Category Archives: State & Local Finance

The Effect of Rising Income Inequality on Taxation and Public Expenditures: Evidence From U.S. Municipalities and School Districts, 1970–2000

Source: Leah Boustan, Fernando Ferreira, Hernan Winkler, and Eric M. Zolt, Review of Economics and Statistics, Vol. 95, No. 4, October 2013

From the abstract:
The income distribution in many developed countries widened dramatically from 1970 to 2000. Some scholars argue that income inequality contributes to a host of social ills by undermining voters’ willingness to support public expenditures. In contrast, we find that growing income inequality is associated with an expansion in government revenues and expenditures on a wide range of services in U.S. municipalities and school districts. Results are robust to a number of model specifications, including instrumental variables that address the endogeneity of the local income distribution. Our results are inconsistent with models predicting that heterogeneous societies provide lower levels of public goods….

Missed Opportunities: The Consequences of State Decisions Not to Expand Medicaid

Source: Council of Economic Advisers, July 2014

…To date, 26 States and the District of Columbia have seized this opportunity, and since the beginning of the Affordable Care Act’s first open enrollment period, 5.2 million people have gained Medicaid or Children’s Health Insurance Program (CHIP) coverage in these States, a tally that will grow in the months and years ahead as Medicaid enrollment continues. In contrast, 24 States have not yet expanded Medicaid—including many of the States that would benefit most and sometimes because State legislatures have defied even their own governors—and denied health insurance coverage to millions of their citizens. Researchers at the Urban Institute estimate that, if these States do not change course, 5.7 million people will be deprived of health insurance coverage in 2016. Meanwhile, these States will forgo billions in Federal dollars that could boost their economies. This analysis uses the best evidence from the economics and health policy literatures to quantify several important consequences of States’ decisions not to expand Medicaid.That evidence, which is based primarily on careful analysis of the effects of past policy decisions, is necessarily an imperfect guide to the future, and the actual effects of Medicaid expansion under the Affordable Care Act could be larger or smaller than the estimates presented below. However, this evidence is clear that the consequences of States’ decisions are far-reaching, with implications for the health and well-being of their citizens, their economies, and the economy of the Nation as a whole….

Parallel Lives, Different Outcomes – A Twin Study of Academic Productivity in U.S. School Districts

Source: Robert Hanna and Bo Morris III, Center for American Progress, July 2014

From the summary:
…This paper applies a similar type of research methodology to explore what happens to similar groups of children educated in different school districts. In this case, our “twins” are groups of students who live in the same state in similar geographies and who share certain demographic characteristics. For this report, “twin districts” have very similar sizes and they have the following in common:

• The proportion of students who are from low-income families
• The proportion of students who have limited English proficiency or are English language learners
• The proportion of students who receive instruction through individualized educational programs

Our twin districts, however, differ in terms of student achievement and per-pupil spending.

The goal of this paper was to study twin districts and use the data culled to provide recommendations for how districts can best leverage their school funding investments—in other words, achieve a bigger bang for their educational buck….

Based on our in-depth look at twin districts and our subsequent analysis of the data, we came away with the following findings:
When it comes to education, spending does not always equal results. ….
There are significant funding inequities between demographically similar districts. ….
Districts have limited control over their own expenditures. ….

America’s Most Financially Disadvantaged School Districts and How They Got that Way – How State and Local Governance Causes School Funding Disparities

Source: Bruce D. Baker, Center for American Progress, July 2014

From the summary:
….First, this report lays out a typology of conditions that lead to severe fiscal disadvantage for local public school systems. It then provides examples of states, state policy conditions, and specific local public school districts identified as being severely financially disadvantaged. The causes of fiscal disadvantage are classified as follows:
• Type 1. Savage inequalities: How persistent disparities in local taxable property wealth continue to undermine equity in American education
• Type 2. Stealth inequalities: How dysfunctional, poorly designed, state school finance formulas fail to correct, and sometimes reinforce, disparities
• Type 3. Some politics is still local: How local tax policy and budgeting decisions may undermine state equity objectives
• Type 4. Not-so-blurred lines: How small, segregated enclaves embedded in population-dense metropolitan areas reinforce fiscal disparities
• Type 5. Shift happens: How the changing demography of exurban and smaller city America leads to emerging fiscal disadvantage

The report concludes by providing policy recommendations. Approaches to reforming aid should address the following issues:
• Organizational concerns. ….
• State policy leverage over local fiscal decisions. ….
• More-nuanced measures of local capacity and need in state aid formulas. ….
• Illogical state aid programs. …

While substantively resolving any one of these problems would move the ball forward on equity, definitively resolving all four is required for making consistent progress across all states and local public school districts. Resolving these persistent disparities between districts remains a prerequisite condition for resolving internal disparities in the most fiscally deprived school districts. Doing so also serves as a prerequisite condition to resolve disparities in essential resources, including teaching quality, class sizes, and access to deep and broad curricular opportunities for all children regardless of the school or district they attend.
Is School Funding Fair? A National Report Card
Source: Education Law Center of New Jersey, 2014

Return on Educational Investment: 2014 – A District-by-District Evaluation of U.S. Educational Productivity

Source: Ulrich Boser, Center for American Progress, July 2014

From the summary:
In 2011, the Center of American Progress released the first-ever attempt to evaluate the productivity of almost every major school district in the country. That project developed a set of relatively simple productivity metrics in order to measure the achievement that a school district produces relative to its spending, while controlling for factors outside a district’s control, such the cost of living and students living in poverty.

The findings of that first report were worrisome and underscored the fact that the nation suffers from a productivity crisis. The data suggested that low productivity might cost the nation’s school system billions of dollars a year. What’s more, too few states and districts tracked the bang that they received for their education buck.

In this updated report, CAP uses these same metrics to once again examine the productivity of the nation’s school districts. We embarked on this second evaluation for a number of reasons. In many areas, education leaders continue to face difficult budget choices, and more than 300,000 education-related jobs have been lost since the start of the Great Recession. At the same time, the advent of the new, more rigorous Common Core standards will demand that far more from educators, including better, tougher exams. In short, many educators are being asked to do more with less….

Here is a summary of our most recent findings:
• Low educational productivity remains a deeply pressing problem, with billions of dollars lost in low-capacity districts. …
• Some of the nation’s most affluent school systems show a worrying lack of productivity. …
• In some districts, spending priorities are clearly misplaced. …
• State approaches to improving fiscal effectiveness vary widely. …
• States have failed to make fiscal equity a priority and large funding gaps exist across school districts. …
• State budget practices are often inconsistent and opaque. …

Plus, some state practices are difficult to follow. In Washington state, for instance, school districts are allowed to release two different sets of financial statements. The first set of statements is for the state’s annual financial accounting system. The second set of statements meet a different set of accounting procedures. According to the state, the second set of financial statements are “considered to be ‘special reports’ or ‘supplemental schedules’ and are not basic financial statements.”

This report recommends the following:
• States should build capacity for productivity gains through targeted grants, assistance teams, and performance metrics. …
• Education leaders should improve accounting procedures and create a multistate initiative that will focus on building more robust education budgets. …
• Educators should also improve the quality of fiscal data across states, and the Common Core State Standards Initiative provides an example of how states can work together to create a stronger, more innovative education system. …
• States and districts should encourage smarter, fairer approaches to school funding, such as student-based funding policies. …
Interactive: What’s the Productivity of Your District?

Investing in Results: Using Performance Data to Inform State Budgeting

Source: Kathryn Vesey White, National Association of State Budget Officers, Summer 2014

from the summary:
The use of performance information in budgeting is an important topic for state officials, especially in a limited resources environment with numerous spending demands and not enough tax revenue to go around. “More and more of our budget is being eaten up by things that we can’t control. So we have to make the most of the budget dollars we do have,” explained one state budget officer at a recent NASBO meeting. NASBO has gathered state budget officials together several times to discuss their experiences and challenges with using performance information in budgeting, planning and program management. Based on these member discussions and state-specific case studies, NASBO released a report that highlights some key themes and lessons learned related to performance budgeting, as identified by state budget officers. Additionally, NASBO completed case studies of eight states from different regions and at different points in the process of implementing performance budgeting, including Connecticut, Iowa, Minnesota, Nevada, Oregon, Utah, Virginia and Washington.

The report also includes a set of key terms and definitions and an appendix with the eight case study profiles, as well as several sidebars on other topics related to the growing use of data to drive decision-making. NASBO expects that activities to increase the use of performance information and apply a results-based framework in state budgeting will continue, and our research and monitoring of efforts in this area will be ongoing.

Annual Report on Public Authorities in New York State

Source: State of New York, Authorities Budget Office, July 1, 2014

From the press release:
The Authorities Budget Office has released its annual report on the finances and activities of New York’s 568 state and local authorities. Some of the significant findings and observations presented by the ABO include:
• The operating expenses of state authorities for 2013 totaled $30.3 billion, an increase of 17.6 percent from 2009. State authority operating expenses increased approximately $1.5 billion over 2012. This while adjusted staffing levels at state authorities declined by more than 2,800 staff in the last 5 years. …
• LDCs [Local Development Corporations] rarely are a major factor in large economic development/job creation projects. For example, of the 195 LDCs that reported operating expenses in 2013, only 25 awarded grants. These grants averaged nearly $395,000, yet produced less than one job per grant. Similarly, 43 LDCs made loans that were outstanding in 2013. The average LDC loan created fewer than five jobs, but was valued at more than $213,300. Forty-eight percent of LDCs reported that they provided no direct financial assistance to economic development projects. ….
• The ABO looked at IDA [Industrial Development Agency] projects that were first approved in 2009 and remained active in 2013. These 186 projects have received $126 million in financial assistance based and created 4,500 new jobs. More importantly, 25 IDAs reported that those projects, taken together, created more jobs than originally promised. The projects at 27 IDAs generated fewer jobs than anticipated, and 10 IDAs saw an actual decrease in existing jobs at those assisted projects…..

State Prison Health Care Spending

Source: Pew Charitable Trusts and the John D. and Catherine T. MacArthur Foundation, State Health Care Spending Project, July 2014

From the summary:
This report finds that state spending on prisoner health care increased from fiscal 2007 to 2011, but began trending downward from its peak in 2009. Nationwide, prison health care spending totaled $7.7 billion in fiscal 2011, down from a peak of $8.2 billion in fiscal 2009. In a majority of states, correctional health care spending and per-inmate health care spending peaked before fiscal 2011. But a steadily aging prison population is a primary challenge that threatens to drive costs back up. The share of older inmates rose in all but two of the 42 states that submitted prisoner age data. States where older inmates represented a relatively large share of the total prisoner population tended to incur higher per-inmate health care spending.

Key Findings:
∙ $7.7B Price Tag
41 States experienced growth in their correctional health care spending from fiscal 2007-2011, with a median increase of 13%.
∙ driving up costs
39 States saw per-inmate health care spending rise from fiscal 2007-2011, with a median growth of 10%.
∙ Spending Peak
34 States saw their total correctional health care spending peak before fiscal 2011.
∙ Graying Prison population
40 Of 42 states surveyed experienced a rise in the share of older inmates from fiscal 2007-2011

GovExec State & Local

Source: GovExec, July 2014

Get the latest news and analysis on innovation at the state, county and city levels of government. …

From the introductory letter:
….Our coverage centers on innovation in government operations, and how it’s being applied to public services, infrastructure, health care, security and budgeting – to name just a few areas we’ll be following.

In just our first week, you’ll find reports on innovative efforts in technology, finance and transportation in states like Ohio, New Mexico and Colorado and local jurisdictions like King County in Washington state, Indianapolis and Tecumseh, Michigan.

Our focus is less on politics and campaigns and more on the core functions of state and local government. We want to be a place where best practices, ideas and common challenges are communicated across jurisdictional boundaries on multiple platforms. We seek to engage with practitioners, decision makers and others aiming to make a difference in how their jurisdictions overcome obstacles and serve the public.

As befits an innovation-centric publication, we’re a digital operation. We’re starting with a channel on, but we’ll quickly branch out with online assessment tools, apps, ebooks and other digital initiatives. We’re building a nationwide network of correspondents and contributors….

An Update on Pension Obligation Bonds

Source: Alicia H. Munnell, Jean-Pierre Aubry, and Mark Cafarelli, Center for Retirement Research at Boston College, Issue in Brief, SLP#40, July 2014

The brief’s key findings are:
• Some state and local governments issue Pension Obligation Bonds (POBs) to cover their required pension contributions.
• POBs offer budget relief and potential cost savings, but also carry significant risk.
• POBs had a negative average real return from 1992-2009, but show a small gain when the time period is extended to 2014.
• POBs could be a useful tool for fiscally sound governments or as part of a broader pension reform package for fiscally stressed governments.
• But results to date suggest that, instead, POBs tend to be issued by governments under financial pressure who have little control over the timing.