State Finances & Budgets
Dr. Joseph Stefko Department of Political Science University at Buffalo, SUNY Fall 2006
State Budgets
• Budgets are fundamentally about policy • Central policy documents of government • Priorities in action
Sales Taxes
• • • • • • About 35% of state/local revenue Most goes to the state government Localities usually allowed to levy their own Examples of “sin taxes” Why politicians like them Why economists like them
Sales Taxes (continued)
• Why some oppose sales taxes: Regressive • The erosion of sales tax over the years
– Growth of the service economy – Growth of online shopping
• Sales tax statistics by state
Property Taxes
• Second largest source of tax revenue (mainly a local tax, however) • Approx 71% of local revenues (1% states) • States’ role in property tax levels
– New York as an example
Property Taxes (continued)
• California’s Proposition 13 (1978)
– Remains hotly debated issue – Capped prop tax rate at 1% of purchase price – Froze assessment until next resale
Income Taxes
• Account for 23% of state/local revenues • Almost all PIT go to the state
– Some localities in NYS also receive PIT
• Largest single component of state tax revenue • Not every state has PIT
User Fees
• States also derive revenue from other sources (registrations, licenses, etc.)
– Car registrations = $20 billion – Estate taxes = $10 billion
Intergovernmental Transfers
• Mainly federal funding that flows to states • In 2000, accounted for 31% of state/local spending • Funds go mainly to specific programs
– Medicaid – Education
How States Tax
• Different states tax in different ways
– Different tax burdens – Different methods of taxation
• Why the differences?
– Geography – Geology – Economic cycle
Bonds and Borrowing
• Financial instruments where states borrow $ and promise to pay it back w/ interest • Borrow for many reasons
– Capital investment, most commonly
• Inter-generational payment
The Budget Process
• Most states budget for a 12-month “fiscal year” (not same as calendar year) • Fed fiscal year is 10/1 thru 9/30 • Most states are 7/1 thru 6/30
– Some exceptions
• Budget debates usually focus on the upcoming FY
The Budget Process
• Executive agencies draft funding requests • Budget office reviews requests, develops unified budget • Governor presents “executive budget” to legislature • Legislature reviews budget
Where Does the $ Go?
• Employee costs are largest
– 4.9 million state govt employees in U.S. – 13.1 million local govt employees in U.S.
• Education is largest functional category • Healthcare spending is surging
Medicaid
• Largest and most expensive state-run health program • Established in 1965, originally viewed as limited safety net • Program and its costs have grown incredibly • Covers 44 million, costs 15% of state budgets
Welfare
• Major program today is TANF (Temporary Assistance to Needy Families) • Formerly known as AFDC (Aid to Families with Dependent Children) • Funded through block grant monies that give states flexibility
Public Safety
• Direct funding • Indirect funding through local aid
The Budget in NYS
• “State government’s biggest job” • Most important job of the exec and legis • Major players
– Governor (and Budget Director) – Legislative Finance Cmtes (and leadership)
Advantage, Governor
• Governor has more power than legislature
– Creates initial budget proposal – Can veto additional spending added in – Administers spending of $ by state agencies
NYS Budget Process
• Executive budget model • State FY begins April 1, ends March 31 • “Budget cycle” is two years long
NYS Budget Process
• • • • • • • Begins at program, subdepartmental level Agency-by-agency process Begins in spring w/ “call letter” Aug to Sept, final package sent to dept head September, DOB undertakes its review November, DOB holds budget hearings December, DOB sends recs to Governor
NYS Budget Process
• Dec and Jan, preparation of State of State • Submission of “Executive Budget” to legis • Legislature reviews for several months
– Primary fiscal committees are responsible
• Legislature passes its version of budget • Governor can still veto • Appropriation bills
New York’s Budget
• Current FY budget is $112.5 billion • 8% growth since last year • Executive budget was $110.6 billion; Legislature added $4.9 billion; Governor vetoed some of the adds
The Revenues
• Personal income tax is largest component ($34.2 billion) • User taxes and fees are $13.7 billion • Business taxes are $7.3 billion • Other taxes are $1.7 billion
The Expenditures
• • • • • • • Medicaid School Aid Higher Education Mental Health Transportation Public Health State Charges
The Expenditures (continued)
• Social Services • Child & Family Services • Other