Category Archives: State & Local Finance

State Economic Development Performance Indicators

Source: Center for Regional Economic Competitiveness (CREC), White Paper, September 2016

From the press release:
Given states’ pressures to demonstrate economic development investment impact, The State Economic Development Performance Indicators White Paper, recently published by the Center for Regional Economic Competitiveness (CREC) and Smart Incentives, examines commonly used indicators and provides guidance to improve and expand evaluation efforts.

Developed from the Business Incentives Initiative conducted by CREC and Pew Charitable Trusts, state economic development leaders were asked about performance indicators used to evaluate incentives programs. Based on state feedback, data was categorized by business need and type of performance indicator. Of the states that responded, capital access is the dominant category of business need addressed by programs; jobs and investment are the leading indicator type.

Dissatisfied with how common performance indicators – jobs and investment – tell the story of programs’ achievements, state leaders asked for peer advice. All states count jobs, however, this definition varies place to place. A robust jobs indicator should: include a clear definition of (new) jobs; establish a baseline for counting; distinguish between new and existing jobs; include a job quality measurement; explain reporting and verification procedures; and allow for exceptions to the rule. The white paper references two states’ examples including many of these principles, Virginia and California.

Measuring investment as an indicator proves problematic as it includes various metrics across programs and business needs. Investment indicators may include: capital investment, loan or equity investment to a small business, spending to redevelop a brownfield site, or total state assistance to a project.

Three steps states can implement to better select program performance indicators are to develop a clear goal or performance statement; distinguish between indicators that describe outputs and those that describe outcomes; and determine data sources and availability when selecting metrics….

Revenues and Expenditures for Public Elementary and Secondary Education: School Year 2013-14 (Fiscal Year 2014)

Source: Stephen Q. Cornman, Lei Zhou, National Center for Education Statistics, Publication #: NCES 2016301, October 2016

From the abstract:
This First Look contains national and state totals of revenues and expenditures for public elementary and secondary education for school year 2013-14. This First Look includes revenues by source and expenditures by function and object, including current expenditures per pupil and instructional expenditures per pupil. This report presents data submitted annually to NCES by state education agencies in the 50 states and the District of Columbia.

State Tax Subsidies for Private K-12 Education

Source: Carl Davis, Institute on Taxation and Economic Policy (ITEP), October 2016

From the introduction:
One of the most important functions of government is to maintain a high-quality public education system. In many states, however, this objective is being undermined by tax credits and deductions that redirect public dollars for K-12 education toward private schools. Twenty states currently divert a total of over $1 billion per year toward private schools via special tax credits and deductions. These tax subsidies are essentially backdoor voucher programs, or “neovouchers,” as they use the tax code to provide what amount to private school vouchers even when traditional voucher programs are unpopular with the public or outright unconstitutional.

Because of the ways that state and federal tax law interact, the subsidies offered in ten of these states turn the concept of a charitable “donation” on its head by offering upper-income taxpayers a risk-free profit on contributions they make to fund private school scholarships. In these cases, even taxpayers who would not ordinarily be interested in contributing to private schools may find the incentive too strong to ignore. Some states have seen an entire year’s allotment of tax credits claimed within days, or even hours, of being made available as wealthy taxpayers seek to capture their share of the profits associated with convoluted “neovoucher” systems. In effect, states that have encountered political or constitutional obstacles to spending public dollars on private schools have instead set up a system that allows wealthy taxpayers to enjoy a profit by facilitating such spending on the state’s behalf.

This report explains the workings, and problems, with state-level tax subsidies for private K-12 education. It also discusses how the Internal Revenue Service (IRS) has exacerbated some of these problems by allowing taxpayers to claim federal charitable deductions even on private school contributions that were not truly charitable in nature. Finally, an appendix to this report provides additional detail on the specific K-12 private school tax subsidies made available by each state.

Will Pensions and OPEBs Break State and Local Budgets?

Source: Alicia H. Munnell and Jean-Pierre Aubry, Center for Retirement Research at Boston College, SLP#51, October 2016

The brief’s key findings are:
The analysis looks at the costs of pensions, OPEBs, and debt service for all states and the largest counties and cities.
Costs assume a 6-percent discount rate and an adequate amortization schedule, and are compared to own-source revenue.
The good news is that the total cost burden appears under control in many jurisdictions, but a handful face an enormous challenge.

2016 Public Pension Funding Study

Source: Rebecca A. Sielman, Milliman, White Paper, September 2016

From the introduction:
The Milliman Public Pension Funding Study annually explores the funded status of the 100 largest U.S. public pension plans. We report the plan sponsor’s own assessment of how well funded a plan is. We also recalibrate the liability for each plan based on our independent assessment of the expected real return on each plan’s investments. This process enables us to independently determine funded status without reflecting any bias or lag that may exist in the plan sponsor’s own return expectations.
– As of June 30, 2016, the aggregate funded ratio is estimated to be 69.8%, as markets took back some of the gains from 2012 to 2014 and discount rates declined
– Plan sponsors continue to reduce interest rate assumptions in the expectation that returns over the coming decades will be lower
– The difference between the average sponsor-reported assumption of 7.50% and our independently determined assumption of 6.99% is the highest we have seen, indicating that pressure to reduce interest rate assumptions is unlikely to abate

An Excel Spreadsheet Model for States and Districts to Assess the Cost-Benefit of School Nursing Services

Source: Li Yan Wang, Mary Jane O’Brien, Erin Maughan, NASN School Nurse, Published online before print September 13, 2016
(subscription required)

from the abstract:
This paper describes a user-friendly, Excel spreadsheet model and two data collection instruments constructed by the authors to help states and districts perform cost-benefit analyses of school nursing services delivered by full-time school nurses. Prior to applying the model, states or districts need to collect data using two forms: “Daily Nurse Data Collection Form” and the “Teacher Survey.” The former is used to record daily nursing activities, including number of student health encounters, number of medications administered, number of student early dismissals, and number of medical procedures performed. The latter is used to obtain estimates for the time teachers spend addressing student health issues. Once inputs are entered in the model, outputs are automatically calculated, including program costs, total benefits, net benefits, and benefit-cost ratio. The spreadsheet model, data collection tools, and instructions are available at the NASN website.

State Strategies to Detect Local Fiscal Distress: How states assess and monitor the financial health of local governments

Source: Pew Charitable Trusts, September 2016

From the overview:
…States can do more than just wait to react to the next fiscal emergency; they can work proactively to detect local distress and then use that data to determine the best steps to take. In 2013, The Pew Charitable Trusts explored how and when states intervene in local governments in The State Role in Local Government Financial Distress. The report described the stages of municipal difficulty, from distress to crisis to bankruptcy; the reasons for state intervention; and approaches states can take, including refusing to become involved even when local governments ask for help, intervening on a case-by-case basis, and repeatedly exercising state authority to make decisions for local governments. The report recommended that states monitor the fiscal conditions of local governments with an eye toward helping them avoid full-blown crises, if possible.

This follow-up report examines the range of policies and practices that states have in place to assess and track fiscal conditions at the local level, with a focus on whether and how states try to detect local fiscal distress. To operate a “fiscal monitoring system” for purposes of this research, a state must actively and regularly review the finances of at least some of its general purpose local governments, such as counties, cities, and towns, to monitor fiscal conditions or detect problems. The research includes analysis of relevant state statutes and interviews with officials in all 50 states. To learn about the issue from the perspective of local governments, researchers also talked with officials from municipal leagues across the country. These efforts add up to the most comprehensive study to date of fiscal monitoring across the country….

Offshore Shell Games 2016: The Use of Offshore Tax Havens by Fortune 500 Companies

Source: Richard Phillips, Matt Gardner, Kayla Kitson, Alexandria Robins, Michelle Surka, Citizens for Tax Justice, Institute on Taxation and Economic Policy, U.S. PIRG Education Fund, October 2016

From the summary:
U.S.-based multinational corporations are allowed to play by a different set of rules than small and domestic businesses or individuals when it comes to paying taxes. Corporate lobbyists and their congressional allies have riddled the U.S. tax code with loopholes and exceptions that enable tax attorneys and corporate accountants to book U.S. earned profits to subsidiaries located in offshore tax haven countries with minimal or no taxes. The most transparent and galling aspect of this is that often, a company’s operational presence in a tax haven may be nothing more than a mailbox. Overall, multinational corporations use tax havens to avoid an estimated $100 billion in federal income taxes each year.

But corporate tax avoidance is not inevitable. Congress could act tomorrow to shut down tax haven abuse by revoking laws that enable and incentivize the practice of shifting money into offshore tax havens. By failing to take action, the default is that our elected officials tacitly approve the fact that when corporations don’t pay what they owe, ordinary Americans inevitably must make up the difference. In other words, every dollar in taxes that corporations avoid must be balanced by higher taxes on individuals, cuts to public investments and services, and increased federal debt.

This study explores how in 2015 Fortune 500 companies used tax haven subsidiaries to avoid paying taxes on much of their income. It reveals that tax haven use is now standard practice among the Fortune 500 and that a handful of the country’s wealthiest corporations benefit the most from this tax avoidance scheme.

The main findings of this report are:
– Most of America’s largest corporations maintain subsidiaries in offshore tax havens. At least 367 companies, or 73 percent of the Fortune 500, operate one or more subsidiaries in tax haven countries. ….

– The most popular tax haven among the Fortune 500 is the Netherlands, with more than half of the Fortune 500 reporting at least one subsidiary there. ….

– Approximately 58 percent of companies with tax haven subsidiaries have set up at least one in Bermuda or the Cayman Islands — two particularly notorious tax havens. ….

– Fortune 500 companies are holding nearly $2.5 trillion in accumulated profits offshore for tax purposes. Just 30 Fortune 500 companies account for 66 percent or $1.65 trillion of these offshore profits. ….

– If we assume that average tax rate of 6.2 percent applies to all 298 Fortune 500 companies with offshore earnings, they would owe a 28.8 percent rate upon repatriation of these earnings, meaning they would collectively owe $717.8 billion in additional federal taxes if the money were repatriated at once. Some of the worst offenders include: Apple, Citigroup, Nike ….

– Some companies that report a significant amount of money offshore maintain hundreds of subsidiaries in tax havens, including the following: Pfizer, PepsiCo, Goldman Sachs ….

– The proliferation of tax haven abuse is exacerbated by lax reporting laws that allow corporations to dictate how, when, and where they disclose foreign subsidiaries, allowing them to continue to take advantage of tax loopholes without attracting governmental or public scrutiny. ….

– Congress can and should take action to prevent corporations from using offshore tax havens, which in turn would restore basic fairness to the tax system, fund valuable public programs, possibly reduce annual deficits, and ultimately improve the functioning of markets. ….