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Pension Report
- By Ray Sanderson
- Published 02/1/2011
- Pension Watch
The Congressional Budget Office (CBO) on December 9, 2010 issued a report describing the economic conditions and budgeting practices that can lead to significant budgetary challenges termed as Fiscal Stress Faced by Local Governments. Next, it reviews the options available to local governments, state governments, and the federal government for addressing such financial difficulty. Last, the report examines two options that local governments very rarely use: defaulting on their debt or filing for bankruptcy.
The report describes how local governments, including counties, cities, towns, school districts, and special districts, play a significant role in people's lives and in the nation's economy. In 2009, the expenditures of local governments equaled 8.7 percent of gross domestic product, and those governments employed just over 9 percent of the labor force. That year, local governments as a group cut their spending in real (inflationadjusted) terms. In 2010 and in upcoming years, they expect to constrain spending and services, primarily because of reductions in state aid and falling revenues. In particular, revenues from property taxes are poised to decline to reflect lower property values. To the extent that local governments address budget gaps by reducing spending or raising taxes, such changes will partially counteract the federal government's fiscal support for the economy.
Local governments vary considerably in size, purpose, spending, and revenue sources. Currently, there are about 3,000 counties, 36,000 municipalities (cities, towns, villages, and boroughs), 37,400 special districts, and 14,600 public school systems in the United States. County and city governments are generally the largest, both in the number of people they employ and in the amounts they spend. They provide services such as police protection, transportation, welfare payments, and job training, among others. Special districts are generally the smallest governmental entities and have a singular purpose, such as providing water or treating waste. Collectively, local governments spend more on education (38%) than on any other category, followed by spending on social services, housing, and transportation (18%); administration and interest on their debt (16%); utilities (11%); public safety (9%); and the environment (7%). Note: Shares do not add to 100 percent because of rounding. The sources of local revenues vary significantly depending on the type of local government. Although counties and cities rely heavily on property and sales taxes, water and sewer districts are funded mostly by utility fees and, consequently, have experienced less fiscal stress than counties and cities during the recent economic downturn. Collectively, local governments derive nearly one third of their revenues from state aid, about one-quarter from property taxes, one-tenth from sales and other taxes, and most of the remainder from fees and miscellaneous revenues; only 4 percent represents direct aid from the federal government.
The report puts municipal bankruptcies into perspective. It finds that of the 18,400 municipal bond issuers rated by Moody's Investors Service from 1970 to 2009, only 54 defaulted during that period, most of which were special districts that had issued debt to support housing or health care facilities. Only six cities, counties, or towns defaulted. You can access the entire ten page brief in PDF format here.
The report describes how local governments, including counties, cities, towns, school districts, and special districts, play a significant role in people's lives and in the nation's economy. In 2009, the expenditures of local governments equaled 8.7 percent of gross domestic product, and those governments employed just over 9 percent of the labor force. That year, local governments as a group cut their spending in real (inflationadjusted) terms. In 2010 and in upcoming years, they expect to constrain spending and services, primarily because of reductions in state aid and falling revenues. In particular, revenues from property taxes are poised to decline to reflect lower property values. To the extent that local governments address budget gaps by reducing spending or raising taxes, such changes will partially counteract the federal government's fiscal support for the economy.
Local governments vary considerably in size, purpose, spending, and revenue sources. Currently, there are about 3,000 counties, 36,000 municipalities (cities, towns, villages, and boroughs), 37,400 special districts, and 14,600 public school systems in the United States. County and city governments are generally the largest, both in the number of people they employ and in the amounts they spend. They provide services such as police protection, transportation, welfare payments, and job training, among others. Special districts are generally the smallest governmental entities and have a singular purpose, such as providing water or treating waste. Collectively, local governments spend more on education (38%) than on any other category, followed by spending on social services, housing, and transportation (18%); administration and interest on their debt (16%); utilities (11%); public safety (9%); and the environment (7%). Note: Shares do not add to 100 percent because of rounding. The sources of local revenues vary significantly depending on the type of local government. Although counties and cities rely heavily on property and sales taxes, water and sewer districts are funded mostly by utility fees and, consequently, have experienced less fiscal stress than counties and cities during the recent economic downturn. Collectively, local governments derive nearly one third of their revenues from state aid, about one-quarter from property taxes, one-tenth from sales and other taxes, and most of the remainder from fees and miscellaneous revenues; only 4 percent represents direct aid from the federal government.
The report puts municipal bankruptcies into perspective. It finds that of the 18,400 municipal bond issuers rated by Moody's Investors Service from 1970 to 2009, only 54 defaulted during that period, most of which were special districts that had issued debt to support housing or health care facilities. Only six cities, counties, or towns defaulted. You can access the entire ten page brief in PDF format here.
