POLS Chapter 4 Lecture Notes 9 30 12 o States can only slash programs or raise taxes 2008 2009 recession o American Recovery and Reinvestment Act Federal government promises to provide aid to states It wasn t enough for some states o Not a good way to make revenue because internet shopping is continually growing o Funds schools o If property values fall income drops property taxes fall Finance Taxes and Public Opinion Budget shortfalls Sources of State Revenue Sales tax Property tax Income tax Motor vehicle tax Estate Death tax Gift tax User fees tax individuals using it Severance tax o Ex Toll roads Intergovernmental transfers funds provided from federal government such as grants Progressive taxes percent of income tax rises as income rises Regressive tax Everyone pays equal amount Equal percentage Local city funding by state government has dropped from the 1960 s Sales tax is how they get their money Texas has low oil natural gas tax to encourage producers to come in Sin tax Cigarette tobacco and alcohol States can raise price because people will buy it regardless Taxing Variations among States and Localities Tax capacity Ability to pay o Ex CA attempt to limit property values and property tax by passing propositions CA can afford to do that because they have a lot of people Revenue won t be greatly affected Tax effort How much is paid relative to ability Important to know how friendly a state is to tax payers States who tax more have more social goods Explaining Tax Variations Geography o Location Ex Skiing in Colorado brings in a lot of revenue Ex Delaware outlet mall has not sales tax States create difference incentive to bring people in o Bigger the state more amount of roads Geology Demographics Economic cycle o Oil and natural gas rich states o Young workers with children v retirees o At different points Counter cyclical o Small states or manufacturing states suffer first when economy drops Capital Investments Debt Bonds o Revenue bonds Based on revenue project will bring in Ex Toll roads o General obligation bonds Isn t paid with specific money It comes from taxes o Municipal bond Loan from people Exempt from state and federal taxes Government borrows money from you and promises to pay it back with interest The interest depends on the economy and credit rating 339 billion in bonds Capital investment o States o Localities Highways power plant construction land conservation Schools sewage and water lines airports Budget Process Receiving money from taxes user fees bonds and intergovernmental transfers Fiscal year September 1st August 31st Balanced budget o All states but Vermont o Governor s office decides how much money states get and need Rainy Day or budget stabilization funds States save about 10 of revenue in case of budget shortfalls o Last time used was 2008 2009 o Governor or legislature decides when it s dipped into Earmarked Designated money for a certain use Three ways o Constitutional provisions Money goes to specific item o Funding formulas X amount of money coming in X goes to this project o Federal government rules Don t change the way things are funded often because it requires a vote in the legislature and if it s not broken don t fix it Texas is dependent on sales tax Problem because you can buy things out of state over the internet Problem because during a recession people stop buying Problem because it is already 8 25 and you can t raise it much higher to cover budget short falls Expenditures Wages Education o States localities highest expenditure o Localities is three times more than state o K 12 38 by localities 20 by state o Higher education 10 by state o Discretionary spending Higher education depends on economy Healthcare Welfare o 20 by local and state o Temporary Assistance for Needy Families Fire police prisons o Florida puts a lot of money forwards prisons Highways o Funded by tax on gasoline Restraints on State and Local Budgeteers Accounting standards o Governmental Accounting Standard Board o GASB 45 Unfunded mandates Ballot initiatives
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