Focus on State and Local Governments

Focus on State and Local Governments

Printer-friendly version
a a
 
Type Size: Small

In a June 29 analysis, Morgan Stanley economist David Greenlaw notes that state fiscal contraction is a “headwind” for the U.S. economy, but is overwhelmed by the impact of federal policies.

In June 28 study, economists from the Federal Reserve Bank of San Francisco looked at the deteriorating condition of state finances. Since they tend to lag behind changes in the national economy, they anticipate that state finances will get worse before they get better.

Also on June 28, Pew released a poll asking people what measures they would support to deal with unbalanced state. Not a single option got majority support; people oppose spending cuts, tax increases and even federal aid.

In a June 27 column, economist Mark Zandi said that without additional federal aid state and local governments would have no choice but to raise taxes and cut spending. This negative stimulus “could cut short the still-fragile economic recovery and trigger renewed recession.”

In a study released on June 23, the Mercatus Center estimates New Jersey’s public pension debt at $170 billion and that the state will run out of money to pay benefits as soon as 2013.

A June 2 study from the Justice Policy Institute argues for alternative punishment for non-violent offenders to reduce the $52 billion cost (2008) of incarceration and free up funds for other purposes.

In a June paper, Wharton School economist Robert Inman looked at fiscal contraction in the states. He argues that this problem was exacerbated by the formula for distributing aid, which was not based on state economic conditions such as unemployment but on political factors. As a consequence, the aid was maldistributed and less effective than it could have been in moderating fiscal contraction in the states that offset much of the federal stimulus.

Also in June, the Center for Retirement Research at Boston College released a study on the appropriate discount rate for valuing state and local government pension plans. It argues that such plans have used an inappropriately high discount rate, implying that they have more assets than they really do, which has encouraged excessive pension commitments to government employees. The authors believe that a more appropriate discount rate would raise the unfunded liabilities of such plans by $1.5 trillion.

In another June study, the National Conference of State Legislatures points out that almost all states have traditional defined benefit plans for their employees even as the federal government and most private business have switched to defined contribution pension plans.

In an early 2010 article, Federal Reserve Bank of Philadelphia economist Timothy Shiller examined state revenues and found that they have become more volatile over the business cycle than they were in the past. This results mainly from a shift away from relatively stable sales taxes to more cyclical income taxes.

Note: I previously posted links relating state and local governments on June 14.

Bruce Bartlett is an American historian and columnist who focuses on the intersection between politics and economics. He blogs daily and writes a weekly column at The Fiscal Times. Read his most recent column here. Bartlett has written for Forbes Magazine and Creators Syndicate, and his work is informed by many years in government, including as a senior policy analyst in the Reagan White House. He is the author of seven books including the New York Times best-seller, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday, 2006).

Previous posts:

July 7: Focus on Africa
July 6: Pensions and Aging
July 5: Energy Subsidies
July 2: Weekly Roundup

Bruce Bartlett’s columns focus on the intersection of politics and economics. The author of seven books, he worked in government for many years and was senior policy analyst in the Reagan White House.