State Finances Budgets

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