Category Archives: State & Local Finance

The Equity of Local Sales Tax Distributions in Urban, Suburban, Rural, and Tourism Rich Counties in North Carolina

Source: Whitney Afonso, Public Finance Review, Published online before print June 26, 2015
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From the abstract:
The use of local options sales taxes (LOSTs) is creating largely unexplored equity concerns with regard to the revenue raising capabilities of different local governments. This article focuses on differences among urban, suburban, and rural counties; the impact of proximity to urban (or retail) centers; and the impact of LOST decisions on tourism rich counties, a new category of local governments. Using data from 2003 to 2009 on all 100 North Carolina counties and a spatial Durbin error panel model, I identify factors relating to LOST revenue raising capacity (RRC). The results indicate that tourism rich counties have the greatest LOST capacity, suburban counties have the least, and there is a penalty for bordering an urban county. However, statistically significant differences in the RRC of the four types of counties disappear once property taxes are included in the mix.

Supporting Safety Net Hospitals through DSH Payment Cuts and Medicaid Expansion

Source: Lindsey Woodworth, University of California – Davis, Policy Brief, Vol. 3 no. 9, 2015

From the introduction:
A major component of the Affordable Care Act (ACA) was a mandated expansion of Medicaid. The law also prescribed cuts to Medicaid Disproportionate Share Hospital (DSH) payments, which subsidize hospitals with high levels of uncompensated care. For states that have opted out of Medicaid expansion, Medicaid reimbursements will not make up for lost DSH payments. However, DSH cuts may also create additional financial challenges for these hospitals in opt-in states if Medicaid expansion does not reduce overall uncompensated care.

Safety net hospitals care for disproportionately large shares of low-income patients who are either covered by Medicaid or are uninsured. To different extents, both populations generate uncompensated care. Medicaid reimbursements do not always cover the cost of treatment, and uninsured patients do not always provide reimbursement for care.

Key Facts:
• The ACA has prescribed cuts to Medicaid Disproportionate Share Hospital (DSH)payments which will take effect nationwide in 2018.
• In the states that have chosen not to expand Medicaid, safety net hospitals’ ability to withstand DSH cuts will depend on low income individuals’ procurement of private coverage.
• In the states that have decided to expand Medicaid, many low- income individuals will gain public coverage, but whether this will alleviate safety nets’ dependence on DSH payments will depend on the extent to which new enrollees increase their use of health care.

The State Pensions Funding Gap: Challenges Persist

Source: Pew Charitable Trusts, Issue Brief, July 2015

From the overview:
The nation’s state-run retirement systems had a $968 billion shortfall in 2013 between pension benefits governments have promised to their workers and the funding available to meet those obligations—a $54 billion increase from the previous year. This report focuses on the most recent comprehensive data and does not fully reflect the impact of recent strong investment returns.1 Because state retirement systems have historically accounted for investment losses and gains over time, the latest data still include losses from the 2008 Great Recession and do not fully incorporate the strong returns of recent years. As recent strong investment returns are fully realized under new accounting standards, preliminary data from 2014 point to a reduction in unfunded liabilities for the majority of states. Many states have also benefited from reforms enacted since the financial crisis.

When Wall Street Offers Free Money, Watch Out

Source: Cezary Podkul – ProPublica, and Allan Sloan – Washington Post, July 10, 2015

Bankers and new accounting rules are emboldening governments to borrow-and-bet their way out of pension problems, a strategy that’s backfired in the past.

…..Bet Big, Then Go Short
Governments that borrow money to fund their pensions often pay less into their pension funds in future years than they’re supposed to. Here’s how the 20 biggest pension bonds deals since 1996 have worked out. Explore the app ….

Questioning the Value of Economic Multiplier Estimates

Source: Edward G. Keating, Irina Danescu, and Robert Murphy, Journal of Applied Economic Development, Volume 12, June 2015

What if anything do estimated economic multipliers really mean? What are some basic principles policymakers should use when thinking about the prospective impact of new projects in their communities?…

…Our biggest recommendation for economic development officials is to not rely upon economic multiplier estimates to assess economic impact. Instead, in considering prospective projects, we urge a focus on questions such as:
– What would affected workers be doing absent the project?
– Might the project imbue workers with skills that could be useful to other employers or in setting up separate businesses?

The most favorable prospective projects would employ workers who would otherwise be unemployed or underemployed, plus would result in growth in employment beyond the originating project.

Why Chicago Won’t Go Bankrupt—And Detroit Didn’t Have To

Source: Saqib Bhatti, In These Times, June 22, 2015

Detroit’s bankruptcy wasn’t inevitable. Neither is Chicago’s. But the austerity hawks don’t want you to know that. …

….Because conventional wisdom held that bloated pensions had bankrupted Detroit, the conversation revolved around other cities with large pension shortfalls, such as New York, Philadelphia and Jacksonville, Florida. …. All of this uproar rested on a basic falsehood in the dominant public narrative around Detroit: that pensions played a key role in driving the city bankrupt. But those who studied the bankruptcy closely know that the reverse is true: The city filed bankruptcy so that it could cut pensions.

Detroit’s bankruptcy was not borne out of financial necessity and was not a foregone conclusion. It was a political decision made by state officials. Gov. Rick Snyder and the Michigan Legislature chose to push the distressed city over the edge in order to accomplish two otherwise difficult political goals: slashing pensions and regionalizing the Detroit Water and Sewerage Department. It was disaster capitalism at its finest.

Austerity hawks are now hoping to use the Detroit playbook in other cities to force the public to accept extreme measures to fix budget crises. ….

….The $198 million shortfall could have been addressed fairly easily—in part, simply by undoing state actions that had pushed Detroit into bad financial straits in the first place. For example, Detroit had taken a major financial hit over the course of 2011 and 2012, when Snyder and the Michigan Legislature decided to cut annual state revenue sharing with the city by $67 million. Restoring that funding would have filled one-third of the city’s shortfall. Second, there were state-imposed restrictions on the city’s ability to raise local taxes, dating back to the 1990s. Lifting those restrictions would have allowed the city to raise taxes and bring in new revenue. …..

State Sales Taxes 2015

Source: Jennifer Burnett, Council of State Governments, Capitol Research, June 2015

Forty-five states levy a general statewide sales tax, with rates ranging from 2.9 to 7.5 cents per $1 as of Jan. 1, 2015. Over the past decade, sales tax rates have remained relatively stable, with few states making significant changes. ….
Related:
Download the Excel Version of the Table: “State Sales Taxes