Category Archives: State & Local Finance

Higher education – US – Medians – Public university median revenue growth falls for second year

Source: Jared Brewster, Susan I Fitzgerald, Kendra M. Smith, Cassandra Golden, Moody’s, Sector In-Depth, June 28, 2018
(subscription required)

For the second consecutive year, median public university revenue growth declined, falling below 3% and trailing expense growth for the first time since fiscal 2014, according to our fiscal 2017 medians. Nearly 25% of public universities reported declining revenue and more than 60% reported revenue growth below higher education inflation. Revenue growth will remain muted as public universities face tuition affordability concerns and ongoing state funding constraints, putting continued pressure on universities to curtail expense growth to maintain margins.

Internet Sales Tax Ruling Helps States Avoid Revenue Erosion In The New Economy

Source: David G. Hitchcock, S&P Global Ratings, June 21, 2018
(subscription required)

S&P Global Ratings believes the U.S. Supreme Court’s decision allowing states to require out-of-state online retailers to collect sales tax will have a beneficial effect on long-term state credit quality. However, the immediate credit effect may be muted. The Wayfair decision, will help stem state tax erosion in a changing economic environment.

Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk

Source: Michael Kahn, National Conference on Public Employee Retirement System (NCPERS), May 2018

The argument that taxpayers cannot afford public pensions has gained traction despite a woeful lack of empirical evidence to support it. Legislators across the nation are contemplating options for the future funding of public-sector worker retirement benefits at a time when competition for finite state and local resources is fierce. The reasons are familiar: the lingering effects of recession and misguided budget priorities have taken a toll. Time and again, defined-benefit pensions for firefighters, police officers, teachers, and other public servants have ended up on the chopping block, even though plan participants have consistently held up their end of the bargain.

Unintended consequences often flow from policy actions that are made with short-term pressures in mind. There is a real risk that reducing or even dismantling public pension benefits will ultimately backfire. Tn this installment of ongoing research on the impact of public pensions on the U.S. economy, NCPERS set out to quantify that risk.

The question we asked is this: How does the payment of defined pension benefits and the investment of pension assets impact state and local economies and revenue generation? ….

Related:
Video blog

Minnesota’s New Pension Bill Is A Positive Step Toward Sustainable Funding

Source: Cora Bruemmer, Eden P Perry, Todd N Tauzer, Sussan S Corson, S&P Global Ratings, June 7, 2018
(subscription required)

Minnesota’s new pension bill is a positive step toward improving funding of the state’s pension plans, but because contributions remained fixed in state statute, there could eventually be a regression in plan funded status, in S&P Global Ratings’ view.

Diverging Economies And Operating Predictability Shape Credit Differences For Connecticut And Massachusetts Local Governments

Source: Christian Richards, Thomas J Zemetis, S&P Global Ratings, June 5, 2018
(subscription required)

As the end of fiscal 2018 nears, diverging credit narratives have materialized for Connecticut and Massachusetts local governments. While both states maintain strong wealth and income indicators, their post-recession economies signal a deepening divide.

Fiscal Survey of the States – Spring 2018

Source: National Association of State Budget Officers (NASBO), 2018

Fiscal 2019 will mark the ninth consecutive year of modest state spending and revenue growth, according to governors’ budget proposals — and enacted budgets for some states that budget on a biennial basis and passed two-year budgets in 2017. Compared to this time last year, state fiscal conditions show signs of improvement and greater stability. According to this survey, states are projected to increase general fund spending by 3.2 percent in fiscal 2019; by comparison, last spring, states were expecting an increase of just 1.0 percent based on governors’ fiscal 2018 budgets. ….

Key Report Findings:
• Governors’ budgets for fiscal 2019 recommend general fund spending growth of 3.2 percent, with a median growth rate of 2.7 percent.
• Governors proposed program area spending increases totaling $26.5 billion in fiscal 2019, compared to just $8.7 billion in new spending proposed last year in their fiscal 2018 budgets.
• Revenue conditions have improved in fiscal 2018, and states expect moderate general fund revenue growth to continue in fiscal 2019, with a median growth rate of 2.8 percent.
• Only 9 states reported making mid-year budget cuts totaling $830 million in fiscal 2018, far fewer than last year.
• Governors proposed mostly modest tax and fee changes for fiscal 2019, many of which were in response to the new federal tax law.
• Most states continue to strengthen their rainy day funds, with the median balance as a share of general fund spending rising to 6.2 percent in fiscal 2019.
• Medicaid spending is projected to slow in fiscal 2019, with a median growth rate of 1.9 percent from all funds. ….

Water Infrastructure Financing: The Water Infrastructure Finance and Innovation Act (WIFIA) Program

Source: Congressional Research Service, CRS Report, June 11, 2018

The Water Infrastructure Finance and Innovation Act (WIFIA) program provides financial assistance for water infrastructure projects, including projects to build and upgrade wastewater and drinking water treatment systems. Congress established the WIFIA program in the Water Resources Reform and Development Act of 2014 (WRRDA 2014, P.L. 113-121).

The WIFIA concept is modeled after a similar program that finances transportation projects, the Transportation Infrastructure Finance and Innovation Act (TIFIA) program. Proponents of the WIFIA approach, including water utility organizations, cite several potential benefits
• WIFIA provides credit assistance to large water infrastructure projects that may otherwise have difficulty obtaining financing.
• WIFIA provides credit assistance, namely direct loans, at U.S. Treasury rates, potentially lowering the cost of capital for borrowers.
• WIFIA assistance has less of a federal budgetary effect than conventional project grants that are not repaid, because only the subsidy cost of a loan (representing the presumed default rate on loans) is required to be appropriated.
• WIFIA support limits the federal government’s exposure to default, because projects must be found creditworthy with a revenue stream for repayment to be eligible for assistance.

On the other hand, opponents of the WIFIA approach, including organizations that represent state environmental agency officials, have cited several concerns
• Federal funding for a WIFIA program could have a detrimental effect on federal support for established State Revolving Fund (SRF) programs that provide the largest source of water infrastructure assistance today.
• If WIFIA funding resulted in a decrease in SRF assistance, smaller projects may face financing challenges.
• The Congressional Budget Office has warned that the future costs of a WIFIA program to the federal budget may be underestimated.

Exploring the Influence of Federal Welfare Expenditures on State-Level New Economy Development Performance: Drawing From the Diffusion of Innovation Theory

Source: Geiguen Shin, Jeremy L. Hall, Economic Development Quarterly, First Published June 6, 2018
(subscription required)

From the abstract:
Functional theory suggests that each level of government expands in the arena in which it can best perform, reducing the price of federalism. Focusing on the functional pattern of American federalism, we suggest that increased federal welfare spending increases state government performance in the “new economy” development policy areas by helping states minimize welfare costs and divert more own-source resources into economic development. The central focus is on the direct and indirect empirical relationships between federal welfare spending and state new economy performance. The authors use an index of innovation capacity that reflects the cumulative performance of a myriad of overlapping and mutually dependent state policies intended to bring about new economy development; this index measures state new economy development performance by focusing on the observable outputs of such polices rather than the adoption, implementation, or substance of individual policy choices. Mediating variables, such as state fiscal comfort and administrative capacity, measure the indirect impact of federal welfare spending on state new economy performance. The authors find that federal welfare spending stimulates state new economy development directly, but also indirectly through its positive impact on both state fiscal comfort and administrative capacity. The findings suggest that federal intergovernmental transfers continue to be an important policy mechanism with spillover effects for state economies.

Postsecondary Institutions and Cost of Attendance in 2017-18; Degrees and Other Awards Conferred: 2016-17; and 12-Month Enrollment: 2016-17: First Look (Preliminary Data)

Source: Scott A. Ginder, Janice E. Kelly-Reid, Farrah B. Mann, National Center for Education Statistics (NCES), Publication #: NCES 2018060, May 2018

From the abstract:
This First Look presents preliminary data findings from the Integrated Postsecondary Education Data System (IPEDS) fall 2017 collection, which included three survey components: Institutional Characteristics for the 2017-18 academic year, Completions covering the period July 1, 2016, through June 30, 2017, and data on 12-Month Enrollment for the 2016-17 academic year.