Property Tax Responses to State Aid Cuts in the Recent Fiscal Crisis

Many states experienced fiscal crises at the beginning of this decade. Some responded by cutting state aid to local governments. This paper explores the extent to which local governments responded to these aid cuts by raising property taxes. The authors hypothesize that changes in aid help explain the observed differences in per capita property tax revenue changes across states. They find that on average school districts increased property taxes by 23 cents for each dollar cut in state aid. These results highlight the important role that the property tax plays in maintaining the stability of the state and local sector.     

How Municipal Property Tax Responded to State Aid Cuts: The Case of Massachusetts Municipalities in the Post‐2001 Fiscal Crisis

This empirical study examines municipal property tax responses to state aid cuts during the post‐2001 fiscal crisis. Using panel econometric techniques on annual changes in property tax levy by 351 incorporated Massachusetts municipalities in the period of 2002–2006, the results suggest that municipal governments offset about 9 cents of each dollar of net state aid cut through the increase of their property tax rates. It contributes to public finance literature on the extent to which local property tax can be used to stabilize municipal revenues when the intergovernmental revenue shrinks.     

The State of American Federalism, 2001-2002: Resilience in Response to Crisis

The past year has been one of repeated shocks to governmentand the larger society. Terrorist attacks in New York City andWashington, D. C., the burst of the dot.com bubble in the stockmarket, a wave of corporate scandals, and a slowdown in theeconomy posed severe problems for officials of all governmentsin the federal system. The combined effects of the war on terrorismand the economic turmoil forced federal policymakers to createnew agencies and to enact new policies. State and local governmentsalso responded to the multiple shocks with a variety of initiatives,often independent of Washington. Instead of a move toward centralizationthat might have been predicted as a consequence of the seriousshocks, all elements of the American federal system demonstrateda capacity and energy to marshal resources in a time of urgency.     

Fiscal Reaction to State Aid Uncertainties: Evidence from New York State

Late budgets have become increasingly present across the states and especially persistent in states such as New York and California. The combination of delayed states budgets and institutional constraints may trigger specific budgetary strategies. Uncertainty over state aid may lead school districts to over‐ or underestimate school budgets, which ultimately may have an effect on real property taxes and the amount of education consumed. Evidence from New York State school districts suggests that school districts react to uncertainty in the state budget through a combination of revenue, expenditure, and fund balance changes. The findings suggest that districts engage in “gaming” the institutional constraints, and tend to build up large fund balances as a response to perceived uncertainty.     

The Politics of Fiscal Responses to the Crisis of 2008–2009

The national fiscal responses to the economic crisis of 2008/2009 varied considerably. Some countries reacted with a strong demand stimulus, others intended to slash public expenditures, while a third group pursued mildly expansionary policies. There are strong reasons for governments to pursue a mildly expansionary policy. If governments depart from this default strategy in favor of a significant counter‐cyclical policy, they must be able to swiftly make decisions. Therefore, effective use of counter‐cyclical policy will be unlikely in cases where lengthy negotiations or significant compromises between governing parties with different views on economic and fiscal policy are likely. Therefore, a major determinant of the expansionary strategy is a unified government, usually in form of a one‐party government. If governments opt for pro‐cyclical policy in a major economic crisis, they do so because they have few other viable options. In this situation they tend to shift blame to international organizations.     

The State of U.S. Federalism, 2000-2001: Continuity in Crisis

Despite the 2000 presidential-election crisis, basic continuityprevailed in American federalism, including survival of theelectoral college and furtherance of the more recent shift offederal policymaking from places to persons during today's eraof coercive or regulatory federalism. The year revealed theenduring salience of political parties and the prominent roleof interest groups in the politics of federalism, as well asthe ways in which the federal system shapes, and is shaped by,policy debates. The U.S. Supreme Court continued its state-friendlydecision-making while Congress continued to preempt state authority,attach new conditions to federal aid, federalize criminal law,and nationalize power even while giving state and local governmentsmore administrative discretion. The year also illustrated thedeclining impact of federal aid on state-local revenues comparedto the increasing fiscal impact of the federal government'ssubstantive, monetary, and fiscal policies.     

State Fiscal Responses to Welfare Reform during Recessions: Lessons for the Future

The 1996 welfare reform transformed open-ended matching grants to states to fixed block grants. This article considers whether, given the new regime, states will be able and willing to meet the need for public assistance during recessions. The accumulation of large balances of unspent federal welfare funds helped states weather the first year or so of the current recession without having to cut programs for needy families. While new fiscal rules promoted positive reform during a period of economic prosperity, they may be leaving states and their most vulnerable citizens at serious risk as the economic and fiscal slowdown continues.     

The Federal Role in State Fiscal Stress

This article examines the extent to which the federal government'spolicies were responsible for the fiscal stress experiencedby most state governments in the early 1990s. Federal policieshave contributed considerably to recent state fiscal stress,particularly through the Medicaid program—the fastestgrowing part of state budgets—and the recession, whichdepressed revenue and increased welfare and Medicaid spending.Federal aid reductions have not been an important source ofrecent state fiscal stress. The real value of per capita federalaid other than for welfare programs fell considerably in the1980s, but the reductions were much greater for local governmentsthan for states. The largest reductions were in the early 1980s.Federal policies have affected state finances in several otherways—through tax policy, unfunded mandates, and the federalfailure to cope effectively with problems like health and poverty.Federal court rulings have also caused budget problems (as havestate court decisions). In some respects, state fiscal problemsare not a federal responsibility. Rising school enrollments,new corrections policies, and inelastic tax systems have createdfiscal stress for many states. Excessive state spending in the1980s has contributed to recent fiscal problems in some states,but not generally.     

Fiscal Policy Learning from Crisis: Comparative Analysis of the Baltic Countries

The experience of a major crisis is often expected to lead to policy learning but the empirical evidence about this is limited. The goal of the paper is to explore comparatively whether the crisis of 2008–2010 has led to fiscal policy learning by civil servants in the three Baltic countries. Despite some differences in the crisis experience, the finance ministry officials in all three countries have identified the same lesson from the crisis: fiscal policy should be counter-cyclical and help to stabilize the economy. The paper also discusses how various factors have influenced policy learning, including the acknowledgment of failure, blame shifting, and analytical tractability.     

State Regulation and the Political Consequences of Urban Fiscal Stress

The correlates of citizen-initiated municipal tax limitationreferenda are examined for the period 1975–1977. Locallevel conditons are found to be only a partial explanation forthe initiation andoutcome of tax referenda. State fiscal support(i.e., aids and direct spending) and constraints on local fiscaland programmatic activities are found to be significant correlatesof tax referenda.     

Introduction: The State of State Employment

Public sector industrial relations is a somewhat neglected field of investigation. The relative neglect by industrial relations scholars is surprising given that public sector employees in Australia are much more likely to be unionised and work within larger organisations with formalised industrial. Moreover, it has been within public sector environments where the efficacy of public policy directions in industrial relations have been tested. Public sector environments are more likely to be characterised by structured bargaining and policy testing than much of the private sector. One of the purposes of this symposium, then, is to remedy this relative neglect of public sector industrial relations.     

Corruption,Trust and their Public Sector Consequences: Introduction to the Special Edition

Abstract

Corruption and trust are two important determinants of the quality of public sectors. Empirical studies in different literatures suggest that corruption and trust have effects on factors such as economic growth, the quality of democratic institutions, life quality, the size and effectiveness of the public sector and much more. The purpose of this special issue – one that goes to the heart of the comparative policy ethos which is central to the journal's mission – is to draw on a number of country examples to shed light on the state of the literature on the connection between corruption and trust. The aim is to show that these two concepts are highly relevant to each other, and that their interconnections are important to understand the public sector consequences of corruption and trust. By focusing on these concepts, we hope that this special issue can pave the road for further comparative research.     

State and Local Fiscal Sustainability: The Challenges

At the state and local level, fiscal sustainability is the long‐run capability of a government to consistently meet its financial responsibilities. It reflects the adequacy of available revenues to ensure the continued provision of the service and capital levels that the public demands. After examining separate revenue and expenditure trends for state and local governments, this article identifies three specific sets of pressures that affect subnational fiscal sustainability—cyclical, structural, and intergovernmental. It then presents three specific examples of these pressures: Medicaid, pensions and retiree health benefits, and infrastructure. The author asserts that without changes in the fiscal system—in both revenues and expenditures—state and local fiscal sustainability will disappear. It concludes with some potential solutions but argues that the most difficult reform is to ensure that the public understands that there is no such thing as a free lunch.