring Policy Enactment and Termination Through the Rise and Fall of State Tax Incentives for the Motion Picture Industry
Source: Michael Thom, Brian An, American Politics Research, Published online before print August 2, 2016
(subscription required)

Taxlandia Project Summary

Source: Topos Partnership, March 2016

Is a balanced, constructive and engaged dialogue around government revenues and budgets possible?
The Topos Partnership set out to answer this question in a major, multi-state project … Working nationally, with a special focus on the states of Colorado, Kentucky, Washington, and Wisconsin, we explored Americans’ current thinking and discourse through ethnographic interviews, a media review, a national survey, and other research methods to identify cultural understandings, uncover patterns in discourse, and assess the effectiveness of a range of communications approaches.

Our analysis points to a conclusion that many may find surprising. Americans are not rigidly anti-tax. Instead, default ways of thinking and gaps in understanding predispose conversations around the country to the seemingly self-evident idea that lower taxes are always better. To build support for adequate, sustainable revenues, advocates must recognize these defaults, create new connections, and fill gaps in understanding.

While the task is by no means simple, we see an opportunity for a cultural shift in Americans’ thinking about taxes and spending that will result in a more balanced, constructive, and less reflexively negative stance on this topic.

Risks In Public Pension Funds Still Large

Source: Donald Boyd and Yimeng Yin, presentation to the National Conference of State Legislatures Legislative Summit, in Chicago, Session: The State of State Pension Funding and Underfunding, August 10, 2016

State and local public pension funds are underfunded and exposed to big risks despite recent reforms and increases in annual public contributions to the funds. Current stress varies among states, but many states rely on risky equities to sustain their funds. Donald Boyd and Yimeng Yin describe these and other findings in their August 10th presentation to the National Conference of State Legislatures Legislative Summit, in Chicago.

States’ Fiscal Health

Source: Pew Charitable Trusts, Fiscal 50: State Trends and Analysis, July 28, 2016

Fiscal 50: State Trends and Analysis, an interactive resource from The Pew Charitable Trusts, allows you to sort and analyze data on key fiscal, economic, and demographic trends in the 50 states and understand their impact on states’ fiscal health.

Key findings:
Recovery from the Great Recession is slow and uneven
States’ fiscal conditions have improved since the Great Recession ended seven years ago, but their recoveries are incomplete. More than 20 states still collect less tax revenue than at their recession-era peaks, after adjusting for inflation, and most have yet to rebuild their financial cushions to pre-recession levels. In addition, 22 states’ employment rates trail 2007 levels. Despite these challenges, personal income in all states has bounced back above pre-recession figures, though growth has fallen short of historic norms.

Tax revenue. Nationally, total state tax revenue recovered more than two years ago from its plunge during the recession. But state to state, the recovery has been uneven due to differences in economic conditions as well as tax policy choices. For the first time, tax collections in a majority of states—29—were higher in the second quarter of 2015 than at their peaks before or during the downturn, after adjusting for inflation. States with below-peak tax revenue still have less purchasing power than they did more than six years ago.

Reserves and balances. States have only partially rebuilt their financial cushions after tapping them to plug budget gaps during the recession. At the end of fiscal year 2015, only 18 states could cover more government expenses using rainy day funds and general fund balances than they could have in fiscal 2007, just before the recession. Four states had less than five days’ worth of expenses set aside for budget shortfalls.

Employment-to-population ratio. Despite a U.S. economy that has added jobs each month over the past five years, no state could boast that its core labor pool had fully recovered as of 2015. The share of prime-working-age adults (ages 25 to 54) with a job remained below pre-recession levels nationally and in 22 states. Employment rates for this population were lower than in 2007 in another 26 states and higher in two, but not by statistically significant amounts, so the results were inconclusive.

State personal income. Personal income in all states is back above levels seen at the Great Recession’s onset, signaling a widespread U.S. economic recovery. But growth since the start of the recession has varied, ranging from a constant annual rate of less than 1 percent in Nevada to almost 5 percent in North Dakota. Four states—Alaska, North Dakota, Oklahoma, and Wyoming—lost some of their post-recession gains over the year ending in the first quarter of 2016.

Over the long term, additional challenges await states
Even after overcoming the effects of the recession, states face financial pressures that will shape budgets now and for years to come. A major issue for a number of states is how to cope with an accumulation of unfunded public pension and retiree health care liabilities, which total more than $1.5 trillion nationwide. Other challenges include rising Medicaid costs, volatile tax revenue, and uncertainty about federal funding levels.

Debt and unfunded retirement costs. Unfunded pension benefits were the largest, most prominent, and fastest-growing of a selection of future costs facing states as of 2013. States reported $968 billion in unfunded pension costs—the equivalent of 6.9 percent of 50-state personal income, as well as $587 billion in unfunded retiree health care liabilities (4.2 percent of personal income) and $518 billion in outstanding debt (3.7 percent). If not properly managed, these costs can limit future budget flexibility and raise borrowing costs.

State Medicaid spending. The share of states’ own money spent on Medicaid grew in all but one state—North Dakota—between fiscal 2000 and 2013. States’ increases varied widely, from a fraction of a penny to almost 11 cents per dollar of state-generated revenue, exerting different degrees of budget pressure. Medicaid is most state governments’ second-biggest expense, after K-12 education.

Tax revenue volatility. Some states experience greater swings in tax revenue from year to year than others do, leading to surprise shortfalls or windfalls that can make it hard to manage budgets. Alaska experienced the greatest volatility over the past two decades and South Dakota the least, after removing the effects of tax policy changes. Taxes on corporate income and oil and mineral extraction were consistently more volatile than other major tax streams.

Federal share of state revenue. The federal government is the second-largest source of state revenue—accounting for 30.8 percent of the total in fiscal 2014—meaning that federal budget decisions also play a key role in state budgets. But states’ reliance on federal funds varies widely, ranging from about 17 percent of revenue in North Dakota to almost 41 percent in Mississippi. The share of states’ revenue made up by federal dollars was largely unchanged in fiscal 2014 even as expanded Medicaid grants began to flow to some states.

Compensation or Retrenchment? The Paradox of Immigration and Public Welfare Spending in the American States

Source: Ping Xu, State Politics & Policy Quarterly, Early View, Published online before print August 11, 2016
(subscription required)

From the abstract:
By using American state-level data from 1999 to 2008, this article explores how the recent immigrant influx has influenced public welfare spending in the American states. By integrating the race/ethnicity and globalization compensation theory, I hypothesize that immigration will increase welfare spending in states with a bleak job market and exclusive state immigrant welfare policy; in contrast, immigration will decrease welfare spending in states with a good job market and inclusive state immigrant welfare policy. Empirical tests show evidence for both hypotheses, suggesting that the applicability of general political science theories depends on a combination of state policy and economic contexts.

State and Local Government Contributions to Statewide Pension Plans: FY14

Source: National Association of State Retirement Administrators (NASRA), Issue Brief, July 2016

Pension benefits for employees of state and local government are paid from trusts to which public employees and their employers contribute while they are working. Timely contributions are vital to the funding and sustainability of these plans, and over time yield investment earnings that account for the largest share of pension revenues. Failing to pay required contributions results in higher future costs, due to the foregone investment earnings that the contributions would have generated.

Nationally, contributions made by state and local governments to pension trust funds in recent years account for around four percent of all spending. Pension spending levels, however, vary widely among states and are actuarially sufficient for some pension plans and insufficient for others. Unlike employees, who must always contribute the amount prescribed in statute or by plan rules, some public employers—states, cities, etc.—have discretion to set the contributions they make to public pension plans. The result of this disparity in contribution governance arrangements is a wide range of experience among public employers concerning required contributions. Overall, however, the experience for FY 14 reflects an improved effort among state and local governments to make the full actuarially determined pension contribution, as well as a decline in the rate of growth of pension costs.

This brief describes how contributions are determined; the recent public employer contribution experience; and trends in employer contributions over time.

Does Perception of Gas Tax Paid Influence Support for Funding Highway Improvements?

Source: Ronald C. Fisher, Robert W. Wassmer, Public Finance Review, Published online before print August 5, 2016
(subscription required)

From the abstract:
The issue for this research is whether perception of the rate and amount of fuel taxes paid by an individual influences his or her support for funding highway improvements from any source of revenue. A survey of likely California and Michigan voters demonstrates that they often overestimate the rate of their state’s gasoline excise tax and the subsequent amount they are likely to pay for this tax in a month. Regression analyses show that voter misperceptions concerning the magnitude of state fuel taxes affect their views regarding an increase in funding to support highway investment proposals. A reasonable policy implication is that the adoption of proposals to generate additional funds for highway investment is more likely if accompanied by a campaign identifying the existing rate of the state’s gasoline excise tax and the relatively small amount of this tax paid by the state’s typical driver.

2015 State Preschool Yearbook

Source: W. Steven Barnett, Allison H. Friedman-Krauss, Rebecca Gomez, Michelle Horowitz, G.G. Weisenfeld, Kirsty Clarke Brown, James H. Squires, National Institute for Early Education Research (NIEER), 2016

From the summary:
The 2015 State of Preschool Yearbook is the newest edition of our annual report profiling state-funded prekindergarten programs in the United States. This latest Yearbook presents data on state-funded prekindergarten during the 2014-2015 school year as well as documenting more than a decade of change in state pre-K since the first Yearbook collected data on the 2001-2002 school year. The 2015 Yearbook profiles 57 state-funded pre-K programs in 42 states plus the District of Columbia and also provides narrative information on early education efforts in the 8 states and the U.S. territories that do not provide state-funded pre-K. Nationally, the 2014-2015 school year showed continues improvement in state funded pre-K with larger increases in enrollment, spending, spending per child, and quality standards than the previous year. State funded pre-K served almost 1.4 million children in 2014-2015, an increase of 37,167 children from the previous year. State spending topped $6.2 billion, an increase of over $553 million, although two-thirds of this increase can be attributed to New York. Spending per child saw the largest increase in a decade, reaching $4,489 per child. Six programs in five states met new quality standards benchmarks and two new states, West Virginia and Mississippi, joined the group of states meeting all 10 quality standards benchmarks. However, progress has been unequal and uneven with some states taking large steps forward and other states moving backward. At the recent rate of progress it will take decades to serve even 50% of 4-year-olds in state pre-K. Government at every level will need to redouble their efforts and move forward.

The 2015 Yearbook is organized into three major sections. The first section offers a summary of the data and describes national trends in enrollment, quality standards, and spending for state-funded preschool. This year, a special supplemental section on state pre-K policies to support Dual Language Learners and the Workforce is also included. The second section presents detailed profiles outlining each state’s policies with respect to preschool access, quality standards, and resources for the 2014-2015 year. A description of our methodology follows the state profiles, and the last section of the report contains appendices. The appendices include tables that provide the complete 2014-2015 survey data obtained from every state, as well as Head Start, child care, U.S. Census, and special education data. This year, additional appendices are included that show the complete supplemental survey data on Dual Language Learners and the workforce.
Executive Summary
Table of Contents
State Data

Overpaid or Underpaid? Public Employee Compensation in the State of Alaska

Source: Mouhcine Guettabi and Matthew Berman, University of Alaska Anchorage, Institute of Social and Economic Research, ID: 1675, July 2016

From the summary:
Are state workers better paid than their counterparts in private industry? That question is likely to come up more often, as the state deals with a huge budget shortfall. The answer is generally no, but there are exceptions.

We analyzed the question in two ways, using different data sources for cash wages but the same assumptions about benefit levels. Using two sources helped us better answer the question, and each yielded the same broad conclusion: state workers are not on average paid more.

That’s true, whether we consider just wages, or total compensation—wages plus benefits. But there are significant differences in pay and total compensation of public and private workers in individual occupations. We did this research for the Alaska Department of Administration (see back page). Below we summarize our findings, and inside report more details…..