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Receipts and expenditures of state governments and of local governments, 1980-83.

THIS article presents separate receipts and expenditures accounts for State governments and for local governments for 1980-83. These accounts deconsolidate the single account for State and local governments in the national income and product accounts. The estimates for 1982 and 1983 are available for the first time, and those for 1980 and 1981 are revised (tables 1 and 2). (Separate accounts for 1968-79 are in the May 1983 SURVEY OF CURRENT BUSINESS and for 1959-67 are in the May 1978 SURVEY.) Separate accounts for the two levels of government are useful because, as is clear from the following summary of their fiscal positions in 1980-83, the receipt and expenditure patterns of States differ substantially from those of localities. The article also presents expenditures cross-classified by type and function for States and for localities and a summary discussion of them. Fiscal positions

Continuing a trend that began in 1977, State governments recorded surpluses (excluding social insurance funds) in 1980 and 1981. (Hereafter, receipts, expenditures, and the fiscal positions referred to are exclusive of social insurance funds because those funds are generally not available to finance either capital spending or current operations.) The 1980 surplus was less than one-half of the 1979 surplus, as expenditures increased more than receipts. In 1981, the surplus increased despite a sharp deceleration in receipts because States began to exercise restraint on expenditures.

In 1982, States slid into deficit--the first since 1976 and $1-1/2 billion larger than the previous record deficit in 1975. The slide occurred despite a deceleration in expenditures increases, from 8-1/2 percent in 1981 to 7 percent in 1982. An even sharper deceleration in receipts reflected the 1981-82 recession and a decline in Federal Government grants-in-aid. Receipts increased only 3 percent in 1982, compared with an average rate of increase of 10 percent in the prior 2 years. General own-source revenues (GOSR)--personal tax and nontax receipts, corporate profits tax accruals, and indirect business tax and nontax accruals--increased only 5-1/2 percent in 1982, compared with 10 percent in 1981. In the absence of legislative actions, the increase would have been about 4 percent. States swung back into surplus in 1983. They continued to exercise restraint on expenditures; expenditures increased only 5 percent, compared with an average increase of 10-1/2 percent in 1980-81 and 7 percent in 1982. Receipts strengthened: Federal grants increased modestly and GOSR increased 10-1/2 percent. Legislative actions, which added about $7 billion to GOSR, accounted for over one-third of the percentage increase.

The 1983 recovery in State GOSR was centered in income and sales taxes, which account for about three-quarters of total GOSR. These taxes had been affected by the recession; increases averaged only 5 percent in 1981-82. In 1983, the increase was 9-1/2 percent. (All of these changes are exclusive of legislative actions.) In contrast, severance taxes and royalties related to energy exploitation increased 40 percent in 1981 and 3 percent in 1982, but declined 5 percent in 1983. These revenues, although a much smaller component of total GOSR than income and sales taxes, are very important to States in the Southwest and to Alaska, where energy resources play a major role in the economy. Thus, several energyrich States--for example, Arizona, Louisiana, and Texas--were able to avoid legislative increases in 1982-83 but were forced to make them in 1984. On the other hand, a number of States reliant on income and sales taxes, which found it necessary to increase rates in 1982 or 1983, were able to repeal at least some of these increases in 1984. This occurred, for example, in Michigan, Minnesota, and Wisconsin. These developments highlight an important consideration in using the separate accounts and the fiscal positions they show: they reflect the fiscal activities of many governments--50 States, of course, and about 80,000 local governments--so that they can mask substantial diversity within the aggregates.

The local governments fiscal position was much stronger that for State governments; local governments recorded surpluses in all 4 years. Like the States, local governments kept expenditures under tight control; increases averaged 6-1/2 percent. Unlike the States, however, localities experienced strong GOSR growth. Property tax increases averaged 10-1/2 percent, and personal nontax increases averaged 12-1/2 percent. (These two revenue sources account for about three-fourths of total local GOSR.) Grant receipts increases averaged only 2-1/2 percent, as direct Federal grants declined in each of the years 1981-83.

Local government receipts did not decelerate as rapidly as did State receipts because local GOSR are not as dependent on incomes and sales, which were significantly affected by the 1981-82 recession. Property taxes, the primary source of revenue for localities, increased about 12 percent in 1981 and 1982. Rapid increases in the market value of real property prior to 1980 resulted in strong increases in assessed values that formed the tax base for property taxes in 1981 and 1982. Further, a 20-year decline in average effective property tax rates slowed considerably (and possibly was reversed) in 1981 and 1982. (See "Sources of Growth in Selected State and Local Government Tax Receipts," in the March 1982 SURVEY, for a discussion of the decline.) Local property tax increases did decelerate in 1983 however, to 7-1/2 percent, (and largely accounted for a decline in the local government surplus in 1983).

The rapid increases in local personal nontaxes from 1981 to 1983 were partly the result of increased charges for medical services rendered by public hospitals (a major component of local personal nontaxes) and partly the result of an increased reliance on user charges in general. This increased reliance stems from the "tax revolt" sentiments manifested by California's Proposition 13 in 1978. Also contributing to the strong fiscal position of localities was a continuation of the decline in the share of expenditures dedicated to structures. As discussed in the May 1983 article, the structures share averaged about 21 percent in the 1960's, but declined to 16 percent in 1970. This decline was a primary cause for the shift from deficits in the 1960's to frequent surpluses in the 1970's. The structures share has continued to decline, and in 1983 it was only 9-1/2 percent. Expenditures by function

Tables 3 and 4 show expenditures cross-classified by type and function for State governments and for local governments, respectively. Although education continues to be the major function for both levels of government, increases in spending for education decelerated in 1980-83. Increases in State expenditures for education averaged 6 percent in 1980-83, about one-half as much as in 1970-79, and increases in local government education expenditures averaged 6-1/2 percent, down from 10 percent. As a result of this deceleration, State expenditures for education, as a percentage of total expenditures, declined from 1980--when it peaked at 41 percent--to 40 percent in 1983. Most State spending for education is in the form of grants-in-aid to local governments. These grants funded more than 55 percent of local expenditures for elementary and secondary education in 1980-81, but only 53 percent in 1983.

Both levels of government also experienced a deceleration in the increase for health and hospital expenditures. Increases in expenditures for health and hospitals by States averaged 9 percent in 1980-83, compared with 12-1/2 percent in 1970-79, and by local governments 11 percent, compared with 12 percent. However, unlike education expenditures, the share of total expenditures for health and hospitals increased at both levels of government. In addition, at the State level, spending for medical services on behalf of indigents--a subfunction of income support, social security, and welfare--also experienced a significant deceleration; annual increases averaged 10 percent in 1980-83 compared with 18 percent in 1970-79. However, the share of total expenditures increased slightly, to 10 percent in 1983 from 9 percent in 1980. The decelerations in the rate of increase in spending for education, health and hospitals, and medical services reflect the restraints imposed by States and by localities on expenditure increases as well as reductions in Federal grants-in-aid programs. Increased stringency imposed by Federal administrative changes in formula-grant programs--for example, medic-aid and aid to families with dependent children--also slowed expenditures.
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Author:Levin, David J.
Publication:Survey of Current Business
Date:Sep 1, 1984
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