Category Archives: State & Local Finance

Retirement Risk Innovation: State Shared-Risk Pensions

Source: Keith Brainard, Olivia Mitchell, Forbes, May 1, 2017

Concerns are growing about how to best manage risk in retirement. Traditional defined benefit plans can impart considerable risk to employers, while 401(k)-type plans place all or most risk on employees.
Shared-risk retirement plans are garnering attention and excitement around the globe. Outside the U.S., developments include “defined ambition” plans of the Netherlands and New Brunswick, Canada. There are also several striking examples of shared-risk plans right here at home. In fact, most U.S. state and local government retirement systems today embed risk-sharing features, and many new models have been developed in recent years. These retirement plan models provide ideas and inspiration for other retirement plans.

Evaluating the Role of States in Federal Education Programs

Source: Elizabeth Whitehouse, Leah Byers, Council of State Governments, The Current State, Issue 104, May 15, 2017

K-12 public education in the U.S. is funded primarily by state and local governments. In fact, only about 8 percent of elementary and secondary education spending comes from the federal government. About 47 percent of total K-12 education spending in the U.S. comes from state governments. States vary greatly in their ratio of federal, state and local funding.

Six Principles of Better Budgeting

Source: William Glasgall, Council of State Governments, The Current State, Issue 104, May 15, 2017

The beginning of fiscal year 2018 is barely four months away in all but four states—Alabama, Michigan, New York and Texas—and governors from coast to coast have started proposing budgets for the coming year. But while the U.S. economy is nearing its third-longest recovery since records began in 1857, the outlook for state revenue is less robust than almost eight years of steady gross domestic product growth might imply. Following the National Association of State Budget Officers’ observation that “weak revenue performance” in 2016 helped keep inflation-adjusted general fund spending under where it was even in the recession in 2008, The Nelson A. Rockefeller Institute of Government recently described the 2016–17 outlook for state tax collections in one word: gloomy.

The contrast between tepid revenue growth and growing spending needs, especially for Medicaid and pension payments, suggests that states will resort—as they often do—to balancing their budgets by using one-time solutions and other techniques that shift the cost of current expenditures to the next generation of taxpayers or beyond….

How States Are Improving Tax Incentives for Jobs and Growth: A national assessment of evaluation practices

Source: Josh Goodman and Jeff Chapman, Pew Charitable Trusts, May 2017

From the overview:
Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.

In the last five years, 27 states and the District of Columbia have made progress in gathering evidence on the results of their economic development tax incentives. Ten of these states are leaders in tax incentive evaluation. They have well-designed plans for regular reviews, experience in producing quality evaluations, and a process for informing policy choices. No state met these three criteria five years ago.

State Tax Incentive Evaluation Ratings
Source: Josh Goodman and Jeff Chapman, Pew Charitable Trusts, May 3, 2017

Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.

Staff members of The Pew Charitable Trusts have assessed each state on the extent to which it has taken three steps to successfully evaluate tax incentives: making a plan, measuring the impact, and informing policy choices. These criteria were selected because they lead to regular, high-quality analyses that lawmakers use to improve the results of the state’s economic development efforts.
These ratings, originally published in May 2017, will be updated as state practices change.

Investment Return Volatility and the Michigan State Employees’ Retirement System

Source: Yimeng Yin and Donald J. Boyd, Nelson A. Rockefeller Institute of Government, Pension Simulation Project Policy Brief, March 2017

A new report from the Rockefeller Institute’s Public Pension Simulation Project examines investment return volatility and its impact on the Michigan State Employees’ Retirement System (MISERS). The analysis found that a very conservative contribution policy can protect a plan closed to new members from becoming severely underfunded. However, for large closed plans like MISERS, the sponsoring governments may face a risk of substantial contribution increases if the plan invests in risky assets and if large shortfalls must be recouped in short periods of time. This is the seventh report of the Pension Simulation Project at the Rockefeller Institute, which examines the potential consequences of investment-return risk for public pension plans, governments, and stakeholders in government. The project is supported by the Laura and John Arnold Foundation and The Pew Charitable Trusts.

2016: Another Lackluster Year for State Tax Revenue

Source: Lucy Dadayan and Donald J. Boyd, Rockefeller Institute of Government, By the Numbers, May 2017

From the press release:
Today, the Rockefeller Institute of Government issued a report “2016: Another Lackluster Year for State Tax Revenue” finding that state tax revenues weakened significantly in fiscal year 2016 as states continue to recover slowly from the deep declines caused by the Great Recession.

The report, authored by Senior Research Scientist Lucy Dadayan and Fiscal Studies Director Don Boyd, found:
• State tax revenue growth weakened significantly in fiscal year 2016, growing only 1.2 percent, a slowdown from 4.7 percent growth in fiscal 2015.
• Although technically the sixth consecutive year of growth, after adjusting for inflation, state tax revenue actually declined by 0.1 percent in 2016.
• State tax revenue in 2016 was the weakest since 2010, when tax revenue declined by 1 percent in nominal terms
• Sales tax and personal income tax, which combined represent over two-thirds of all tax revenue to the states, had weak growth of only 0.2 and 0.9 percent, respectively, after adjusting for inflation.
• State tax revenue declined in 14 states in nominal terms. More than half of the states with declines were heavily dependent upon oil and mineral production caused by a drastic fall in oil prices and production. …

Early Care and Education State Budget Actions FY 2017

Source: National Conference of State Legislatures, April 28, 2017

NCSL surveyed 50 state legislative fiscal offices on their FY 2015, FY 2016 and FY 2017 state appropriations for various early care and education programs—child care, prekindergarten, home visiting and other related programs. Early Care and Education Budget Actions FY 2017 provides a snapshot of state funding investments from 36 states that responded to the survey in these areas. Click on each of the tabs to see specific changes to appropriations for child care, prekindergarten, home visiting and other early childhood programs that occurred from FY 2016 to FY 2017….