POLS Chapter 4 Book Notes 9 28 12 American Recovery and Reinvestment Act ARRA 787 billion federal government package intended to stimulate economic growth during the recession of 2008 2009 User Fees Charges levied by governments in exchange for services a type of hidden tax State and local taxes pay for the programs that Americans care most about and that most directly affect their daily lives Where State Revenues Come From Sales Tax Taxes levied by state and local governments on purchases o Largest form of revenue o Includes excises taxes o Referred to as sin taxes on tobacco and alcohol o Approximately 81 of the money raised goes to state governments o Focused consumption taxes Taxes that don t alter spending habits or behavior patterns and therefore do not distort the distribution of resources o Regressive taxes Taxes levied on all taxpayers regardless of income or ability to pay proportionately more of a burden on those with lower incomes o Not bringing in as much revenue as they used to Services have become a much more important part of the economy Hawaii New Mexico and South Dakota changed codes so that sales tax now cover services Online shopping 1922 supreme court ruled that states couldn t force companies to collect sales taxes for them in places where the companies had no physical presence Streamlined Sales Tax Project States joined to simplify tax codes so that companies would willingly participate in collecting a sales tax o 2nd largest form of revenue o Almost all property taxes go to local governments o New Hampshire s are the largest because they have no sales or income taxes o Finance k 12 education Richer communities more money for the school Poorer communities less money for the school o Proposition 13 CA capped property tax rate at 1 of a property s purchase price and froze property assessments at their 1978 levels until the property is resold Property Taxes Income Taxes o 22 of all state and local tax revenues Most of it goes to the state o 3rd largest form of revenue o Progressive tax system System in which the tax rate paid reflects the ability to pay o Alaska Florida Nevada South Dakota Texas Washington and Wyoming don t have an income tax o Car registrations death and oil are sources of revenue Severance taxes Taxes on natural resources Alaska brings in a large amount of revenue through resources Insurance Trust Funds Money collected from contributions assessments insurance premiums or payroll taxes Intergovernmental Transfers Funds provided by federal government to state governments and by state governments to local governments o 90 of federal funds go to specific state programs Medicaid is largest recipient Education transportation projects and public welfare also receive significant federal funding o Federal and state funding for localities are decreasing Taxing Variations among State and Local Governments o Tax capacity Measurement of the ability to pay taxes o Tax effort Measure of taxes paid relative to the ability to pay taxes Ex Hawaii can charge high tax because no one is willing to fly into the U S to avoid tax Ex Alaska has a light tax burden because its resources can fund the state Dividend Payment made to stockholders or in Alaska s case residents from the interest generated from an investment Political cultures Geography Geology Demographics History Economic Cycle Debt Industrial states experience economic downturns first o Bonds Certificates that are evidence of a debt on which the issuer promises to pay the holder a specified amount of interest for a specified length of time and to repay the loans on their maturity Moody s Standard and Poor s and Fitch are the three private companies who decide the bond ratings which decide the interest rates paid by the government States use bonds to finance capital investments Investments in infrastructure such as roads Two types of bonds General obligations bonds Investments secured by the taxing power of the jurisdiction that issues them o Must be approved by lawyers Revenue bonds Investments secured by the revenue generated by a state or municipal project Municipal bonds Munis Bonds issued by states counties cities and towns to fund large projects as well as operating budgets They are exempt from federal taxes and from state and local taxes for the investors who live in the state where they are issued Safe and attractive for the rich Budget Process Process Procedure by which state and local governments assess revenues and set budgets o Most states budget for one fiscal year Accounting period used by a government Federal October 1 to September 30 State Local July 1 to June 29 o Instruction from governor s budget office or mayor s budget office o Executive branch agencies are told to draw up funding requests for upcoming year o Budget office review the spending requests and helps chief executive develop unified budget for executive branch o Most chief executives unveil budgets in state of the state addresses in January o Legislature reviews budget authorizes spending on certain programs appropriates the necessary money and presents its budget to the chief executive to sign into law Vermont is the only state to allow debt In western states people have become involved with this process via ballot initiatives Expenditures Wages Education o Largest source of expenditures for state and local governments o State and local governments are the biggest employers in the U S o State governments provide half of all funding for k 12 o Higher education is the 3rd largest item on state budgets Appropriate funding from general revenue funds Discretionary spending Spending controlled in annual appropriations acts Healthcare Welfare o Largest expenditure for states o Example of fiscal federalism System by which federal grants are used to fund programs and services provided by state and local governments o Entitlement program Service that government must provide regardless of the cost o Entitlement program o Temporary Assistance for Needy Families TANF program disburses federal money to states in block grants This gave states considerable freedom in determining how they want to spend those funds Fire Police and Prisons o NY high funding for police o FL high funding for prisons Highways Restraints on State and Local Budgeteers Governmental Accounting Standards Board GASB Unfunded mandates Ballot initiatives and the budget process
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