The current fiscal situation in state and local governments.
This article was prepared by Laura S. Rubin of the Board's Division of Research and Statistics. Catherine B. Wood provided research assistance.
The fiscal position of state and local governments has deteriorated markedly during the past several years, with many governments confronting potential shortfalls in their operating accounts. Budgetary problems have been most severe in New England New England, name applied to the region comprising six states of the NE United States—Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut. The region is thought to have been so named by Capt. , New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , and New Jersey, partly as a consequence of slumping real estate markets and weakness in the defense, finance, and high-technology industries; but fiscal problems have been widespread.
The last half of the 1980s has seen the financial resources of the states pressured by several concerns: the quality of education and rising school enrollment, the deterioration de·te·ri·o·ra·tion
The process or condition of becoming worse. of the public infrastructure, and mandates to improve the health care of the needy and to upgrade correctional facilities. Over the same period, revenue sources have dwindled; early in the 1980s, the federal government cut back its aid to the sector, and some states subsequently reduced their grants to localities. State and local governments made up some of the difference through tax policy, but tax collections have been lower than expected, particularly in 1988 and 1990.
This article describes the accounts of the state and local sector, discusses the recent spending requirements and revenue shortfalls that have precipitated the current budget woes, and gives a brief perspective on the outlook.
THE FISCAL ACCOUNTS OF STATE AND LOCAL GOVERNMENTS
Three fiscal accounts are important to a full understanding of the state and local budget situation--the relevant portions of the national income and product accounts National Income and Product Accounts (NIPA) use double-entry accounting to report the monetary value and sources of output produced in a country and the distribution of incomes that production generates. Data are available at the national and industry level. (NIPA), the general fund accounts of the governments, and the accounts of the governments' social insurance funds covering their employees. A description of these accounts should help clarify the factors influencing the budgetary picture and avert potential misconceptions Misconceptions is an American sitcom television series for The WB Network for the 2005-2006 season that never aired. It features Jane Leeves, formerly of Frasier, and French Stewart, formerly of 3rd Rock From the Sun. about, for example, balanced general fund accounts and social insurance funds.
Operating and Capital Accounts in NIPA
The combined operating and capital accounts of state and local governments as reported in NIPA (prepared by the Bureau of Economic Analysis in the U.S. Department of Commerce) give a broad view of the fiscal condition of the sector. These accounts cover all expenditures and revenues of the current fiscal year (proceeds of bond issues are excluded, although interest on state and local debt is part of outlays Outlays
Payments on obligations in the form of cash, checks, the issuance of bonds or notes, or the maturing of interest coupons. ); NIPA operating and capital accounts exclude the social insurance funds, which consist of the funds for state and local retirement systems plus, in some cases, those for worker's compensation and disability. The aggregate operating account for the sector is not calculated separately from the aggregate capital account.
As reported in NIPA, the deficit of state and local governments grew from $3 billion at the end of 1986 to $30 billion in the first half of 1990. When scaled by state and local government expenditures, the current deficit is in the range last seen during the 1974 recession. Deficits of a similar magnitude, relative to expenditures, were chronic in the 1950s and 1960s, when construction spending Construction Spending
An economic indicator that measures the amount of spending towards new construction. Released monthly by the U.S. Department of Commerce's Census Bureau, it looks at residential and non-residential construction in the private sector, and state and federal at for roads, schools, and other infrastructure--which is partly financed through the capital markets--made up about one-fourth of state and local outlays. In contrast, the rise in the deficit during the second half of the 1980s has not reflected a disproportionate surge in public capital spending capital spending
Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. . Even when building activity advanced in the mid-1980s, outlays for construction remained around 10 percent of expenditures.
The sector's deficits in the last few years have been the first since 1967 to worsen wors·en
tr. & intr.v. wors·ened, wors·en·ing, wors·ens
To make or become worse.
to make or become worse
worsening adjn in the absence of a general economic downturn. As spending on infrastructure became less important in the late 1960s and early 1970s, the sector began to experience budgetary surpluses, except when recessions eroded e·rode
v. e·rod·ed, e·rod·ing, e·rodes
1. To wear (something) away by or as if by abrasion: Waves eroded the shore.
2. To eat into; corrode. tax bases and expanded the demand for resources. However, the recent deficits evolved during a period of economic expansion, which suggests that the imbalance between revenue collections and spending priorities ultimately will have to be corrected through tax increases or reductions in expenditures.
The General Fund Budgets
The general fund budgets of state and local governments--their main operating accounts--also have shown deterioration over the last several years. Among the states, general fund budgets represent an average of 60 percent of total outlays (excluding social insurance funds). The composition of the state general fund budgets varies considerably. (1) On the expenditure side, the budgets include compensation for employees as well as outlays for nondurable non·du·ra·ble
Not enduring; being in a state of constant consumption: nondurable items such as paper products.
A consumable item: nondurables such as food. goods, other services, and interest expenses; but they typically exclude most spending for construction, which is usually reported in a separate capital account. (In contrast, cities and other local governments often include construction in their general fund budgets.)
In every state except Vermont, the general fund budget is required constitutionally or statutorily to be balanced, either within each fiscal year or over a two-year period. Typically, a balanced budget Balanced budget
A budget in which the income equals expenditure. See: budget.
A budget in which the expenditures incurred during a given period are matched by revenues. requires that revenues be at least as large as outlays, but states may use surpluses from the preceding fiscal year to achieve balance in the current year. If a shortfall is anticipated during the planning stages of a budget, which occur during the legislative session preceding a given fiscal year, state governments usually cut spending and increase taxes, fees, and charges. Proceeds of short-term debt Short-term debt
Debt obligations, recorded as current liabilities, requiring payment within the year. offerings, and occasionally bonds, have been used by some states to cover shortfalls and "balance" their general fund budgets. Balancing techniques employed when shortfalls appear toward the end of the fiscal year include the postponement of certain payments until after the end of the year or the acceleration of some receipts into the year. In addition, certain functions may be moved outside the realm of the general fund budget. Thus, although a simple comparison of expected outlays and receipts from current resources may imply a deficit, considerable fiscal maneuvering can produce a balance," maneuvering that has been characterized as "the twilight zone twilight zone - [IRC] Notionally, the area of cyberspace where IRC operators live. An op is said to have a "connection to the twilight zone". of state fiscal procedures." (2)
Even without a legal mandate for a balanced budget, important considerations push state and local governments to enact general fund budgets that show a balance or slight surplus. For state and local governments, the long-run cost of fiscal weakness is the higher interest rates that are required to sell debt when budgetary pressures affect perceptions of investors, whether or not such pressures have been formally captured in bond ratings. The higher interest rates put further pressure on already strained budgets. Often, just the possibility of higher rates may choke (jargon) choke - To fail to process input or, more generally, to fail at any endeavor.
E.g. "NULs make System V's "lpr(1)" choke." See barf, gag. off bond issuances. In 1989, when the credit rating of the state of Massachusetts was being downgraded, local governments in the state postponed debt offerings until the situation stabilized. More recently, in September 1990, Philadelphia was unable to sell short-term securities because of its below-investment-grade debt rating and still worsening wors·en
tr. & intr.v. wors·ened, wors·en·ing, wors·ens
To make or become worse.
Noun 1. worsening - process of changing to an inferior state
decline in quality, deterioration, declension fiscal situation. Although the fiscal position of a state or municipality MUNICIPALITY. The body of officers, taken collectively, belonging to a city, who are appointed to manage its affairs and defend its interests. is not the only factor considered by credit rating agencies Credit Rating Agencies
Firms that compile information on and issue public credit ratings for a large number of companies. , it is an important one. For example, in the recent downgrading downgrading
A reduction in the quality rating of a security issue, generally a bond. A downgrading may occur for various reasons including a period of losses, or increased debt service required by restructuring a firm's capital to include more debt and less of the general obligation debt of New Haven New Haven, city (1990 pop. 130,474), New Haven co., S Conn., a port of entry where the Quinnipiac and other small rivers enter Long Island Sound; inc. 1784. Firearms and ammunition, clocks and watches, tools, rubber and paper products, and textiles are among the many , Connecticut, Moody's Investors Service Moody's Investors Service
A leading global credit rating, research and risk analysis firm.
Moody's Investors Service
A leading firm engaged in credit rating, risk analysis, and research of fixed-income securities and their issuers. noted the city's weakening fiscal health, the projected city budget deficit, the slowing regional economy, and large capital needs.
Although financing costs and balanced budget requirements tend to move state and local budgets toward surplus, political considerations usually do not allow large surpluses to persist. In 1978, after several years of significant state surpluses, voters in California approved Proposition 13, a state constitutional amendment designed to reduce property taxes collected by local governments. Within a few years, many other states had enacted legislation to reduce taxes or limit the growth of government. Currently, twenty-one states have either constitutional or statutory limits on spending or taxes. (3)
A state's difficulties with its general fund account often spill over Verb 1. spill over - overflow with a certain feeling; "The children bubbled over with joy"; "My boss was bubbling over with anger"
bubble over, overflow
seethe, boil - be in an agitated emotional state; "The customer was seething with anger"
2. into its capital spending. For example, in the energy-producing states of Colorado, Louisiana, Oklahoma, and Wyoming, construction spending was either cut or postponed during the mid- to late-1980s, with the funds diverted to current operations to help ease the effect of revenue shortfalls associated with the drop in the price of crude oil. In 1988, the state of New York used $600 million, previously intended for housing and repairs to roads and bridges, to help close a gap in the general fund budget. The deferred capital projects were built eventually but were funded from different sources--in the case of housing, from current revenues. More recent fiscal problems in its general fund budget have caused the state of New York actually to cut back its construction programs. Moreover, unlike earlier years, when current revenues in the general fund were high enough to support about 30 percent of capital expenditures, now virtually all such spending is financed through the debt markets.
Fiscal tightness is damping damping
In physics, the restraint of vibratory motion, such as mechanical oscillations, noise, and alternating electric currents, by dissipating energy. Unless a child keeps pumping a swing, the back-and-forth motion decreases; damping by the air's friction opposes the construction spending by cities, as well. To cope with budgetary pressures in 1990, nearly 40 percent of cities surveyed by the National League of Cities The National League of Cities is the oldest and largest organization in the United States devoted to strengthening and promoting cities as centers of opportunity, leadership and governance. reduced the actual level of capital spending. (4)
All but three states ended fiscal year 1990 with balanced general fund budgets, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. the National Association of State Budget Officers. However, when resources available from the preceding year are excluded, expenditures exceeded revenue in thirty-three states. The exclusion of surpluses from the preceding year creates a budget concept somewhat closer to that of NIPA, which includes only current outlays and current receipts; these surpluses are the source of some of the inconsistency in·con·sis·ten·cy
n. pl. in·con·sis·ten·cies
1. The state or quality of being inconsistent.
2. Something inconsistent: many inconsistencies in your proposal. between the fiscal balance reported in the general fund data and the fiscal erosion evident in NIPA. An additional source of this disparity dis·par·i·ty
n. pl. dis·par·i·ties
1. The condition or fact of being unequal, as in age, rank, or degree; difference: "narrow the economic disparities among regions and industries" is the exclusion of most capital accounts from state general fund accounts: The capital accounts may well have been in deficit in recent years as construction spending began to rise in the mid-1980s. Moreover, NIPA includes all local governments, which are responsible for about half of the sector's total expenditures and many of which also have been experiencing fiscal distress in recent years.
Social Insurance Funds
Separate from operating and capital accounts are the accounts of the state and local social insurance funds. For the sector as a whole, the surplus of the retirement systems constitutes 90 percent to 95 percent of the surplus of all the social insurance funds, which in some states also include worker's compensation and disability insurance. Roughly 90 percent of all state and local government workers are covered by about 10 percent of the approximately 6,000 pension funds in the sector.
Inflows to the insurance funds accrue To increase; to augment; to come to by way of increase; to be added as an increase, profit, or damage. Acquired; falling due; made or executed; matured; occurred; received; vested; was created; was incurred. from contributions by employers and personnel as well as from interest earnings. Offsetting these revenues are transfer payments to beneficiaries and administrative expenses. Surpluses of state and local social insurance funds are a source of saving that is available each year to the rest of the economy via the credit and equity markets; the surpluses have grown steadily in recent years and stood near $70 billion at an annual rate in the second quarter of 1990.
Almost all state and local pension funds are based on defined benefits. Government employees contribute a set percentage of their wages and salaries and the employing state or local government contributes the differential required to meet a calculated benefit. The funds are managed like private pension funds in that the assets of the funds are held against future claims by annuitants. Fund assets Fund assets
The total value of a portfolio's securities, cash, and other holdings, minus any outstanding debts. are invested mainly in U.S. government securities and in corporate bonds and stock.
The assets of these funds are considered to be outside the general fund and capital accounts of the state and local governments and are rarely touched even in the event of severe fiscal deterioration. However, public employers sometimes reduce their contributions in response to budgetary distress--the state governments of Texas, Oklahoma, Louisiana, and New York have been examples over the past few years. To facilitate this type of adjustment, some accounting device is typically used to decrease contributions or to lengthen length·en
tr. & intr.v. length·ened, length·en·ing, length·ens
To make or become longer.
lengthen·er n. the period of amortization of unfunded liabilities. New York State, for example, raised the interest rate assumption on which the earnings were based, leaving it room to cut its payments into the fund.
An important distinction exists between the state's contributions and the corpus, or assets, of the trust itself, and for states to borrow money directly from the corpus of their pension funds is extremely rare. Their fiduciary responsibility requires the administrators of pension funds to guard the corpus and earn the highest return possible; hence, investing in state bonds, for example, would not be prudent because they pay a relatively low, tax-exempt rate, and the pension systems are exempt from taxation. And a transfer from a pension fund to an operating account would be out of the question; interfund transfers are usually carried out only among dedicated funds that are under government control, like the state highway trust fund or the conservation fund.
The fundamental distinction between the social insurance funds and the fiscal accounts of state and local governments can be better appreciated if the insurance funds are viewed as private pension balances. Much of the long-run growth in social insurance funds can be attributed to the growth of public sector employment. If this employment growth had occurred in the private sector instead of the public sector--for example, through greater dependence on private schools or privately operated services--then, other things equal, public pension fund balances would have been lower and private pension fund balances would have been higher.
THE CURRENT FISAL SITUATION The deteriorating de·te·ri·o·rate
v. de·te·ri·o·rat·ed, de·te·ri·o·rat·ing, de·te·ri·o·rates
To diminish or impair in quality, character, or value: fiscal position of state and local governments stems from gathering pressures for more spending on facilities and services combined with weakened revenues. This section describes these problems and discusses the current fiscal policies of states and localities in dealing with them.
In recent years, fundamentals in several areas have necessitated greater spending than expected by budget planners. Currently, nearly two-thirds of state general fund budgets are dedicated to education, medicaid, and corrections; and current population trends point to further increases in these areas in the coming years (chart 3). Court orders in many states and federal mandates have also added to state spending requirements, and the repair and expansion of the public infrastructure has become an important goal in many states and localities.
Education. Outlays on public education account for 50 percent of state general fund budgets, more than 40 percent of all purchases of goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. by state and local governments, and more than 5 percent of gross national product. Such spending is likely to grow substantially over the next decade, both to improve the quality of education and to accommodate the rising number of school-age children.
To improve the quality of education, schools have imposed stricter course guidelines guidelines,
n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. and required new competency COMPETENCY, evidence. The legal fitness or ability of a witness to be heard on the trial of a cause. This term is also applied to written or other evidence which may be legally given on such trial, as, depositions, letters, account-books, and the like.
2. tests for teachers and students, two relatively low-cost strategies. However, many school systems have added more significantly to costs by starting or expanding special education programs over the past two decades, especially those for handicapped children: In 1973, the Congress passed the Rehabilitation rehabilitation: see physical therapy. Act which, among other things, prohibited discrimination against the handicapped; and two years later, by adopting the Education of the Handicapped Act, the Congress required public school systems to make available to all handicapped children a free education appropriate to their needs. Since the passage of these bills, the handicapped have been educated increasingly through the public school system. In addition, programs for gifted, learning-disabled, and bilingual children have been expanded. These programs likely contributed not only to a lowering in the student-teacher ratio Student-Teacher ratio refers to the number of teachers in a school/university with respect to the number of students who attend the school/university. For example, a student teacher ratio of 10:1 means that there are 10 students for every teacher available. but also to the hiring of additional support personnel and the purchase of special equipment and supplies.
The quest for Verb 1. quest for - go in search of or hunt for; "pursue a hobby"
quest after, go after, pursue
look for, search, seek - try to locate or discover, or try to establish the existence of; "The police are searching for clues"; "They are searching for the better schools received a boost in 1983 with the publication of a special study, A Nation At Risk, that was commissioned by Secretary of Education T.H. Bell in response to his concern about "the widespread public perception that something is seriously remiss re·miss
1. Lax in attending to duty; negligent.
2. Exhibiting carelessness or slackness. See Synonyms at negligent. in our educational system." (5) Weaknesses identified in the study centered on the curriculum, expectations about the level of knowledge that should be acquired, the time spent by American students on schoolwork as compared with the time spent by children in other countries, and the relative attractiveness of the teaching profession. In response, some states adopted quality standards that eventually were viewed by local governments as commitments. Growth in real operational outlays for education accelerated during the mid-1980s, a response facilitated by the healthy fiscal position of state and local governments in the early years of the current economic expansion. A report published by the U.S. Department of Education in 1988, American Education: Making it Work, found that substantial progress had been made. For example, more students were studying basic subjects than earlier in the decade, and the performance of schools was judged to be generally improved. However, the study concluded that a considerable gap still existed between the current status of the educational system and the objectives.
Adding to the pressures on school budgets has been the current rise in the number of school children. After falling for twenty years TWENTY YEARS. The lapse of twenty years raises a presumption of certain facts, and after such a time, the party against whom the presumption has been raised, will be required to prove a negative to establish his rights.
2. , births nationwide began to increase during the mid-1970s, resulting in a corresponding rise in public elementary school elementary school: see school. enrollment in 1982. The number of elementary school teachers also started to increase that year, and real construction spending on educational facilities began to rise in 1985. At the secondary level, enrollment has continued to decline; however, the number of students in public high schools is expected to start increasing in 1991.
Projections by the Department of Education call for total public school enrollment to rise about 3 million by 1997 and for real expenditures to increase--by 2 1/2 percent to 3 percent per year over the next decade; these estimates build-in both a sizable siz·a·ble also size·a·ble
Of considerable size; fairly large.
siza·ble·ness n. rise in the number of teachers and some increase in their real salaries. Spending on school construction is likely to rise, both to create space for the expanding population of school children and, in many school systems, to perform long-delayed repairs and maintenance. Clearly, keeping up with rising enrollments as well as quality goals could prove to be a formidable task for any government, but particularly for one plagued by revenue shortfalls.
Medicaid. Medicaid provides specific medical services to most recipients of federal cash assistance programs (Aid to Families with Dependent Children Aid to Families with Dependent Children (AFDC) was the name of a federal assistance program in effect from 1935 to 1997, which was administered by the United States Department of Health and Human Services. and Supplemental Security Income Supplemental Security Income
A Social Security program established to help the blind, disabled, and poor. ) and to others meeting a separate test of financial need. The program is administered by the states and funded by both the states and the federal government. States choosing not to participate in the national program must offer their own program; Arizona is the only state not participating. States may have broader programs than required, and their policies on reimbursement Reimbursement
Payment made to someone for out-of-pocket expenses has incurred. and administration differ; as a result, the medicaid program varies considerably from state to state.
Each state's federal payment for medicaid is dependent on its per capita income Noun 1. per capita income - the total national income divided by the number of people in the nation
income - the financial gain (earned or unearned) accruing over a given period of time ; currently, the federal government's share ranges from 50 percent to 78 percent. In addition, the medicaid program in some states includes recipients that are not eligible for federal matching funds Noun 1. matching funds - funds that will be supplied in an amount matching the funds available from other sources
cash in hand, finances, funds, monetary resource, pecuniary resource - assets in the form of money ; hence, those states receive no federal contribution for the care of such individuals.
Between 1987 and 1990, outlays for medicaid rose as a share of state expenditures from 10 percent to 12 percent. About half of the increase in medicaid costs during the mid-1980s appears to be attributable to inflation, about one-fourth to intensity of use (more services used per individual), and about one-fourth to an increase in the number of recipients-enrollment has grown 15 percent since 1980. Much of the increase in enrollment and intensity of use stems from federal mandates requiring states to cover individuals at higher levels of income or to include previously optional services. For instance, as of April 1, states were required to cover infants and pregnant women whose income is up to 133 percent of the poverty line and children up to age six; previously, only those whose incomes fell below poverty and children up to age one had to be covered. In addition, the October 1990 federal budget agreement further expanded coverage for children.
In fiscal year 1990, medicaid spending nationwide totalled $61 billion, with state governments paying for 42 percent of the total and about 25 million people receiving benefits. The 18 percent advance in state medicaid spending that year strained state general fund budgets that were written in anticipation of a 10 percent increase. (6)
Correctional Facilities. Corrections spending, which covers outlays for the construction and operation of state prisons, for probation and parole parole (pərōl`), in criminal law, release from prison of a convict before the expiration of his term on condition that his activities be restricted and that he report regularly to an officer. programs, and for juvenile justice systems, has been one of the fastest growing components of state general fund budgets since the mid-1980s. In the fiscal year just ended, spending on corrections grew 17 percent, compared with a 9.5 percent rise in total general fund outlays. Spending for corrections currently accounts for 5 percent of general fund budgets. Much of the increase in recent years arises from growth of the inmate INMATE. One who dwells in a part of another's house, the latter dwelling, at the same time, in the said house. Kitch. 45, b; Com. Dig. Justices of the Peace, B 85; 1 B. & Cr. 578; 8 E. C. L. R. 153; 2 Dowl. & Ry. 743; 8 B. & Cr. 71; 15 E. C. L. R. 154; 2 Man. & Ry. 227; 9 B. & Cr. population and from court orders addressing various aspects of the corrections system.
The number of inmates in state prisons had remained fairly steady in the postwar period until the late 1970s, when it began a rapid increase that has been attributed, in part, to the rise of illegal drug use. During the 1980s the number of inmates in state prisons more than doubled, to about 650,000, or about 60 percent of all inmates in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . (In 1989, another 35 percent were held at local jails, and 5 percent were in federal prisons.)
Numerous court orders to improve state prison systems in various ways have also added to costs. For example, as of January 1989, guidelines stipulating population limits had been set in twenty-seven states; orders covering other conditions in prisons had been handed down in thirty-one states; and the courts had appointed a variety of monitors and other overseers in fifteen states. In addition, health care costs have been rising, in part because of the growing incidence of AIDS among inmates in recent years.
Infrastructure. Throughout the past decade the nation has become increasingly aware of the deterioration of its public infrastructure, which broadly speaking Adv. 1. broadly speaking - without regard to specific details or exceptions; "he interprets the law broadly"
broadly, generally, loosely includes roads and bridges, water supply and treatment facilities, prisons, schools, hospitals, and parks. In response to this concern, and with the support of an improved fiscal posture, state and local construction spending, began to advance in 1984. By far the largest increase was in school building, which makes up about one-fith of state and local construction spending. In addition, real outlays for highways, bridges, and sewer and water facilities increased considerably. Indeed, by the third quarter of 1990, the level of real construction spending was 50 percent above its low at the end of 1983.
Despite this rise in outlays, construction activity remained low relative to total state and local government expenditures throughout the 1980s. And further examination shows that the state and local stock of structures, net of depreciation and measured in real terms, while still quite high, has been little changed per capita [Latin, By the heads or polls.] A term used in the Descent and Distribution of the estate of one who dies without a will. It means to share and share alike according to the number of individuals. since the mid1970s--falling a bit during the early 1980s and then edging up in recent years when outlays for construction began to rise; it currently stands 2 percent below the high, recorded in 1979 (chart 4).
Among the major components of infrastructure, the per capita stock of highways and streets fell steadily from its peak in 1974 and then increased in 1987 and 1988. The stock of educational facilities, measured against the number of school-age children, edged up in the late 1980s, after falling for six years. However, the per capita stock of water supply and treatment systems has continued to trend up throughout the postwar period as has the per capita stock of miscellaneous capital, which includes correctional facilities, hospitals, and other governmental buildings and structures This is a list of famous or notable buildings with articles about them. By Category
Further spending to expand and upgrade the infrastructure is expected to remain an important priority among state and local governments in the years ahead, as state and local structures account for 80 percent of the nondefense public capital stock. Aging highways, bridges, and water systems will need to be repaired or replaced, and increased school and prison populations, noted above, will require more building. Some federal aid is available, particularly for highways and mass transit mass transit, public transportation systems designed to move large numbers of passengers. Types and Advantages
Mass transit refers to municipal or regional public shared transportation, such as buses, streetcars, and ferries, open to all on a , but financing the bulk of the spending will be up to state and local governments.
The postwar growth of federal aid to state and local governments ended in the 1980s. During that decade, federal aid fell as a share of state and local revenues--excluding social insurance funds--from 25 percent to 17 percent. Indeed, at the outset of the period, support was actually reduced in nominal terms, from nearly $89 billion in 1980 to less than $84 billion just two years later. In addition, tax collections fell below expected levels as growth in most tax bases slowed late in the decade and corporate profits declined.
With the decline of federal aid, state and local governments became more dependent on personal receipts--taxes, fees, and charges--to fund their budgets; during the 1980s, the proportion of revenue derived from these sources grew from 23 percent to 28 percent. In addition, many states raised excise tax Excise Tax
1. An indirect tax charged on the sale of a particular good.
2. A penalty tax applied to ineligible transactions in retirement accounts. This penalty is assessed by and paid to the IRS.
1. rates during the 1980s, especially on gasoline gasoline or petrol, light, volatile mixture of hydrocarbons for use in the internal-combustion engine and as an organic solvent, obtained primarily by fractional distillation and "cracking" of petroleum, but also obtained from natural gas, by and cigarettes. (7)
In fiscal 1990, twenty-six state legislatures A state legislature may refer to a legislative branch or body of a political subdivision in a federal system.
The following legislatures exist in the following political subdivisions:
Local governments also have come under considerable budgetary pressure this past fiscal year. A survey by the National League of Cities reported that, despite tax hikes and spending reductions, expenditures would outstrip out·strip
tr.v. out·stripped, out·strip·ping, out·strips
1. To leave behind; outrun.
2. To exceed or surpass: "Material development outstripped human development" receipts in fiscal 1990 in 54 percent of cities; over the preceding six years, the Years, The
the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109]
See : Time proportion of such cities ranged between 24 and 40 percent. (8) Further increases in local taxes may be inevitable as state governments, along with the federal government, cut back aid. Massachusetts and North Carolina North Carolina, state in the SE United States. It is bordered by the Atlantic Ocean (E), South Carolina and Georgia (S), Tennessee (W), and Virginia (N). Facts and Figures
Area, 52,586 sq mi (136,198 sq km). Pop. reduced their grants to local government this year, and Virginia is expected to follow suit. Some states have cleared the way for local tax hikes by authorizing such increases--for example, higher sales taxes in Arizona and South Carolina South Carolina, state of the SE United States. It is bordered by North Carolina (N), the Atlantic Ocean (SE), and Georgia (SW). Facts and Figures
Area, 31,055 sq mi (80,432 sq km). Pop. (2000) 4,012,012, a 15. and a "local-option" gasoline tax Noun 1. gasoline tax - a tax on every gallon of gasoline sold
excise, excise tax - a tax that is measured by the amount of business done (not on property or income from real estate) in Florida. Some states increased the amount of property taxes that localities must raise in order to qualify for state aid. In a few states, a change in school-aid formulas could shift some state funds out of more affluent communities and force them to raise local taxes to maintain their school budgets; likewise, however, the rise in overall state tax collections and the shift in aid formulas could result in some property tax relief in other communities.
Many local jurisdictions have increased property taxes even as several states are experiencing tax revolts A tax revolt is a political struggle to repeal, limit, or roll back a government-imposed tax.
In the United States, it is often used to refer to a series of anti-tax state initiative campaigns. The first significant wave of these campaigns was during the 1930s. and granting some relief. A survey of municipalities revealed that 41 percent raised property tax rates in fiscal year 1990, while 43 percent created new fees, and 76 percent raised the level of fees and charges. (9) Moreover, for the year ending in the second quarter of 1990, property tax collections rose faster than the NIPA measure of total state and local tax receipts. Many of the local governments that have not raised property tax rates have seen their collections bolstered by the increase in assessed values that reflected price advances during the late 1980s; however, prospects for further increases in assessed values are less favorable fa·vor·a·ble
1. Advantageous; helpful: favorable winds.
2. Encouraging; propitious: a favorable diagnosis.
3. , given more recent price developments.
About one-third of local government receipts comes from property taxes, with a smaller share coming from fees and charges; both types of levies are a logical source of additional revenue for these governments during periods of budgetary tightness. State governments also have been raising fees and charges in recent years. But local governments are more dependent on fees and charges than are state governments, and as local governments are pinched by falling federal and state aid, they can be expected to place even greater reliance on such income.
The combined operating and capital account of the state and local government sector has been in deficit now for nearly four years and probably will remain so for several years more. Nonetheless, the deficits are likely to diminish. Tax hikes among states were large and numerous in 1990, and local governments raised property taxes and fees and charges. On the spending side, some cuts from earlier plans have been made on the education front, and other spending compromises can be expected. Overall, with rising revenues and some constraint on spending, one might expect to see better fiscal health in the years ahead.
This outlook is predicated on the assumption of continued growth in the economy as a whole. Tax collections depend not only on tax rates but also on incomes and sales. If the economy weakens in the year ahead, state and local governments will have more difficulty bringing revenues and expenditures into alignment.
The Stock of Public Capital and Productivity
The growth in both the stock of public capital and in productivity slowed in the 1970s and 1980s. Some analysts, notably David Alan Aschauer, have argued that a strong, contemporaneous con·tem·po·ra·ne·ous
Originating, existing, or happening during the same period of time: the contemporaneous reigns of two monarchs. See Synonyms at contemporary. , causal link exists between investment in public capital and growth in productivity (see his "Is Public Expenditure Productive?" Journal of Monetary Economics, vol. 23, March 1989, pp. 177-200). Adding to the public capital stock, these analysts say, would bolster potential output in the economy: Adequate public capital lowers private costs, and close associations can be made, for example, between growth in the nation's output and the construction of the interstate highway Noun 1. interstate highway - one of the system of highways linking major cities in the 48 contiguous states of the United States
highway, main road - a major road for any form of motor transport system.
A number of contrary arguments, however, raise questions about the strength of the association between spending on public works public works
Construction projects, such as highways or dams, financed by public funds and constructed by a government for the benefit or use of the general public.
Noun 1. and productivity gains-especially in the short run. Even in the case of roads and bridges, much repair and modernizing would not enhance productivity in the short run. For example, most of the numerous bridges about which authorities currently worry are still used each day and could perhaps remain serviceable ser·vice·a·ble
1. Ready for service; usable: serviceable equipment.
2. Able to give long service; durable: a heavy, serviceable fabric. for quite a few more years. Educational facilities may also have direct links to productivity; but many years must pass before today's grade schoolers can enter the work force, so any connection between improved educational facilities and increased output per hour would not be contemporaneous. Also, although the connection between productivity and the community well-being that is promoted by spending on correctional facilities, hospitals, and parks is intuitive, it is unlikely to be strong, especially in the short run. Thus, while modern societies are dependent on a sound infrastructure, as the foregoing examples suggest, the qualitative notion that an infusion of capital spending, on the margin, will spur increases in output per factor input is not clear.
An analysis using the same framework as that of Aschauer suggests that the relationship between growth in multifactor productivity Multifactor productivity (MFP) measures the changes in output per unit of combined inputs. Indexes of MFP are produced for the private business, private nonfarm business, and manufacturing sectors of the economy. and growth in the public capital stock (nonmilitary federal, state, and local equipment and structures) is significant but inelastic inelastic
Of or relating to the demand for a good or service when quantity purchased varies little in response to price changes in the good or service. . Of the total stock of public capital, state and local structures have the greatest effect on productivity; neither the stock of federal structures nor that of total equipment is significantly related to multifactor productivity. The amount of "core" infrastructure-roads, bridges, sewers, and water supply systems--has the strongest statistical relation to productivity, with an elasticity slightly higher than that for total state and local structures. Educational facilities are also significant, but have an elasticity lower than that for the total. The remaining category, which includes hospitals, office buildings, and afl other structures, is not statistically significant. Also, on a more disaggregate See disaggregated. basis, only one of twelve industries studied--the petroleum industry--showed a statistically significant relationship between its productivity and the level of core infrastructure.
Most economists think that a multitude of factors contributed to the productivity slowdown during the 1970s. Although the slowing in the growth of the public capital stock may be one of these factors, conventional growth accounting also casts doubts on assigning it a central role, as does most work by others that is based on microeconomic mi·cro·ec·o·nom·ics
n. (used with a sing. verb)
The study of the operations of the components of a national economy, such as individual firms, households, and consumers. or regional data. Maintenance of the nation's infrastructure is important, and new facilities must be provided for growing neighborhoods and businesses. But given the current evidence, we should not expect infrastructure investment, by itself, to have a strong effect on productivity growth in the short run.
1. State general fund budgets are reported and analyzed each year by the National Association of State Budget Officers of the National Governors' Association (Washington, D.C.) in Fiscal Survey of the States and by the National Conference of State Legislatures
The abbreviation NCSL redirects here. For the British educational institution see National College for School Leadership.
The National Conference of State Legislatures (Denver and Washington, D.C.) in State Budget and Tax Actions.
2. "Fiscal Notes," State Budget and Tax News, July 31, 1990, P. 11.
3. Scott Mackey, "Tax and Spending Limitations on the November Ballot," The Fiscal Letter (National Conference of State Legislatures), Sept./Oct. 1990, pp. 5-6.
4. Douglas D. Peterson, City Fiscal Conditions in 1990 (Washington: National League of Cities, 1990), p. iv.
5. The National Commission on Excellence in Education The National Commission on Excellence in Education produced the 1983 report titled A Nation at Risk. It was chaired by David P. Gardner and included prominent members such as Nobel prize-winning chemist Glenn T. Seaborg. , A Nation al Risk: The imperative for Educational Reform (Government Printing Office, 1983), p. 1.
6. Corina L. Eckl, Anthony M. Hutchison, and Ronald K. Snell Snell , George 1903-1996.
American geneticist. He shared a 1980 Nobel Prize for discoveries concerning cell structure that enhanced understanding of the immunological system, resulting in higher success rates in organ transplantation. , State Budget and Tax Actions 1990, Legislative Finance Paper 74 (Denver and Washington: National Conference of State Legislatures, September 1990).
7. Personal levies, reported collectively as personal tax and nontax receipts, comprise income taxes; estate, gift, and personal property taxes; tuition at state and local universities; hospital and other health-related charges; and fines and other fees. In contrast to these revenues, total sales taxes, which include excise taxes excise taxes, governmental levies on specific goods produced and consumed inside a country. They differ from tariffs, which usually apply only to foreign-made goods, and from sales taxes, which typically apply to all commodities other than those specifically exempted. , have risen only slightly as a share of the sector's total revenue over the decade; excise taxes are set at a fixed amount per unit sold, whereas general sales taxes are levied as a proportion of the dollar amount sold.
8. Peterson, City Fiscal Conditions, pp. 8-9. 9. Peterson, City Fiscal Conditions, p. iv.