Receipts and expenditures of state governments and of local governments, 1980-83 Essay

THIS article presents separate receipts and expenditures accountsfor State governments and for local governments for 1980-83. Theseaccounts deconsolidate the single account for State and localgovernments in the national income and product accounts. The estimatesfor 1982 and 1983 are available for the first time, and those for 1980and 1981 are revised (tables 1 and 2). (Separate accounts for 1968-79are in the May 1983 SURVEY OF CURRENT BUSINESS and for 1959-67 are inthe May 1978 SURVEY.) Separate accounts for the two levels ofgovernment are useful because, as is clear from the following summary oftheir fiscal positions in 1980-83, the receipt and expenditure patternsof States differ substantially from those of localities. The articlealso presents expenditures cross-classified by type and function forStates and for localities and a summary discussion of them. Fiscalpositions Continuing a trend that began in 1977, State governments recordedsurpluses (excluding social insurance funds) in 1980 and 1981.

(Hereafter, receipts, expenditures, and the fiscal positions referred toare exclusive of social insurance funds because those funds aregenerally not available to finance either capital spending or currentoperations.) The 1980 surplus was less than one-half of the 1979surplus, as expenditures increased more than receipts. In 1981, thesurplus increased despite a sharp deceleration in receipts becauseStates began to exercise restraint on expenditures. In 1982, States slid into deficit–the first since 1976 and $1-1/2billion larger than the previous record deficit in 1975. The slideoccurred despite a deceleration in expenditures increases, from 8-1/2percent in 1981 to 7 percent in 1982.

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An even sharper deceleration inreceipts reflected the 1981-82 recession and a decline in FederalGovernment grants-in-aid. Receipts increased only 3 percent in 1982,compared with an average rate of increase of 10 percent in the prior 2years. General own-source revenues (GOSR)–personal tax and nontaxreceipts, corporate profits tax accruals, and indirect business tax andnontax accruals–increased only 5-1/2 percent in 1982, compared with 10percent in 1981. In the absence of legislative actions, the increasewould have been about 4 percent.

States swung back into surplus in1983. They continued to exercise restraint on expenditures;expenditures increased only 5 percent, compared with an average increaseof 10-1/2 percent in 1980-81 and 7 percent in 1982. Receiptsstrengthened: Federal grants increased modestly and GOSR increased10-1/2 percent.

Legislative actions, which added about $7 billion toGOSR, accounted for over one-third of the percentage increase. The 1983 recovery in State GOSR was centered in income and salestaxes, which account for about three-quarters of total GOSR. Thesetaxes had been affected by the recession; increases averaged only 5percent in 1981-82. In 1983, the increase was 9-1/2 percent. (All ofthese changes are exclusive of legislative actions.) In contrast,severance taxes and royalties related to energy exploitation increased40 percent in 1981 and 3 percent in 1982, but declined 5 percent in1983. These revenues, although a much smaller component of total GOSRthan income and sales taxes, are very important to States in theSouthwest and to Alaska, where energy resources play a major role in theeconomy.

Thus, several energyrich States–for example, Arizona,Louisiana, and Texas–were able to avoid legislative increases in1982-83 but were forced to make them in 1984. On the other hand, anumber of States reliant on income and sales taxes, which found itnecessary to increase rates in 1982 or 1983, were able to repeal atleast some of these increases in 1984. This occurred, for example, inMichigan, Minnesota, and Wisconsin. These developments highlight animportant consideration in using the separate accounts and the fiscalpositions they show: they reflect the fiscal activities of manygovernments–50 States, of course, and about 80,000 localgovernments–so that they can mask substantial diversity within theaggregates. The local governments fiscal position was much stronger that forState governments; local governments recorded surpluses in all 4 years.Like the States, local governments kept expenditures under tightcontrol; increases averaged 6-1/2 percent. Unlike the States, however,localities experienced strong GOSR growth. Property tax increasesaveraged 10-1/2 percent, and personal nontax increases averaged 12-1/2percent.

(These two revenue sources account for about three-fourths oftotal local GOSR.) Grant receipts increases averaged only 2-1/2percent, as direct Federal grants declined in each of the years 1981-83. Local government receipts did not decelerate as rapidly as didState receipts because local GOSR are not as dependent on incomes andsales, which were significantly affected by the 1981-82 recession.Property taxes, the primary source of revenue for localities, increasedabout 12 percent in 1981 and 1982. Rapid increases in the market valueof real property prior to 1980 resulted in strong increases in assessedvalues that formed the tax base for property taxes in 1981 and 1982.Further, a 20-year decline in average effective property tax ratesslowed considerably (and possibly was reversed) in 1981 and 1982. (See”Sources of Growth in Selected State and Local Government TaxReceipts,” in the March 1982 SURVEY, for a discussion of thedecline.

) Local property tax increases did decelerate in 1983 however,to 7-1/2 percent, (and largely accounted for a decline in the localgovernment surplus in 1983). The rapid increases in local personal nontaxes from 1981 to 1983were partly the result of increased charges for medical servicesrendered by public hospitals (a major component of local personalnontaxes) and partly the result of an increased reliance on user chargesin general. This increased reliance stems from the “taxrevolt” sentiments manifested by California’s Proposition 13in 1978. Also contributing to the strong fiscal position of localitieswas a continuation of the decline in the share of expenditures dedicatedto structures.

As discussed in the May 1983 article, the structuresshare averaged about 21 percent in the 1960’s, but declined to 16percent in 1970. This decline was a primary cause for the shift fromdeficits in the 1960’s to frequent surpluses in the 1970’s.The structures share has continued to decline, and in 1983 it was only9-1/2 percent. Expenditures by function Tables 3 and 4 show expenditures cross-classified by type andfunction for State governments and for local governments, respectively.

Although education continues to be the major function for both levels ofgovernment, increases in spending for education decelerated in 1980-83.Increases in State expenditures for education averaged 6 percent in1980-83, about one-half as much as in 1970-79, and increases in localgovernment education expenditures averaged 6-1/2 percent, down from 10percent. As a result of this deceleration, State expenditures foreducation, as a percentage of total expenditures, declined from1980–when it peaked at 41 percent–to 40 percent in 1983. Most Statespending for education is in the form of grants-in-aid to localgovernments. These grants funded more than 55 percent of localexpenditures for elementary and secondary education in 1980-81, but only53 percent in 1983. Both levels of government also experienced a deceleration in theincrease for health and hospital expenditures.

Increases inexpenditures for health and hospitals by States averaged 9 percent in1980-83, compared with 12-1/2 percent in 1970-79, and by localgovernments 11 percent, compared with 12 percent. However, unlikeeducation expenditures, the share of total expenditures for health andhospitals increased at both levels of government. In addition, at theState level, spending for medical services on behalf of indigents–asubfunction of income support, social security, and welfare–alsoexperienced a significant deceleration; annual increases averaged 10percent in 1980-83 compared with 18 percent in 1970-79. However, theshare of total expenditures increased slightly, to 10 percent in 1983from 9 percent in 1980. The decelerations in the rate of increase inspending for education, health and hospitals, and medical servicesreflect the restraints imposed by States and by localities onexpenditure increases as well as reductions in Federal grants-in-aidprograms.

Increased stringency imposed by Federal administrativechanges in formula-grant programs–for example, medic-aid and aid tofamilies with dependent children–also slowed expenditures.


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