Category Archives: State & Local Finance

A Continuing Look at Boston’s Revised Payment in Lieu of Taxes (PILOT) Program: Update Version 2.0

Source: Eric A. Lustig, Boston Research Paper No. 15-07, April 21, 2015

From the abstract:
This article examines the first three years of results under the revised Boston Payment-in-Lieu of Taxes (PILOT) Program. The article updates two previous articles on the proposals and roll-out of the program. The revised Boston program and these results continue to be significant for several reasons. First, the Boston program is a long-standing one which is acknowledged as a national leader. Second, the creation of the task force and its resulting recommendations reflected a collaborative and transparent process. Finally, PILOT programs, particularly in the northeast, are an increasingly popular and controversial revenue producing source for local governments. The article concludes that the revised Boston program has led to a broader base of contributions from the Boston nonprofit community. The overall effectiveness of the changes may be limited by the voluntary basis of the program and the non-monolithic nature of the Boston nonprofit community.

$1 Billion Question: Do the Tax Dedications in New Orleans Make Sense?

Source: Paul Rioux, Bureau of Governmental Research, November 2015

From the abstract:
In The $1 Billion Question: Do the Tax Dedications in New Orleans Make Sense? BGR presents a comprehensive picture of where local tax dollars are going in Orleans Parish. The report provides breakdowns of tax dedications by entity and by purpose, and gives examples of problems that can arise when tax dedications are established with little planning and accountability. It also makes recommendations to help ensure existing tax revenues are deployed optimally.
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D.C. Libraries to Host Weddings and Private Events

Source: Andrew Giambrone, Washington City Paper, November 10, 2015

If you’ve ever fantasized about getting married surrounded by books, you’re in luck: The D.C. Public Library has published regulations allowing it to host events like weddings and nonprofit galas across its 26 locations as a way to generate revenue.

Though the D.C. Council passed the bill governing this new approach in June, DCPL has only recently begun to advertise the program and structure specific revenue-generating activities around it. Among them is a new passport office opening next week at the Martin Luther King Jr. Memorial Library at 901 G St. NW. The office, in collaboration with the U.S. State Department, will process passports for fees expected to produce around $200,000 a year, and will even operate on Saturdays, Jonathan Butler, DCPL’S chief business officer, says. Essentially, the broadly written regulations permit DCPL to rent out its space for different activities, including something like a cafe in the MLK library; the activities are only defined as those that “benefit the public [and] not need relate to library services.”

GASB to Examine Financial Reporting Model

Source: Government Accounting and Auditing Update, Vol. 26 no. 11, November 2016
(subscription required)

The board to reevaluate Statement no. 34, Basic Financial Statements – and Management’s discussion and Analysis – for State and Local Governments, and other reporting model-related pronouncements; conducts survey of financial statement preparers regarding activities related to preparing and publishing an audited annual financial report.

Retirement Security: A Moving Target – Local Governments Grapple with Benefit Plans

Source: Elizabeth Kellar, PM Magazine, Vol. 97 no. 10, November 2015

Local governments have faced fiscal pressures over the past decade, often exacerbated by higher pension and health care costs. They have made significant changes to their benefits, especially for new hires, and have increased employee and employer contributions to their pension and health care plans.

The Growth Mirage: State Tax Cuts Do Not Automatically Lead to Economic Growth

Source: William G. Gale, Aaron Krupkin, Kim Rueben, Tax Policy Center, September 8, 2015

From the abstract:
Cuts in top state income taxes are intended to raise economic growth, but could instead force punishing spending cuts, as revenues fall and states confront borrowing constraints. Previous work shows no clear impact of state taxes on growth. In new research, we build on a widely cited study that identifies a robust negative relationship between tax rates and state growth. We find that the negative effects disappear when we extend the sample beyond 2000 and that the relationship is unstable over time and across taxes. Likewise, examination of recent state tax cuts reveals little evidence of tax cuts driving growth.

Taxes and Ability to Pay in Municipal Bankruptcy

Source: John P. Hunt, University of California, Davis – School of Law, Legal Studies Research Paper No. 463, July 20, 2015

From the abstract:
Scholars and commentators have argued that municipalities can and should use bankruptcy to shed unwanted liabilities, particularly employee healthcare and pension commitments. Courts increasingly have agreed: Detroit’s approved bankruptcy plan cut pensions, and the bankruptcy court overseeing the bankruptcy of Stockton, California brought down barriers to pension-cutting. Both courts found their way around state provisions arguably protecting municipal pensions.

Now that pension-cutting in bankruptcy has momentum, we can expect to hear arguments for using bankruptcy not just in cases like Detroit and Stockton where the municipality can’t meet all its obligations, but also in cases where residents or politicians come to regret municipal promises to workers.

This Article presents the most sustained, straightforward, and comprehensive argument to date that existing law requires bankruptcy courts to provide relief only when municipalities are reasonably unable to meet their obligations. The legislative history of the municipal bankruptcy statutes consistently sounds this theme, and judicial precedents are in agreement.

Congress did not provide a clear standard for courts to apply when looking at tax levels in municipal bankruptcy. Although the legislative history and caselaw provide some support for the proposition that municipalities should be required to tax at the level that maximizes revenue, the Article suggests a more moderate criterion: courts could require that a municipality tax at the top of its peer group as a condition of bankruptcy eligibility and plan confirmation.

Shale Public Finance: Local Government Revenues and Costs Associated with Oil and Gas Development

Source: Richard G. Newell, Daniel Raimi, National Bureau of Economic Research (NBER), NBER Working Paper No. w21542, September 2015
(subscription required)

From the abstract:
Oil and gas development associated with shale resources has increased substantially in the United States, with important implications for local governments. These governments tend to experience increased revenue from a variety of sources, such as severance taxes distributed by the state government, local property taxes and sales taxes, direct payments from oil and gas companies, and in-kind contributions from those companies. Local governments also tend to face increased demand for services such as road repairs due to heavy truck traffic and from population growth associated with the oil and gas sector. This paper describes the major oil- and gas related revenues and service demands (i.e., costs) that county and municipal governments have experienced in Arkansas, Colorado, Louisiana, Montana, North Dakota, Pennsylvania, Texas, and Wyoming. Based on extensive interviews with officials in the most heavily affected parts of these states, along with analysis of financial data, it appears that most county and municipal governments have experienced net financial benefits, though some in western North Dakota and eastern Montana appear to have experienced net negative fiscal impacts. Some municipalities in rural Colorado and Wyoming also struggled to manage fiscal impacts during recent oil and gas booms, though these challenges faded as drilling activity slowed.

Does Monitoring Local Government Fiscal Conditions Affect Outcomes? Evidence from Michigan

Source: Thomas Luke Spreen, Caitlin M. Cheek, Public Finance Review, Published online before print October 19, 2015
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From the abstract:
The goal of this article is to assess whether state monitoring and reporting of local government fiscal condition causes improvement in the financial situation of local governments. From 2006 to 2011, Michigan scored the fiscal conditions of each of its local governments based on their performance across nine indicators of fiscal health. Using audited financial data, we construct a panel of several of those financial indicators for a sample of county and municipal governments in Michigan and neighboring states with no similar program. We employ a difference-in-differences methodology to test whether Michigan’s local governments performed better across the selected indicators relative to their peers in neighboring states. The results of the analysis show no significant change in the monitored indicators among Michigan’s local governments relative to local governments in control states. We largely duplicate the baseline results using propensity score matching.

The Diffusion of State Tax Incentives for Business

Source: Stephanie Leiser, Public Finance Review, Published online before print October 26, 2015
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From the abstract:
Tax competition scholars are increasingly recognizing that states compete with each other not only by manipulating tax rates but also by adopting tax incentives. However, there is a comparative lack of empirical literature exploring why states adopt different types of tax incentives. This article draws on the literatures on tax competition and policy diffusion to develop hypotheses about what factors motivate states to adopt business tax incentives, paying particular attention to the influence of other adopting states. It uses event history analysis methods to test hypotheses regarding the adoption of four state tax incentive policies: investment tax credits, apportionment formula changes, research and development tax credits, and job creation tax credits. Regression results show that factors that influence adoption decisions are largely inconsistent across the four incentive types. However, analyses of duration dependence find evidence consistent with the idea that states are “racing to the bottom.”