Category Archives: State & Local Finance

Stress Testing States 2019

Source: Sarah Crane, Regional Financial Review, October 2019
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The business cycle is at a critical juncture. Recession risks in the U.S. are as high as they have been since the record-long economic expansion began more than a decade ago. Recessions and their place in the business cycle are an accepted fact of life in any organization, especially government. Therefore, preparing for recessions is an equally inescapable concept, with potentially devastating consequences for those who treat it as an afterthought. To help state governments better prepare for the next recession, Moody’s Analytics has taken to performing annual stress tests on their budgets. This paper will serve as an update to our 2018 state stress-testing exercise. We estimate the amount of fiscal stress likely to be applied to state budgets under different recession scenarios and compare that stress to the amount of money that states have set aside in reserve.

In the Shadow of State Government: Changes in Municipal Spending After Two Recessions

Source: Rebecca Hendrick, Robert P. Degnan, The American Review of Public Administration, OnlineFirst Published November 6, 2019
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From the abstract:
This research estimates a model of own-source revenue diversification and a model of changes in operational spending in municipal governments from 1997 to 2012 to determine how these governments have adapted to the two significant recessions that occurred during this time period. The first model examines factors that affect revenue diversification, focusing on the state–local fiscal context and how the level of urbanization of the area surrounding the municipalities impacts the effect of state–local context and other factors. The second model examines how municipal governments in the United States have adapted their spending to the two severe recessions of the 2000s, focusing on how state context, revenue diversification, and other factors affect changes in operational spending. Finally, this research also looks at the conditional effects of the size of government on the impact of state context, environmental pressures, and revenue structure on changes in operational spending.

Nudging Early Reduces Administrative Burden: Three Field Experiments to Improve Code Enforcement

Source: Elizabeth Linos, Lisa T. Quan, Elspeth Kirkman, Journal of Policy Analysis and Management, Early View, November 5, 2019
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From the abstract:
In the past decade, public sector organizations around the world have worked to simplify administrative processes as a way to improve user experience and compliance. Academic evidence on administrative burden supports this approach and there is a strong body of research showing that learning costs, compliance costs, and psychological costs help to explain why residents do not always take up programs for which they are eligible. This article considers the role of these types of costs in a different set of resident‐state interactions: compliance with regulations. We present the results of three large field experiments aimed at improving resident compliance with municipal housing codes using targeted behavioral interventions. We find that contacting property owners earlier, redesigning first notices, and proactively communicating with previous violators, can significantly improve compliance by 14.7 percent, 3.3 percent, and 9.2 percent, respectively, with costs savings ranging from 6 to 15 percent of a city’s annual enforcement budget. Our results counterintuitively suggest that sometimes adding steps to an administrative process can reduce the costs associated with the resident‐state interaction.

City Fiscal Conditions 2019

Source: National League of Cities, October 2019

From the summary:
This year’s City Fiscal Conditions research looked at the fiscal conditions and factors across 500+ U.S. cities.

Some key takeaways:
– Almost two in three finance officers in large cities are predicting a recession as soon as 2020
– Cities’ revenue growth stalled in the 2018 fiscal year, but this year’s continued drop indicates mounting pressures on city budgets
– The Midwest is bearing the brunt of declining conditions, the report found. Overall general fund revenues in midwestern cities dipped by 4.4% in fiscal year 2018

Pension Reforms and Public Sector Turnover

Source: Evgenia Gorina, Trang Hoang, Journal of Public Administration Research and Theory, Published: June 24, 2019

From the abstract:
Over the past decade, many states have reformed their retirement systems by reducing benefit generosity, tightening retirement provisions, introducing non-defined-benefit (DB) plan options and even replacing DB plans with defined-contribution plans. Many of these reforms have affected post-employment benefits that public workers will receive when they retire. Have these reforms also affected the attractiveness of public sector employment? To answer this question, we use state-level data from 2002 to 2015 and examine the relationship between state pension reforms and public employee turnover following the reforms. We find that employee responsiveness to the reforms was tangible and that it differed by reform type and worker education. These results are important because the design of public retirement benefits will continue to influence the ability of the public sector to recruit and retain high-quality workforce.

A correction has been published.

State Higher Education Funding Cuts Have Pushed Costs to Students, Worsened Inequality

Source: Michael Mitchell, Michael Leachman, Matt Saenz, Center on Budget and Policy Priorities, October 24, 2019

From the introduction:
Deep state cuts in funding for higher education over the last decade have contributed to rapid, significant tuition increases and pushed more of the costs of college to students, making it harder for them to enroll and graduate. These cuts also have worsened racial and class inequality, since rising tuition can deter low-income students and students of color from college.

Overall state funding for public two- and four-year colleges in the school year ending in 2018 was more than $6.6 billion below what it was in 2008 just before the Great Recession fully took hold, after adjusting for inflation. In the most difficult years after the recession, colleges responded to significant funding cuts by increasing tuition, reducing faculty, limiting course offerings, and in some cases closing campuses. Funding has rebounded somewhat, but costs remain high and services in some places have not returned.

The potential benefits of a college degree are significant, with greater lifetime earnings for those who obtain a bachelor’s degree relative to those who only receive a high school diploma. But cuts to higher education, rising tuition, and stagnant household earnings make it difficult for today’s students — a cohort more racially and economically diverse than any before it — to secure those benefits….

It Depends on What You Share: The Elusive Cost Savings from Service Sharing

Source: Austin M Aldag, Mildred E Warner, Germà Bel, Journal of Public Administration Research and Theory, Advance Access, September 30, 2019

From the abstract:
Intermunicipal cooperation is the most prevalent alternative service delivery method for US local governments. While aspirations for budgetary savings are one motivating factor, increased service quality and regional coordination are also important goals. We use an original 2013 survey of local governments in New York State to assess the level of service sharing and outcomes. We match our survey with 20 years (1996–2016) of service-level costs data to explore the relationships between sharing and costs across 12 common local government services. We contribute to the literature by providing the first multivariate assessment of the effect of cooperation on costs in the United States, and we contribute theoretical insights on the objectives and type of cooperation to explain differences in the effects of cooperation on costs across a variety of services. Our multivariate time series regressions find that service sharing leads to cost reductions in solid waste management, roads and highways, police, library, and sewer services; no difference in costs for economic development, ambulance/EMS, fire, water, and youth recreation; and higher costs in elder services, and planning and zoning. These differences are explained by whether services have characteristics such as asset specificity and the ability to achieve economies of scale on the one hand, or if sharing leads to greater administrative intensity or promotes other objectives such as quality and regional coordination outcomes on the other hand. We also analyze the effect of sharing on service costs over time, and find solid waste, roads and highways, police, and library are the only services where costs show a continued downward trend. These results show the limited role for economies of scale, even in asset specific services. Because cost savings are elusive, public sector reformers should be careful not to assume cost savings from sharing. The theoretical foundations for service sharing extend beyond economies of scale and transaction costs. Scholars should give more attention to organizational form and the broader goals of sharing.

Making Sense Of Incentives: Taming Business Incentives to Promote Prosperity

Source: Timothy J. Bartik, Upjohn Press, 2019

From the summary:
In recent months, “Foxconn” and “Amazon HQ2” brought immediacy to a costly and lingering subject: economic development incentives. State and local policymakers regularly dangle tax breaks and other financial incentives as lures to attract and sometimes retain businesses and the jobs they say they’ll create. Oversight of these programs is often weak or nonexistent, yet tens of billions of taxpayer dollars are spent each year on these efforts. In the cases of Foxconn and Amazon, billions were offered for each project. Are these incentives worth the price? How do we know? Are they effective at promoting job growth? Is there a better way to grow good-paying jobs in a local labor market?

These questions and more are answered in a new book by Timothy J. Bartik, Making Sense of Incentives: Taming Business Incentives to Promote Prosperity (Upjohn Press, 2019). The book is relatively brief, straightforward, nontechnical, and just what state and local policymakers need to read. It is also available as a free download.

Bartik begins by explaining the basics: What are economic development incentives? Who offers them? Why are they offered? What are the political and economic considerations involved? Why are incentives often wasteful? He then delves into the recent trends in business incentives, including how generous offers have become and whether they threaten needed public services (especially K–12 education), which types of firms tend to receive incentives, and whether needy areas tend to be targeted.

Policymakers often tout the multipliers associated with jobs created via business incentives—e.g., for every one job created another two jobs will appear as a result. But Bartik shows that these numbers are often specious, and why, while providing more realistic estimates.

Then, based on his decades of ground-breaking research, he explains what policymakers can do to improve the use of business incentives. Bartik doesn’t think incentives should be ruled out, just improved, and he explains how this can be achieved. And in his chapter on how to evaluate the success of incentive programs, he describes the program details that need to be considered, and how to use them, in order to judge whether the benefits of incentives exceed the costs.

States’ Use of the Child Care and Development Block Grant Funding Increase

Source: Patti Banghart, Carlise King, Elizabeth Bedrick, Ashley Hirilall, Sarah Daily, Child Trends, October 2019

From the summary:
In 2018, Congress appropriated an increase of more than $2 billion to support states and territories in meeting the goals and requirements of the 2014 reauthorization of the Child Care and Development Block Grant (CCDBG). View the interactive maps and state profiles on this page to learn more about how states are using or planning to use this funding increase and the challenges they still face.

In 2014, Congress reauthorized the CCDBG, setting new standards around eligibility for child care subsidies, child care quality, health and safety, access to child care, and workforce supports for early childhood educators. The 2014 reauthorization law included policy changes requiring states to:
• Set provider payment rates to promote equal access to the child care market for parents receiving child care subsidies.
• Implement family-friendly eligibility policies that help families keep their subsidy without interruptions.
• Enhance health and safety practices for all CCDBG providers, including health and safety training and inspections and comprehensive background checks.
• Expand consumer education, which includes increasing online access to information on child development and other financial assistance programs and creating a hotline to report safety concerns.
• Increase the amounts of set-asides that states must spend toward supporting the quality and development of the child care workforce.
• Expand access to child care for vulnerable families and priority groups whose needs and characteristics limit the child care options currently available to them.

Related:
National Maps
1. Use of Federal CCDBG funding increase
2. Implementing specific reauthorization requirements
3. Challenges to implementing reauthorization goals and requirements
4. Increased state funding for child care assistance

State profiles
Information on how each state has used, or plans to use, increased federal funds.

Data notes (XLS) »