Category Archives: State & Local Finance

Uncle Sam’s Favorite Corporations: Identifying the Large Companies that Dominate Federal Subsidies

Source: Philip Mattera and Kasia Tarczynska, Good Jobs First, March 2015

From the abstract:
Based on an expansion of the Subsidy Tracker database to the federal level, this report shows that big business receives an outsize share of grants, allocated tax credits, loans, loan guarantees and bailout funds awarded by federal agencies.
Related:
Press release
Subsidy Tracker 3.0

State & Local Fiscal Facts 2015

Source: National Governors Association, National Conference of State Legislatures, The Council of State Governments, National Association of Counties, National League of Cities, The U.S. Conference of Mayors, International City/County Management Association, National Association of State Budget Officers, National Association of State Auditors Comptrollers and Treasurers, Government Finance Officers Association, National Association of State Retirement Administrators February 2015

State Finances
For states, 2014 brought a moderate improvement in fiscal conditions and the trend for 2015 is that improvements will continue. General fund spending and revenues are projected to increase for the fifth consecutive year based on state – enacted budgets. Since the end of the recession, states have transitioned to a sustainable period of fiscal rebuilding, but progress remains slow and fiscal challenges are likely to continue because of rising spending demands in areas such as healthcare and education and limited gains in revenue collections.
• Forty – three states enacted higher general fund spending in FY15 than in FY14.
• States have enacted minimal mid – year spending cuts over the last several years indicating that states’ fiscal situations have stabilized.
• States have replenished some spending for areas cut back during the recession, such as K – 12 and higher education.
• Forty – one states and the District of Columbia expect to meet or exceed their FY 2015 revenue projections.

City Finances
City fiscal conditions are improving as the recession recedes. A number of factors determine the revenue performance, spending levels and overall fiscal condition. Among the factors that negatively influence city conditions are a decrease in federal and state aid and an increase in infrastructure demands, cost of services and employee compensation. Positive factors include the health of the local economy and the value of the local tax base.
Related:
Introduction

Spotlight on the Annual Required Contributions Experience of State Retirement Plans, FY 01 to FY 13

Source: Keith Brainard and Alex Brown, National Association of State Retirement Administrators (NASRA), March 2015

From the introduction:
After its creation in the 1990s, the annual required contribution (ARC) quickly became recognized as the unofficial measuring stick of the effort states and local governments are making to fund their pension plans. A government that has paid the ARC in full has made an appropriation to the pension trust to cover the benefits accrued that year and to pay down a portion of any liabilities that were not pre-funded in previous years. Assuming projections of actuarial experience hold true, an allocation short of the full ARC means the unfunded liability will grow and require greater contributions in future years.
Related:
Press Release

State and Local Government Spending on Public Employee Retirement Systems

Source: National Association of State Retirement Administrators (NASRA), Issue Brief, February 2015

From the introduction:
State and local government pension benefits are paid not from general operating revenues, but from trust funds to which public retirees and their employers contributed while they were working. On a nationwide basis, pension contributions made by state and local governments account for roughly 3.9 percent of direct general spending. Current pension spending levels, however, vary widely and are sufficient for some entities and insufficient for others.

In the wake of the 2008-09 market decline, nearly every state and many cities have taken steps to improve the financial condition of their retirement plans and to reduce costs although some lawmakers have considered closing existing pension plans to new hires, most determined that this would increase — rather than reduce — costs, particularly in the near-term. Instead, states and cities have made changes to the pension plan by adjusting employee and employer contribution levels, restructuring benefits, or both. Generally, adjustments to pension plans have been proportionate to the plan’s funding condition and the degree of change needed.

A Better Deal for the District

Source: Thomas Cafcas, February 2015

From the abstract:
The District of Columbia has embraced four best-practice economic development policies (local hiring, fiscal impact analyses, the debt cap, and a Unified Economic Development Budget or UEDB), but it remains behind on many basic accountability standards relative to nearby jurisdictions. This report seeks to show how the District can build upon its past progress by disclosing the details of subsidy projects in an online database, requiring strong job creation and quality standards, and recapturing subsidies when recipients underperform.
Related:
press release

Tax Fairness: An Answer to State Budget Problems

Source: Greg LeRoy, Stephen Herzenberg, Keystone Research Center and Good Jobs First, February 2015

From the abstract:
This report shows that states could generate large amounts of additional revenue to meet public needs by fixing inequities in state tax codes. Taxing the top one percent at the same rate as the middle fifth of taxpayers would generate $68 billion in additional revenue, while taxing the top fifth at the same rates as the middle fifth would generate $128 billion.

Will Switching Government Workers to Account-type Plans Save Taxpayers Money?

Source: Monique Morrissey, Economic Policy Institute, Briefing Paper #390, March 5, 2015

Although benefit cuts, increased employee contributions, and a rebound in stock prices have improved pension fund finances, severe underfunding remains a challenge in places where the problem predated the recession and was the result of lawmakers neglecting to make required contributions over many years.1 This is helping to sustain the idea that we can no longer afford to provide teachers, police, firefighters, and other civil servants with secure defined-benefit pensions.

Earlier would-be reformers pushed for 401(k)-style defined-contribution (DC) plans prevalent in the private sector. But disastrous results in West Virginia, Michigan, and Alaska have shifted attention to “hybrid” plans, such as cash balance plans, that combine elements of defined-benefit and defined-contribution systems. Advocates of these types of plans say they are a compromise between those who want to maintain traditional pension plans and those who push for a transition to a 401(k)-style system. However, DC and hybrid plans, which can collectively be referred to as account-type plans, fail on three important points:
· They do not help states save money. Traditional defined-benefit pensions are more efficient than DC plans and most hybrid plans due to economies of scale, risk pooling, and other factors. Moreover, changing plan type introduces transition costs. Thus, it is not surprising that states that switched to DC and hybrid plans did not save money except to the extent that they simply cut benefits or required workers to contribute more toward their retirement.
· They create more workforce management problems than they solve. For example, many cash balance plans provide the biggest benefits to job leavers, promoting high turnover in public-sector jobs, which require a high level of skill and experience.
· They increase retirement insecurity. Account-type plans introduced around the country threaten the retirement security of young and old alike. While a well-designed hybrid plan could theoretically help younger workers without undermining the retirement security of midcareer and older workers, none of the plans offered in the current political climate has done so.
Related:
Press release

Not All That “Trickles Down” Is Rain

Source: Institute on Taxation and Economic Policy, Tax Justice blog, March 9, 2015

This is the second post in our series outlining state tax trends being debated during 2015 legislative sessions. Our first post focused on tax shifts. The theory that tax cuts for the affluent will eventually trickle down to everyone else is shopworn, yet supply-side adherents keep promising the public that the rich can have their tax cuts and the rest of us will eat cake too. … At least 10 states have tax cut proposals in motion, and the overwhelming majority will reduce taxes for the best off while doing nothing or little for everyone else, making a regressive tax landscape worse. Gov. Asa Hutchinson’s overhaul of his state’s income tax and Mississippi Gov. Phil Bryant’s proposal to introduce a state Earned Income Tax Credit (EITC) would actually benefit low- and moderate-income families, but most of the other proposals would lead mainly to benefits for the wealthy. Over time such tax cuts exacerbate income inequality and stymie opportunity for the masses. Taxes and spending are on a balance scale. Top-heavy tax cuts and their purported economic benefits do not trickle down a rolling hill; they tip the scale in favor of the rich while depriving states of necessary revenue to adequately fund basic services, including education, public safety, infrastructure health and other priorities. Below are some pending proposals: …..