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

THIS article presents separate receipts and expenditures accounts
for State governments and for local governments for 1980-83. These
accounts deconsolidate the single account for State and local
governments in the national income and product accounts. The estimates
for 1982 and 1983 are available for the first time, and those for 1980
and 1981 are revised (tables 1 and 2). (Separate accounts for 1968-79
are in the May 1983 SURVEY OF CURRENT BUSINESS and for 1959-67 are in
the May 1978 SURVEY.) Separate accounts for the two levels of
government are useful because, as is clear from the following summary of
their fiscal positions in 1980-83, the receipt and expenditure patterns
of States differ substantially from those of localities. The article
also presents expenditures cross-classified by type and function for
States and for localities and a summary discussion of them. Fiscal
positions



Continuing a trend that began in 1977, State governments recorded
surpluses (excluding social insurance funds) in 1980 and 1981.
(Hereafter, receipts, expenditures, and the fiscal positions referred to
are exclusive of social insurance funds because those funds are
generally not available to finance either capital spending or current
operations.) The 1980 surplus was less than one-half of the 1979
surplus, as expenditures increased more than receipts. In 1981, the
surplus increased despite a sharp deceleration in receipts because
States began to exercise restraint on expenditures.

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In 1982, States slid into deficit–the first since 1976 and $1-1/2
billion larger than the previous record deficit in 1975. The slide
occurred despite a deceleration in expenditures increases, from 8-1/2
percent in 1981 to 7 percent in 1982. An even sharper deceleration in
receipts reflected the 1981-82 recession and a decline in Federal
Government grants-in-aid. Receipts increased only 3 percent in 1982,
compared with an average rate of increase of 10 percent in the prior 2
years. General own-source revenues (GOSR)–personal tax and nontax
receipts, corporate profits tax accruals, and indirect business tax and
nontax accruals–increased only 5-1/2 percent in 1982, compared with 10
percent in 1981. In the absence of legislative actions, the increase
would have been about 4 percent. States swung back into surplus in
1983. They continued to exercise restraint on expenditures;
expenditures increased only 5 percent, compared with an average increase
of 10-1/2 percent in 1980-81 and 7 percent in 1982. Receipts
strengthened: Federal grants increased modestly and GOSR increased
10-1/2 percent. Legislative actions, which added about $7 billion to
GOSR, accounted for over one-third of the percentage increase.



The 1983 recovery in State GOSR was centered in income and sales
taxes, which account for about three-quarters of total GOSR. These
taxes had been affected by the recession; increases averaged only 5
percent in 1981-82. In 1983, the increase was 9-1/2 percent. (All of
these changes are exclusive of legislative actions.) In contrast,
severance taxes and royalties related to energy exploitation increased
40 percent in 1981 and 3 percent in 1982, but declined 5 percent in
1983. These revenues, although a much smaller component of total GOSR
than income and sales taxes, are very important to States in the
Southwest and to Alaska, where energy resources play a major role in the
economy. Thus, several energyrich States–for example, Arizona,
Louisiana, and Texas–were able to avoid legislative increases in
1982-83 but were forced to make them in 1984. On the other hand, a
number of States reliant on income and sales taxes, which found it
necessary to increase rates in 1982 or 1983, were able to repeal at
least some of these increases in 1984. This occurred, for example, in
Michigan, Minnesota, and Wisconsin. These developments highlight an
important consideration in using the separate accounts and the fiscal
positions they show: they reflect the fiscal activities of many
governments–50 States, of course, and about 80,000 local
governments–so that they can mask substantial diversity within the
aggregates.


The local governments fiscal position was much stronger that for
State governments; local governments recorded surpluses in all 4 years.
Like the States, local governments kept expenditures under tight
control; increases averaged 6-1/2 percent. Unlike the States, however,
localities experienced strong GOSR growth. Property tax increases
averaged 10-1/2 percent, and personal nontax increases averaged 12-1/2
percent. (These two revenue sources account for about three-fourths of
total local GOSR.) Grant receipts increases averaged only 2-1/2
percent, as direct Federal grants declined in each of the years 1981-83.



Local government receipts did not decelerate as rapidly as did
State receipts because local GOSR are not as dependent on incomes and
sales, which were significantly affected by the 1981-82 recession.
Property taxes, the primary source of revenue for localities, increased
about 12 percent in 1981 and 1982. Rapid increases in the market value
of real property prior to 1980 resulted in strong increases in assessed
values that formed the tax base for property taxes in 1981 and 1982.
Further, a 20-year decline in average effective property tax rates
slowed considerably (and possibly was reversed) in 1981 and 1982. (See
“Sources of Growth in Selected State and Local Government Tax
Receipts,” in the March 1982 SURVEY, for a discussion of the
decline.) Local property tax increases did decelerate in 1983 however,
to 7-1/2 percent, (and largely accounted for a decline in the local
government surplus in 1983).



The rapid increases in local personal nontaxes from 1981 to 1983
were partly the result of increased charges for medical services
rendered by public hospitals (a major component of local personal
nontaxes) and partly the result of an increased reliance on user charges
in general. This increased reliance stems from the “tax
revolt” sentiments manifested by California’s Proposition 13
in 1978. Also contributing to the strong fiscal position of localities
was a continuation of the decline in the share of expenditures dedicated
to structures. As discussed in the May 1983 article, the structures
share averaged about 21 percent in the 1960’s, but declined to 16
percent in 1970. This decline was a primary cause for the shift from
deficits in the 1960’s to frequent surpluses in the 1970’s.
The structures share has continued to decline, and in 1983 it was only
9-1/2 percent. Expenditures by function



Tables 3 and 4 show expenditures cross-classified by type and
function for State governments and for local governments, respectively.
Although education continues to be the major function for both levels of
government, increases in spending for education decelerated in 1980-83.
Increases in State expenditures for education averaged 6 percent in
1980-83, about one-half as much as in 1970-79, and increases in local
government education expenditures averaged 6-1/2 percent, down from 10
percent. As a result of this deceleration, State expenditures for
education, as a percentage of total expenditures, declined from
1980–when it peaked at 41 percent–to 40 percent in 1983. Most State
spending for education is in the form of grants-in-aid to local
governments. These grants funded more than 55 percent of local
expenditures for elementary and secondary education in 1980-81, but only
53 percent in 1983.



Both levels of government also experienced a deceleration in the
increase for health and hospital expenditures. Increases in
expenditures for health and hospitals by States averaged 9 percent in
1980-83, compared with 12-1/2 percent in 1970-79, and by local
governments 11 percent, compared with 12 percent. However, unlike
education expenditures, the share of total expenditures for health and
hospitals increased at both levels of government. In addition, at the
State level, spending for medical services on behalf of indigents–a
subfunction of income support, social security, and welfare–also
experienced a significant deceleration; annual increases averaged 10
percent in 1980-83 compared with 18 percent in 1970-79. However, the
share of total expenditures increased slightly, to 10 percent in 1983
from 9 percent in 1980. The decelerations in the rate of increase in
spending for education, health and hospitals, and medical services
reflect the restraints imposed by States and by localities on
expenditure increases as well as reductions in Federal grants-in-aid
programs. Increased stringency imposed by Federal administrative
changes in formula-grant programs–for example, medic-aid and aid to
families with dependent children–also slowed expenditures.

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