Printer Friendly

Alternative measure of the state and local government fiscal position: revised and updated estimates.

Alternative Measure of the State and Local Government Fiscal Position: Revised and Updated Estimates

The alternative measure of the State and local government fiscal position as prepared by the Bureau of Economic Analysis has been revised for 1984 and extended to 1987. The revised alternative measure incorporates the results of recent annual revisions of the national income and product accounts (NIPA's) and newly available financial transactions data for 1984-85 and 1985-86 from Governmental Finances (GF), published by the Bureau of the Census, and preliminary, unpublished GF data for 1986-87.(1)

The alternative measure is designed to show what a State or local government finance officer would view as a combined general and special funds surplus or deficit. The derivation of the combined funds measure begins with the NIPA other funds--that is, funds other than social insurance--surplus or deficit for State and local governments. The major differences between NIPA receipts and expenditures and those used to derive a combined funds measure are as follows: (1) Combined fund expenditures exclude purchases of equipment and structures funded by long-term borrowing. (2) Combined fund expenditures include net outlays for land. (3) Combined fund receipts and expenditures include selected financial transactions. (4) Combined fund receipts include accumulated surpluses or deficits from prior periods.

Table 1 shows adjustments to the NIPA other funds measure of the surplus or deficit for the first three differences. The first set of adjustments (lines 2-4) relates to tangible capital transactions: Equipment, structures, and land. The largest of these adjustments is for long-term borrowing for current-period purchases of equipment and structures. The second set of adjustments (lines 6-10) relates to financial transactions, most of which are debt transactions. It has not been possible to quantify the fourth difference. An adjustment for this difference would require a lengthy historical series, which is not available. Further, substantial uncertainty exists with respect to the share of accumulated reserves that has been placed in contingency funds and thus is not necessarily available to finance general fund operations.

The revision in the combined funds measure for 1984 is substantial. The revised measure shows that State and local governments recorded a large deficit; the previously published estimate showed a surplus. This revision was the result of large upward revisions in the estimates of long-term debt retired and of additions to sinking funds, combined with a large downward revision in the estimate of long-term borrowing for equipment and structures.

Between 1976 and 1982, the measures presented in table 1 moved in the same direction in each year except 1978, when the changes were small. Between 1983 and 1987, the two measures moved in opposite directions in each year except 1987. As shown by the NIPA other funds measure, the fiscal condition improved for 2 years and then declined, moving to a sizable deficit in 1987. As shown by the combined funds measure, the fiscal condition deteriorated for 2 years, and then improved through 1986 before falling to a small deficit in 1987.

A number of factors contributed to the divergent movement in the two measures in the 1983-87 period. One of these was a shift in how State and local governments finance purchases of equipment and structures. In 1980, 38 percent of this type of spending was financed by borrowing. The share increased to 51 percent in 1983 and approached 60 percent in 1987. When an increase in purchases of equipment and structures is financed by borrowing, rather than by increasing current revenues, the NIPA other funds measure will move toward deficit and the combined funds measure will move toward surplus. This difference occurs because the debt-financed spending is included in NIPA expenditures and is excluded from combined funds expenditures. The shift in how State and local governments financed increasing purchases of equipment and structures accounted for a part of the divergence in the two measures in 1985 and most of it in 1986.

Another factor in the divergent movement was the greater use of borrowing to retire existing debt. Traditionally, State and local governments did not borrow to retire their existing debt. From 1976 through 1984, borrowing to retire existing debt accounted for only 17 percent of long-term debt retired. However, beginning in 1985, a significant shift occurred; for 1985-87, this type of borrowing accounted for over 65 percent of long-term debt retired. Greater use of borrowing to retire existing debt has no impact on the NIPA measure, but it causes the combined funds measure to move toward surplus.

The large increase in borrowing to retire existing debt was primarily the result of a decline in borrowing costs from historically high levels in combination with the "call feature" of these borrowings, which allow for early redemption of the issues at the discretion of the issuer. In 1979, the average yield (as measured by the Bond Buyer for 20 high-grade bonds) was 6 1/2 percent. This yield went above 10 percent in February 1981 and remained above 9 percent through 1984. In early 1985 the yield dropped below 9 percent and continued to move down irregularly to an average of 7 3/4 percent in 1987.

Table : 1.--Derivation of an Alternative Measure of the State and Local Government Fiscal Position, 1976-87 (1.) The alternative measure of the State and local government fiscal position was initially presented in the March 1984 SURVEY OF CURRENT BUSINESS and revised in the April 1986 SURVEY. The 1984 article discusses the derivation of the alternative measure.
COPYRIGHT 1988 U.S. Government Printing Office
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1988 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Levin, David J.
Publication:Survey of Current Business
Date:Nov 1, 1988
Words:905
Previous Article:Deflators for purchases of computers in GNP: revised and extended estimates, 1983-88.
Next Article:Plant and equipment expenditures by business for pollution abatement, 1987 and planned 1988.
Topics:


Related Articles
State and local government fiscal position in 1985.
Receipts and expenditures of state governments and of local governments: revised and updated estimates, 1959-84.
Receipts and expenditures of state governments and of local governments: revised and updated estimates, 1983-86.
Receipts and expenditures of state governments and of local governments: revised and updated estimates, 1984-87.
The business situation.
Receipts and expenditures of state governments and of local governments: revised and updated estimates, 1985-88.
The business situation.
State and local government fiscal position in 1991.
State and Local Government Fiscal Position in 1999.
Receipts and expenditures of state governments and of local governments: new estimates for 2002-2004 and revised estimates for 1990-2001.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters