Category Archives: State & Local Finance

Quarterly Summary of State and Local Government Tax Revenues: 4th Quarter 2017

Source: U.S. Census Bureau, G17-QTAX4, March 20, 2018

The summary provides quarterly estimates of state and local government tax revenue at a national level, as well as detailed tax revenue data for individual states. This report produces three tables: Tables 1 and 2 include income and sales data and Table 3 provides tax collections by state.

Fourth quarter 2017 tax revenues for the four largest state and local government tax categories increased 9.5 percent to $438.8 billion, from $400.8 billion in the same quarter of 2016.

Related:
Complete data sets

Asset Growth Trend Continues in Fourth Quarter 2017: Q4

Source: Melinda Caskey, Deron Pope, and Gritiya Tanner, U.S. Census Bureau, Report Number: G17-QSPP4, March 2018

For the 100 largest public-employee pension systems in the country, assets (cash and investments) totaled $3,785.9 billion in the fourth quarter of 2017, increasing by 2.7 percent from the 2017 third quarter level of $3,684.7 billion. Compared to the same quarter in 2016, assets for these major public-pension systems increased 11.6 percent from $3,392.1 billion. The main driver of this gain is earnings on investments, which totaled $142.2 billion during the fourth quarter of 2017. Earnings on investments make up for the deficit between contributions and benefits paid out, and are a critical contributor to the sustainability of pension plans (see Figure 1). The summary highlights the major asset categories (equities, debt instruments, and cash equivalents) and does not reflect all of the categories published for the Quarterly Survey of Public Pensions.
Related:
Complete data sets

Economic Development Tax Incentives Evaluation Act: Evaluation of “Motion Picture Production Tax Credits” – Tax Years 2013 through 2015

Source: State of Rhode Island, Office of Revenue Analysis, March 16, 2018

Part I: Introduction

Pursuant to Rhode Island General Laws § 44-48.2-4, titled Rhode Island Economic Development Tax Incentives Evaluation Act of 2013, the Chief of the Office of Revenue Analysis (ORA) is required to produce, in consultation with the Director of the Economic Development Corporation, the Director of the Office of Management and Budget, and the Director of the Department of Labor and Training, a report that contains analyses of economic development tax incentives as listed in R.I. Gen. Laws § 44-48.2-3(1). According to R.I. Gen. Laws § 44-48.2-4(1), the report “[s]hall be completed at least once between July 1, 2014, and June 30, 2017, and no less than once every three (3) years thereafter”. ….

Part II: Benchmarking Motion Picture Activity in Rhode Island, Selected Comparison States, and Nationwide

An understanding of current and historical motion picture production activity in Rhode Island as well as in comparison states and the nation provides context to the economic environment in which the MPPTC program operates. First, the benchmarking analysis contained within this part presents information on the availability of tax benefits targeting the motion picture industry in Rhode Island and in comparison states. Next, this part presents data highlighting current levels and long-term trends in motion picture production activity and employment and evaluate Rhode Island’s relative performance and on key economic indices.

ORA focused its investigation of motion picture activity, employment, and availability of tax incentives targeting motion picture production in four comparison states. The selected states are two neighbors, Massachusetts and Connecticut, in addition to two national leaders in motion picture production, New York and California. Additionally, this report includes selected comparisons to national data to allow the reader to consider the state-level data in the context of national levels, trends, and cycles. ….

Part III: Report Data Description

Part IV: Evaluation of the Economic Impact of the Tax Credit

Part V: Discussion and Recommendations

ORA Recommendations
Finding #1: The statutory goals of the MPPTC are poorly defined and performance measured against statutory objectives is relatively poor. ….
Finding #2: Current data reporting requirements lead to inconsistent and unreliable data on program performance. ….
Finding #3: MPPTC program fails to breakeven; program has negative return on investment. ….
Finding #4: Credit usage is low relative to the annual aggregate cap of $15.0 million, suggesting that the program is out-of-touch with the motion picture industry, and making revenue impacts difficult to predict. ….
Finding #5: MPPTC does contain a sunset provision, representing a best practice of tax incentive design. ….

Related:
Study: RI taxpayers lost $1.8 million a year on film tax credits
Source: Ted Nesi and Steve Nielsen, WPRI, April 16, 2018

State Study Finds RI Film/TV Incentives Generate Only 27 Cents For Every Dollar Spent
Source: Ian Donnis, Rhode Island Public Radio, April 18, 2018

A Macro Analysis of the Return on Investment of the Rhode Island Motion Picture Production Tax Credits
Source: State of Rhode Island, Office of Revenue Analysis, Discussion Paper, July 24, 2008

State Payroll Taxes: A Tool for States to Circumvent the Republican Tax Plan

Source: Dean Baker, Center for Economic and Policy Research (CEPR), February 2018

From the abstract:
The new tax law sharply limits the deduction for state and local taxes (SALT) when calculating federal taxes by capping the deduction at $10,000. While this will not affect most taxpayers, it will affect a substantial number of taxpayers in relatively high tax states like California and New York. This paper suggests an employer-side payroll tax as a tool that states can use to shield most of the tax revenue that otherwise would have been collected through formerly deductible income or sales taxes.

Infrastructure Reality Check

Source: Sarah Crane, Regional Financial Review, Volume 28 Number 7, March 2018
(subscription required)

This article assesses the magnitude of needed U.S. infrastructure spending and compares it to current proposals. Further, it assesses the multiplier effect of such spending and finds that it is stronger during a recession and the immediate recovery period when there is considerable idle resources in the economy.

GO Methodology scorecard inputs updated for 2018

Source: Lauren Von Bargen, Heather Guss, Katie Townsend, Alexandra S. Parker, Leonard Jones, Naomi Richman, Moody’s, Sector In-Depth, April 10, 2018
(subscription required)

We have updated the institutional framework scores and the standardized adjustments that we use in the scorecard for our US local government general obligation (GO) methodology. In this publication, we provide the complete list of institutional framework scores for all major sectors with rated local government GO credits, as well as standardized scorecard adjustments we make for issuers in certain states and sectors to reflect factors not fully captured in the institutional framework scores. We use the scorecard as a tool in the assignment of ratings to GO debt. Adjusted scores generated by the scorecard are not necessarily reflective of assigned ratings, which we determine through a rating committee process.

Federal tax law to squeeze local governments in tri-state region

Source: Valentina Gomez, Nicholas Samuels, Leonard Jones, Moody’s, Sector In-Depth, April 11, 2018
(subscription required)

The recent federal tax legislation will have an adverse credit effect on local governments in the tri-state region of Connecticut (A1 stable), New York (Aa1 stable) and New Jersey (A3 stable). This is due to the region’s relatively high state and local taxes and unusually high home prices, particularly in the New York City metropolitan area. The impact, however, will vary from state to state depending on tax levy formulas, fixed cost burdens and state actions to blunt the effect of the federal changes

Competing spending demands and slowing revenue growth will stymie capital investment for many cities

Source: Coley J Anderson, Rachel Cortez, Alexandra S. Parke, Katie Townsend, Moody’s, Sector In-Depth, April 12, 2018
(subscription required)

US local governments are facing acute infrastructure needs following years of deferred maintenance. Local governments’ capital spending fell by 19% between 2009 and 2015, hastening a decline in the condition of public assets. This trend will continue through at least 2018. An increase in competing spending demands and a slowdown in property tax revenue growth will hamper many cities’ ability to stave off further deterioration in capital assets. Cities with growing revenue bases, ample financial reserves and low fixed costs are best positioned to increase capital spending. Cities with weak population growth, narrow financial reserves and high fixed costs will find it difficult to make capital investment a priority.

Municipal Bond Analyst Survey, 2018

Source: Tom Kozlik, PNC, Municipal Commentary, April 5, 2018

Key Survey Findings: Pensions still the top issue, but state government credit quality jumped to the third most important issue

State government credit quality (48%) jumped to the third-ranked “most important trend” in our survey of 168 municipal analysts. Last year, state credit quality was ranked eighth (24%).

Public pensions (92%) and federal policy uncertainty (60%) remain the first and second most important issues/trends facing the market.

The 2017 Tax Cuts and Jobs Act impact on municipals: 78% of analysts forecast 2018 municipal bond issuance will be under $350 billion versus $446 billion in 2017.

More related to the 2017 tax cut: 29% expect the elimination of advance refundings to have the greatest impact on the municipal bond market. Total 2017 issuance was a record $446 billion.

Tax-exemption threat: Only 11% of municipal bond analysts see a “strong” or “very strong” threat to the municipal bond tax exemption after the passage of last year’s tax cut legislation.

Climate change: Only 3% of those surveyed believe state and local governments are “prepared” or “very prepared” for climate change.

Infrastructure: President Donald Trump’s infrastructure proposal did not resonate well with those analysts surveyed, with 37% having a “negative” or “very negative” opinion of the plan.

Pensions: Half of the municipal analysts polled think there is a public pension funding crisis.

Recoveries: Most (79%) analysts do not expect future municipal bond recoveries to be “strong” or “very strong.”

A total of 64% of analysts polled have a “somewhat unfavorable,” “very unfavorable,” “undecided,” or “do not consider ratings” view about Kroll’s municipal bond ratings. This is a slight improvement compared with the total of 66% reported in our 2017 survey.