Category Archives: State & Local Finance

Subsidy Tracker 3.0

Source: Good Jobs First, November 2016

From the press release:
Good Jobs First today announced a significant expansion of its Subsidy Tracker database, the only national search engine capturing company-specific economic development incentive awards from the federal government, all 50 states and many localities.
Increasing its coverage of cities and counties, Subsidy Tracker has added 10,000 entries from 204 newly-included local programs in 25 states. The update also includes data from 24 new state programs as well as new entries for hundreds of the existing programs in the database. Subsidy Tracker now contains 525,000 entries worth more than $260 billion from 972 federal, state and local programs. ….

…The expansion of local subsidy data foreshadows the tsunami of corporate welfare data that will flow in 2017-2018, pursuant to Governmental Accounting Standards Board Statement No. 77 on Tax Abatement Disclosures. Under this new accounting rule, more than 50,000 state and local government bodies will report how much revenue they have lost to corporate tax breaks granted in the name of economic development.

Infrastructure Finance and Debt to Support Surface Transportation Investment

Source: William J. Mallett, Grant A. Driessen, Congressional Research Service, CRS Report, R43308, November 17, 2016

…..The federal government’s largest source of support for surface transportation infrastructure is the Highway Trust Fund (HTF), which is funded principally by taxes on gasoline and diesel fuel. Funds from the HTF are distributed to state governments and local transit agencies for projects meeting federal standards. State governments, local governments, and transit agencies must also contribute their own resources because grants from the HTF do not meet states’ entire surface transportation capital needs. The federal government supports additional infrastructure spending by providing a tax exclusion for owners of municipal bonds, or “munis,” issued by state and local governments. The federal government also supports project finance through loan programs, such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) program and the Railroad Rehabilitation and Improvement Financing (RRIF) program, which can help leverage private investment via public-private partnerships (P3s), and through federally authorized state infrastructure banks (SIBs).

All of these financing mechanisms impact the federal budget, although none are as costly as federal grant funding. With less federal support, financing places a greater burden on state and local governments to identify revenue sources to repay loans or to provide a return to private investors. In many cases, non federal revenue to finance a project is provided by a highway or bridge toll, but it could be a pledge of future sales tax or real estate tax revenue.

There are many legislative options that Congress might consider in modifying the federal role in surface transportation financing. This report considers five:
1. Creation of a new type of bond offering federal tax credits to investors in infrastructure.
2. Changes to the TIFIA and RRIF programs.
3. Greater encouragement for P3s.
4. Creation of a national infrastructure bank to provide low-cost, long-term loans for infrastructure on flexible terms.
5. Enhancement of SIBs that already exist in many states, possibly with dedicated federal funding……

What Drives State Tax Reform

Source: James Alm, Steven M. Sheffrin, Public Finance Review, Published online before print November 4, 2016
(subscription required)

From the abstract:
State tax reform is fundamentally different than federal tax reform. States are continually modifying their taxes to meet revenue challenges and to cope with the changing structure of the national and regional economy. Most state tax reforms are modest affairs and not major rewrites of the tax codes. Reforms must consider the existing institutional structure of the state, economic policies, and the politics of the current state situation. Nonetheless, there are some common themes in reforms across the states, including expanding the sales tax base to include services, and broadening the base for income taxation.

State Tax Incentive Evaluations Database

Source: National Conference of State Legislatures, October 31, 2016

State tax incentives continue to be on state legislative agendas and more and more lawmakers have expressed interest in having good information on the impact of incentives. As a result, states across the country are starting to gather data and use evidence to systematically evaluate tax incentives.
To illustrate what sort of evaluations states are conducting, NCSL, with the generous support of The Pew Charitable Trusts, created a database of state tax incentive evaluations. Evaluations published since the start of 2008 are included and more reports will be added over time.

The National Infrastructure Reserve Bank

Source: Stephen M. Hubbard, Public Works Management & Policy, Published online before print November 10, 2016
(subscription required)

From the abstract:
This article examines the implementation of a novel national infrastructure bank (NIB) which coins or “makes” U.S. currency to provide capital for infrastructure loans. This approach eliminates bond expense while reducing long-term life cycle costs caused by deferred maintenance and construction inflation. It also addresses the three main issues that have blocked prior NIB proposals by providing a near zero-cost source of capital, reducing the total size of government employment, and isolating funding from national politics while reducing costs by US$75 to US$220 billion and creating up to three million or more jobs annually.

The Effect of Fiscal Illusion on Public Sector Financial Management: Evidence from Local Government Property Assessment

Source: Justin M. Ross, Siân Mughan, Public Finance Review, Published online before print November 11, 2016
(subscription required)

From the abstract:
An important concern to the efficiency of public finance systems is that voters may suffer from various “fiscal illusions” that can be exploited by politicians to grow the public sector. This article contributes evidence on the specific public financial management mechanisms by associating the impact property reassessments have on the “visibility” of budget size signaled by property tax rates. Using data from Virginia cities and counties from 2001 to 2011, the results indicate mass reappraisals, which reduce property tax visibility cause contemporaneous property tax levy increases, as do reappraisals that increase future tax visibility. These revenue shocks are then smoothed into expenditures through the management of assets, indicating policy makers prefer the spending to be drawn from future cash reserves than immediate projects that might draw attention to the source of fiscal illusion.

Preliminary Evidence on Film Production and State Incentives

Source: Charles W. Swenson, Economic Development Quarterly, OnlineFirst, Published online before print November 3, 2016
(subscription required)

From the abstract:
This study examines whether state movie production incentives are effective in attracting and/or retaining movie production. The issue is of significant policy interest because of the large amounts spent by states for such subsidies. This study finds that while movie production incentives were effective in increasing the number of film production employment and establishments for a few states such as New York and California from 1998 to 2011, there was no discernable increase across all states. Much of this noneffect appears because of a “crowding out” effect due to the sheer number of states with incentives.

Funding and Financing Highways and Public Transportation

Source: Robert S. Kirk, William J. Mallett, Congressional Research Service, CRS Report, R44674, November 1, 2016

Almost every conversation about surface transportation finance begins with a two-part question: What are the “needs” of the national transportation system, and how does the nation pay for them? This report is aimed almost entirely at discussing the “how to pay for them” question. Since 1956, federal surface transportation programs have been funded largely by taxes on motor fuels that flow into the Highway Trust Fund (HTF). A steady increase in the revenues flowing into the HTF due to increased motor vehicle use and occasional increases in fuel tax rates accommodated growth in surface transportation spending over several decades. In 2001, though, trust fund revenues stopped growing faster than spending. In 2008 Congress began providing Treasury general fund transfers to keep the HTF solvent….

GASB Statement No. 77

Source: Good Jobs First, 2016

…It’s official: the Governmental Accounting Standards Board (GASB) issued Statement No. 77 on August 14, 2015. That means all state and local budgets starting after December 15, 2015 and conforming to Generally Accepted Accounting Principles (GAAP) are covered.

Statement No. 77 requires GAAP-compliant public budgets to report how much revenue the government body lost to corporate tax breaks granted in the name of economic development, or “tax abatements” in GASB’s umbrella terminology.

This is historic news: for the first time ever, state and local governments—including school districts that lose revenue passively—will have to report the costs of job subsidies.

It is no exaggeration to refer to economic development reform in pre-GASB 77 and post-GASB 77 terms. The data will start being published in 2017 based on calendar 2016 and later budgets (see timeline below)….
Related:
Comptroller Stringer Releases Fiscal Year 2016 Comprehensive Annual Financial Report
Source: New York City Comptroller Stringer, Press Releases, October 31, 2016

Comptroller’s Office implements GASB 77 tax abatement disclosures one year ahead of schedule
(New York, NY) – Today, New York City Comptroller Scott M. Stringer released the City’s Comprehensive Annual Financial Report (CAFR) for Fiscal Year 2016, which includes the City’s audited financial statements for the year, outlines important economic and financial data about New York City and highlights work done by the Comptroller’s Office during the previous fiscal year.

Update on State Revenues

Source: Don Boyd, Rockefeller Institute of Government Director of Fiscal Studies, presentation at the National Association of Budget Officers (NASBO) Fall Meeting on October 14, 2016

Rockefeller Institute of Government Director of Fiscal Studies Don Boyd presented a sober picture of state tax revenues in a recent presentation to the National Association of Budget Officers Fall Meeting on October 14, 2016.

In analysis lacking short term promise, Boyd highlighted the following:
• States forecast weak growth in state personal and sales tax revenue collections in fiscal 2017.
• Public revenue forecasts do not fully reflect the April-June tax revenue declines and the recent further weakening of sales tax. We expect forecasts to come down further.
• Low inflation and slow real growth suggest continued slow growth in withholding and in consumption subject to sales tax
• Stock market booms and busts often lead to surges and falls in income tax revenue that swamp growth driven by inflation and the real economy. The stock market so far this year has been tepid.
• Not an ebullient environment for revenue.

The analysis was based in large part on data collection and analysis by Institute Senior Researcher Lucy Dadayan. The presentation reviewed recent trends in state tax revenue collections and their relationship to the economy. Particularly noteworthy is the continuing slowdown in state sales tax revenue, and continued weakness in wages and income tax withholdings.