Journal Article

Slow tax revenue growth, rising pension contributions, and Medicaid growth lead state and local governments to reshape their finances

Dadayan, Lucy, Boyd, Don

2016

Overview

This paper analyzes and describes major changes in state and local government finances since the Great Recession. Governments have been struggling with three major sources of fiscal stress: slow tax revenue growth; growth in pension contributions heavily concentrated in a few states; and Medicaid spending growth driven by recession-related enrollment. Conditions vary greatly across states but the combined effect has been substantial: between 2008 and 2015 real per capita state and local government pension contributions plus state-funded Medicaid grew by more than state and local government tax revenue in 31 states. In response, state and local governments have cut infrastructure investment, slashed support for higher education, cut social benefits other than Medicaid, cut spending on K-12 education, reduced administrative staff, and reduced most other areas of the budget. The paper concludes that many states will continue to struggle with these three pressures, at least in the near term.

• Publisher: National Tax Association
• Subject: State-Local Finances After the Great Recession (State and Local)