The State of State and Local Finances
New studies afford a state-by-state or city-by-city analysis of fiscal well being.
There's been nothing short of a boom in tabulating the fiscal ups and downs of states and localities. The Census Bureau, of course, has always computed state financial data, which Governing's Data Editor Mike Maciag compiled into bar graphs searchable by state. But now, state and local government finances are the focus of a number of organizations -- from universities to consultants to Wall Street firms. They are starting to produce annual and even semi-annual reports that analyze key economic indicators in the 50 states and several big cities.
Those Governing readers who have been around for a while may remember the Advisory Commission on Intergovernmental Relations (ACIR), and the twice-a-year volumes it put out with every possible economic statistic on state and local governments anyone could ever want. Those volumes died years ago, and the new batch isn't nearly as exhaustive or as aggregated. But they are more accessible for those who would like to compare their state or city to others. I like to think of them as "ACIR lite" -- slimmer reports that stick to some of the more immediate measures of the fiscal health of each individual city or state.
One of those reports comes from Harvard's Institute of Politics, the University of Pennsylvania's Fels Institute of Government and the American Education Foundation. They teamed up to produce what they promise will be "clear, reliable, nonpartisan information on states' financial health in a format accessible to citizens." The data is drawn primarily from Comprehensive Annual Financial Reports (CAFRs). The pilot report studies four states: Massachusetts, New Jersey, New York and Pennsylvania. Subsequent reports will add additional states as well as additional university partners.
Why are universities focusing their attention on the states? This grab from the report seems to explain it: "According to what we believe are the most accurate estimates, states owe a total of $4.5 trillion in debt, comprised of $2.9 trillion in unfunded pension fund debt, $627 billion in unfunded health care benefits and $1 trillion in state borrowing.... If we make similar assumptions for local governments, we come up with a total debt of $2.8 trillion, comprised of $1.6 trillion in local borrowing, $587 billion for unfunded pensions, and roughly $600 billion for unfunded health care benefits. Taken together, states and localities, have an estimated $7.3 trillion in debt, which is just under half of the total national debt, but far less known or talked about."
That, in part, could explain Wall Street's decision to contribute to the boom in data. RBC Capital Market's State Economic Chartbook covers all 50 states and is aimed not so much at citizens or government officials, but at investors in municipal bonds. That said, the information in it is easy for state officials to use to compare their states to others in terms of employment, revenue, housing, exports, bankruptcies and the like. Each state page has seven charts plus commentary. Here's a sampling of the commentary for Maryland:
- GSP growth has lagged the U.S. with the real estate sector acting as a drag on growth for the last three years.
- Housing market continues to be stressed. Price index still very close to recession lows. Delinquencies and foreclosures remain high with new foreclosures spiking in the most recent quarter
- But labor market is stronger than U.S. with payroll growth benefiting from service and government employment.
RBC says it will update the Chartbook twice a year. I spoke with Chris Mauro, RBC's Director of Municipal Research,recently about the motivating force behind the company's effort. The transcript has been edited for clarity and length:
Why do it? "We put this together to have a snapshot view of state economic conditions. We found that while there is a lot of information available from different sources, there wasn't any one source that could give us a concise and consistent picture of state economic activity that would allow us to do comparable economic analysis on a state-by-state basis. We thought that there was a gap in the research and we attempted to fill that gap with this report."
What are the key takeaways from the first report? "Most states have moved off lows that they hit during the depths of the recession. Employment is up; payrolls are increasing in a rather measured pace. Personal income is pretty much the same story. We saw a nice jump in personal income growth after the first few quarters of the recovery. In recent quarters, however, that growth has slowed down fairly dramatically. That's not a good sign for future growth of state and local tax revenue. On the positive side, we're very encouraged by the housing market. Housing value indicators seemed to have picked up for the first time in all quarters since the recession. Foreclosures are trending down. That's a very good sign for local governments that depend to a very great degree on property tax revenues."
One last tidbit: RubinBrown, an accounting and business consulting firm, reports annually on the finances of three mid-country cities and their surrounding areas -- St. Louis, Kansas City and Denver. Its report is based on material gathered from its own surveys of the cities and is meant to be of use to financial officers in those regions. They had an interesting takeaway: "[I]n spite of the economic turmoil and recession the past few years, most cities [in the region studied] have found ways to keep general fund balances stable, and for some even increase. This shows municipalities have disciplined financial management practices in place to offset the effects of declining revenue over time."
I imagine that if they expand to cities in other regions, they may find a different story.