State finances and recession

The Rockefeller Institute of Government issued, on Jan. 30, a report on recessions and state finances, providing 50-state comparisons of past recessions and their effects, using the 2001 recession as a key reference point. It notes that, in the short term, a recession does not affect states' expenditures as much as tax revenues which are hit by "the ravages of a recession," and makes a cautionary observation:

...the initial response to a recession in the year of a negative revenue surprise typically includes administrative actions or a combination of administrative and legislative actions. These commonly involve across-the-board cuts, reserve-fund drawdowns, and borrowing from other parts of the budget. These actions often have no impact on longer-term structural problems, or can even make the subsequent year's problem worse. States reserve the big guns of large tax increases and spending cuts for the executive budget process, and that process can take several years to play out....

What Will Happen to State Government Finances in a Recession? (pdf, 27pp/1MB)

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In a news release Jan. 24, the National Governors Association (NGA) announced its adoption of an economic stimulus policy for Congress. In a brief information paper, the governors propose countercyclical funding to be made up of Medicaid assistance and a flexible block grant. A longer background paper provides Congress and the Administration with information on the fiscal condition of the states, the potential state role in economic stimulus, and specific policy options. Maintaining that any stimulus package should be "timely, temporary and targeted," the paper proposes six categories for Congress to consider in a formulating such a package:

• General revenue sharing
• Targeted state-federal programs for high-risk populations
• Job creation
• Mortgage default assistance
• Existing regulations (moratoriums to assist states in holding down expenditures)
• Individual income tax and business tax reductions

Economic Stimulus Information Paper (pdf, 4pp/84kB)
Economic Stimulus: A State Perspective (pdf, 11pp/88kB)

Recent GAO reports

From the Government Accountability Office (GAO):

LONG-TERM FISCAL OUTLOOK: Action Is Needed to Avoid the Possibility of a Serious Economic Disruption in the Future, GAO-08-411T (pdf, 21pp/376kB), January 29, 2008

In testimony by the Comptroller General, 3 key points:

• The federal budget is on an imprudent and unsustainable path
• Rapidly rising health care costs are our nation's number one fiscal challenge
• The window of opportunity for action is shrinking as the first baby boomers retire and begin tapping into Social Security and Medicare

STATE AND LOCAL GOVERNMENTS: Growing Fiscal Challenges Will Emerge during the Next 10 Years, GAO-08-317 (pdf, 78pp/716kB), January 22, 2008

As is true for the federal sector, the growth in health-related expenditures is the primary driver of the fiscal challenges facing the state and local government sector. In particular, two types of state and local expenditures will likely rise quickly. The first is Medicaid expenditures, and the second is expenditures by these governments for health insurance for state and local employees and retirees.

ELDERLY VOTERS: Some Improvements in Voting Accessibility from 2000 to 2004 Elections, but Gaps in Policy and Implementation Remain, GAO-08-442T (pdf, 30pp/792kB), January 31, 2008

This report covers voting accessibility by seniors and the disabled, specifically getting to polling places and being able to cast votes once they arrive. Besides impediments to wheelchair users, the forms of ballots, type size of voting instructions, and lack of ballots with audio-tape or braille ballots may affect access. GAO noted an increase in states' providing alternative voting methods such as early voting, absentee voting without medical certification, curbside voting, allowing voters to go to more accessible polling places, and taking ballots to a voter's residence. Some election officials reported that early and absentee voting added to the "cost and complexity" of elections.


BILINGUAL VOTING ASSISTANCE: Selected Jurisdictions' Strategies for Identifying Needs and Providing Assistance, GAO-08-182 (pdf, 86pp/2.8MB), January 18, 2008

This study was mandated by the "Fannie Lou Hamer, Rosa Parks, and Coretta Scott King Voting Rights Act Reauthorization and Amendments Act of 2006," P.L. 109-246 (pdf, 5pp.), section 9, regarding the implementation of section 203 of the Voting Rights Act of 1965. Section 203 is codified at 42 USC 1973b(f). GAO gathered information from 14 of the 296 jurisdictions required to provide bilingual voting assistance. It found that evaluating the effectiveness of these programs is difficult, therefore the extent to which they are helpful to language minority voters is unknown.

Recession - who decides?

A four-page paper from the Congressional Research Service (CRS) discusses the definition of a recession. The "generally recognized arbiter" of recessions is the National Bureau of Economic Research (NBER), specifically its business cycle dating committee. On Jan. 7, the committee issued a memo which stated in part:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

CRS notes that since it takes time to compile data, it can be more than a year to date the beginning of a recession. The paper concludes:

Although there can be a significant delay between the onset of a recession and the dating committee determination, there is often little doubt that the economy is, or has been, in recession well before the announcement. For policy to have mitigating effects, it must occur quickly. Policymakers may not have the luxury of holding themselves to as strict a definition of recession as economic analysts.

What is a Recession, Who Decides When It Starts, and When Do They Decide? RS22793 (pdf, 4pp/64kB, from Open CRS), Jan. 23, 2008

Recent CRS reports

Congressional Research Service (CRS) reports from Open CRS:

The Effect of State-Legalized Same-Sex Marriage on Social Security Benefits and Pensions, RS21897 (pdf, 5pp/68kB), Jan. 3, 2008

Same-sex spouses are ineligible for Social Security benefits because of gender-based definitions of "wife" and "husband" in the Social Security Act (42 USC 416 (b) and (f)), and the definition of "marriage" in the Defense of Marriage Act, DOMA, P.L. 104-199 (pdf).

Both federal and private pensions regulated by the Employee Retirement Income Security Act (ERISA) are required to comply with DOMA's definition of a spouse as a "person of the opposite sex who is a husband or a wife."


Dollar Crisis: Prospect and Implications, RL34311 (pdf, 17pp/124kB), Jan. 8, 2008

Since 2002, the dollar in international exchange has fallen about 29%, accelerating in latter 2007. Among the report's findings are three possible reasons why a dollar crisis won't occur: a large share of a global saving glut is attracted to U.S. asset markets, resulting in large capital inflows to the U.S.; under the current global monetary arrangement known as Breton Woods II, central banks, particularly in Asia, use dollar reserves to stabilize their currencies; and the "dark matter argument"--that large measurement errors in U.S. trade data understate U.S. exports and overstate U.S. net external debt, the dark matter being invisible assets.


Regulation of Vehicle Greenhouse Gas Emissions: State and Federal Standards, RS22788 (pdf, 6pp/76kB), Jan. 11, 2008

This report stems from the denial by the Environmental Protection Agency (EPA) of California's request for a waiver to establish its own greenhouse gas (GHG) emissions standards and compares them with federal standards. California was denied a waiver because federal fuel economy standards in the 2007 energy bill (P.L. 110-140) "will be more stringent than the California program." CRS cites the two relevant California bills that were enacted: AB1493 (pdf, 8pp), in 2002, requiring GHG reductions for vehicles from model year 2009, and AB32 (pdf, 13pp), in 2006, requiring additional GHG reductions.

See earlier FR posts on the energy bill (H.R. 6 that became P.L. 110-140):
     Smart grid - the bigger picture (1-8-08)
     Smart grid (1-3-08)

Climate change impacts public sector budgets

University of Maryland's Center for Integrative Environmental Research (CIER) released their report examining direct and indirect costs of climate change to America as a nation and to the many communities within.

The direct costs of not taking on the challenges posed by climate change are often neglected - and typically not calculated. The indirect effects are considered even less frequently, yet can be substantial ... All sectors of the economy will be affected.

Climate change impacts placing "immense strains on public sector budgets" and the uneven distribution of impacts across the country are two of several key lessons presented and supported in this study.

Recent estimates indicate that a sea-level rise of nearly 20 inches (50 cm) by 2100 would cause $23-170 billion in damages to coastal property throughout the US. In Hawaii, sea level rise will require upgrades to the drinking and wastewater infrastructures -- at a cost that exceeds $1 .9 billion over the next 20 years...

The biggest threats to [Hawaii's] already burdened infrastructure will be sea level rise and tropical storms.

CIER, established in 2006 as a multidisciplinary environmental research and collaboration group, works to develop "strategies and tools to guide policy and investment decisions, particularly to help mitigate climate impacts."

The US Economic Impacts of Climate Change and the Costs of Inaction
(October 2007, pdf, 51pp/5.2MB)

Executive Summary (pdf, 12pp/1.7MB)

Regional Highlight: Hawaii and US Affiliated Islands (pdf, 2pp/136KB)

The "middle class"

Legislation before Congress is often for the "middle class," but there is no consensus definition or official government definition of the term, according to a recent paper from the Congressional Research Service (CRS). CRS attempts to give the term some perspective by using income data. In 2005 the median household income was $46,235. Using data in which household income distribution is divided into fifths, or quintiles, CRS considers one definition of middle class to comprise the three middle quintiles, with incomes ranging from $19,178 to $91,705, accounting for 60% of all households and 46.2% of all household income.

The paper also discusses the "economics of happiness," related to relative income and self-assessment.

Who Are the "Middle Class"?, CRS Report RS22627 (pdf, 6pp/68kB, from Open CRS), March 20, 2007

Dow down - the bigger picture

In light of the Dow's "biggest loss since '03" yesterday (Washington Post, Feb. 28), the release of testimony today on economic volatility by Peter R. Orszag, Director of the Congressional Budget Office (CBO), is timely. His testimony covers macroeconomic volatility; workers' earnings and households' income; and risk sharing, income fluctuations, and taxation. Orszag's conclusion:

The U.S. economy has become less volatile: Macroeconomic fluctuations are now much milder than they were in the past. At the same time, however, households continue to experience substantial variability in their earnings and income, and that variability may now be greater than in the past--perhaps contributing to anxiety among workers and families. The tax system can help to smooth fluctuations in income not only at the macroeconomic level but also at the level of workers and households. The income insurance provided as a result may be quite valuable but needs to be weighed against the other effects of the tax system.

Economic Volatility (pdf, 15pp/120kB), Feb. 28, 2007

So far, so so

According to a new Pew Research Center survey, most Americans are "moderately upbeat about their family's financial prospects in the coming year." The survey found a majority expecting a degree of improvement in 2007.

Among the group that says they don't earn enough now, most expect to earn enough in the future to lead the life they want. Just 18% of all employed respondents in the survey say both that they don't make enough now and that they don't expect ever to make enough to have the life they want.

The least optimistic group is 65 and older, mostly retired and mostly feeling "their financial situation will stay-the-course or get worse."

Though moderately optimistic, the majority of survey respondents write the biggest problems they face are financial concerns, and forty percent feel their family's income is falling behind the cost of living. An alarming "four-in-ten (38%) adults and 32% of all workers say they have no retirement plan other than Social Security."

Most Americans Moderately Upbeat About Family Finances in 2007
(January 2007, pdf, 21pp/200kB)