Category Archives: State & Local Finance

A Two-Step Plan for Puerto Rico

Source: Clayton P. Gillette, David A. Skeel Jr., University of Pennsylvania Law School, Institute for Law and Economics, Research Paper No. 16-3, February 4, 2016

From the abstract:
Few still believe that Puerto Rico is capable of meeting all of its financial obligations and continuing to provide basic services. The territory is already in default, and conditions are rapidly deteriorating. Is there a way forward? We think there is. In this short article, we outline a two-part plan for correcting Puerto Rico’s most urgent fiscal and financial problems.

The first step is to create an independent financial control board that has authority over Puerto Rico’s budgets and related issues. Notwithstanding concerns that an externally imposed financial control board (FCB) may interfere with the decision making processes of democratically elected officials, a properly designed FCB can play essential roles in the rehabilitation of distressed governments.

The second step is giving Puerto Rico a mechanism for adjusting its debts. Puerto Rico currently does not access to any restructuring option. To fix this problem, Congress could either give Puerto Rico and its municipalities access to existing bankruptcy law (Chapter 9), or it could craft an alternative restructuring framework for America’s territories. We will advocate for the latter approach, although either could be used.

With each step of our proposal, we summarize the key features at the outset and then describe the key features in slightly more detail.

Keating Report: 2016 forecast on government budgets and spending—Part 1

Source: Michael Keating, Government Product News, February 16, 2016

Local government officials have reason to be optimistic in 2016

The Keating Report is a 2016 forecast on government budgets and spending (first part presented below). The 2016 forecast is an update of our mid-year 2015 outlook report that was posted online at the GPN site. The mid-year 2015 outlook was posted in several installments.

The 2016 edition of the Keating Report includes forecasts on government purchases of goods and services and comments from experts. More sections from the 2016 edition of the Keating Report, covering government revenue and spending trends and government construction, will be posted soon.

Tax Code Connections: How changes to federal policy affect state revenue

Source: Pew Charitable Trusts, Research & Analysis, Fiscal Federalism Initiative, February 17, 2016

From the overview:
States have a great deal at stake when federal policymakers are considering tax policy changes, whether full-scale reform or targeted revisions. Of the 41 states (plus the District of Columbia) with broad-based personal income taxes, 40 states and the District connect in some way to the federal system by incorporating a range of federal tax expenditures—exclusions, deductions, and credits—into their state tax codes. These linkages to federal law, also known as conformity, mean that changes at the federal level can affect state tax collections and can increase total federal taxes paid in some states and decrease them in others, even if federal revenue remains unchanged nationwide.

To help policymakers at both the state and federal levels better understand the extent to which states are connected to and affected by changes to federal individual income tax expenditures, this analysis illustrates the state revenue impact of eliminating the large majority of federal tax expenditures. It also reduces federal tax rates by roughly 40 percent to achieve revenue neutrality—that is, to maintain pre-reform revenue levels. Importantly, the scenario is not a tax reform proposal, nor does it endorse any particular plan or a revenue-neutral approach to tax reform.
Technical Appendix

Does Municipally Subsidized Housing Improve School Quality? Evidence from New York City

Source: Colin C. Chellman, Ingrid Gould Ellen, Brian McCabe, Amy Ellen Schwartz, Leanna Stiefel, New York University (NYU) – Robert F. Wagner Graduate School of Public Service, NYU Wagner Research Paper No. 2716685, January 16, 2016
(subscription required)

From the abstract:
Problem: Policymakers and community development practitioners view increasing subsidized owner-occupied housing as a mechanism to improve urban neighborhoods, but little research studies the impact of such investments on community amenities.

Purpose: We examine the impact of subsidized owner-occupied housing on the quality of local schools and compare them to the impacts of city investments in rental units.

Methods: Using data from the New York City Department of Education (DOE) and the New York City Department of Housing Preservation and Development (HPD), we estimate three main sets of regressions, exploring student characteristics, school resources, and school outcomes.

Results and conclusions: The completion of subsidized owner-occupied housing is associated with a decrease in schools’ percentage of free-lunch eligible students, an increase in schools’ percentage of White students, and, controlling for these compositional changes, an increase in scores on standardized reading and math exams. By contrast, our results suggest that investments in rental housing have little, if any, effect.

Takeaway for practice: Policies promoting the construction of subsidized owner-occupied housing have solidified in local governments around the country. Our research provides reassurance to policymakers and planners who are concerned about the spillover effects of subsidized, citywide investments beyond the households being directly served. It suggests that benefits from investments in owner occupancy may extend beyond the individual level, with an increase in subsidized owner-occupancy bringing about improvements in neighborhood school quality.

School Budgeting and School Performance: The Impact of New York City’s Performance Driven Budgeting Initiative

Source: Leanna Stiefel, Amy Ellen Schwartz, Dae Yeop Kim, Carole Portas, New York University (NYU) Wagner Research Paper No. 2717548, January 18, 2016
(subscription required)

From the abstract:
Performance Driven Budgeting (PDB) is a school-based budgeting initiative that was instituted in a select group of New York City schools beginning in the 1997-1998 school year. This paper analyzes the impact of the initiative on student test scores in the fourth and fifth grades and on spending patterns. Using school-level data provided by the New York City Board of Education, we construct a panel dataset of 609 elementary and middle schools over a span of four years, 1995-96 through 1998-99. To analyze the impact of the initiative we estimate school production function models that incorporate school fixed effects and an indicator for participation in PDB. After controlling for these and other student-body characteristics, we find that PDB had a positive effect on some student test scores and led to a change in the mix of spending, but not its level.

State Pre-K Funding for 2015-16 Fiscal Year: National trends in state preschool funding

Source: Bruce Atchison, Emily Parker, Emily Workman, Education Commission of the States, January 26, 2016

From the abstract:
State Pre-K Funding for 2015-16 Fiscal Year: National trends in state preschool funding highlights an increase in early learning programs for the fourth-straight year. The report includes several state examples and an overview of the pre-k programs they have in place. On February 2, 2016 a revised version of this report was posted. Revisions include corrections of data collected and reported for Texas.

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

Source: Claudia Copeland, Congressional Research Service, CRS Report for Congress, R43315, February 9, 2016

Policymakers have recently been considering several legislative options to help finance water infrastructure projects, including projects to build and upgrade wastewater and drinking water treatment systems. This report examines one particular option, a “Water Infrastructure Finance and Innovation Act” (WIFIA) program, which Congress included in the Water Resources Reform and Development Act of 2014 (WRRDA). As enacted (P.L. 113-121), the legislation created a WIFIA pilot program based on provisions in Senate-passed S. 601 with some additions and modifications. H.R. 3080 as passed by the House did not include similar provisions…..

States Eye Tax Havens

Source: Jackson Brainerd, Legisbrief, Vol. 24 No. 8, February 2016
(subscription required)

Six states and the District of Columbia have enacted tax haven laws and five others considered legislation in 2015. Their common goal? To stop the revenue drain that results when multinational corporations avoid paying state income taxes by shifting income earned domestically to low-tax jurisdictions.

Drug Testing and Public Assistance

Source: Randi Hall, Center for Law and Social Policy (CLASP), February 2016

From the summary:
In the last decade, numerous states have made drug screening and testing an eligibility condition for Temporary Assistance for Needy Families (TANF) cash assistance under certain circumstances. As of November 2015, 13 states have adopted such regulations. Wisconsin included a provision in its state budget to screen and test certain individuals participating in FoodShare Employment and Training under the Supplemental Nutrition Assistance Program (SNAP). Legislatures in 19 other states have recently considered bills to drug test under TANF.

Very few applicants have tested positive for drug use in states that have implemented these policies. Consequently, operating costs far exceed the fiscal savings from denying benefits. This is consistent with previous research that found only a small share of welfare recipients experience substance abuse disorders.
Blog post

State Higher Education Finance FY 2014

Source: State Higher Education Executive Officers (SHEEO), 2015

A recession beginning in 2008 dramatically reduced state revenue and ended the growth in state and local support achieved between 2004 and 2008. In 2014, for the second straight year, overall state and local funding for higher education increased, reaching $86.3 billion, up 5.7 percent from 2013, but still below 2008-2011 levels. Initial estimates from the Grapevine survey of FY 2015 appropriations for higher education show continued growth overall of 5.2 percent in nominal terms. These data all point to continuing economic recovery and restoration of state funding for higher education on average nationally.

In addition to state and local revenues, public institutions collected net tuition revenue of $64.3 billion in 2014, for a total of about $150.7 billion available to support higher education. For the first time since the recession, the share of overall funding for public and private higher education from tuition decreased slightly to 42.7 percent (see Figure 1). Net tuition revenue as a share of public higher education revenue was 47.1 percent.

Of the $86.3 billion in state and local support during 2014, 76.8 percent was allocated to the general operating expenses of public higher education. Special purpose or restricted state appropriations for research, agricultural extension, and medical education accounted for another 12.2 percent of the total. The percent of total support allocated for financial aid to students attending public institutions declined 0.3 percent to 7.7 percent in 2014, although funding was increased slightly. The remaining 3.2 percent supported students attending independent institutions, operating expenses at independent institutions, and non-credit and continuing education expenditures.

Further analysis of the data indicates that constant (adjusted for the impact of inflation over time) dollar per-student state and local funding for public colleges and universities also increased for the second year in a row to $6,552, 5.4 percent above 2013. In 2010, 2011, and 2012, the per-student state and local support were the lowest in the last 25 years. Although 2014 per-student state and local support increased, it still remains significantly lower than pre-recession levels.

Highlights of the SHEF report provided below illustrate the long-term patterns, shorter-term changes, and state-level variables affecting the resources available to support higher education between 1989 and 2014. These and other factors that shape higher education funding are examined in more detail in the sections of the full report that follow….

Data – Raw data, interactive charts, tables and figures from the report, and state wave charts
Project – Information about the SHEF project and technical papers
Process – Information for state SHEF data providers.
Webinar – A brief history of the report and metrics; findings; and new interactive components.