National Trend: States Passing Down “Pain” to Local Governments

As Maryland debates its own fiscal plan for FY 2012 and beyond — a budget that carries over more than $500 million in annual budget cuts and cost shifts affecting county and municipal governments — other States are facing similar budget challenges, and either debating or actually resorting to similar measures. From coverage in today’s New York Times:

The reductions in state aid, along with falling property tax revenues that are finally catching up with lower home values, are major sources of fiscal stress for many cities. Ben S. Bernanke, the Federal Reserve chairman, said in a speech this month that “many localities have been hard hit by reductions in state aid, which in 2008 accounted for about 30 percent of local revenues.” And Moody’s Investors Service, the ratings agency, said in a report last week that many states “are increasingly pushing down their problems to their local governments.” The Moody’s report warned that this would be “the toughest year for local governments since the economic downturn began.”

The cuts are a vivid illustration of a fact of fiscal life: budgetary pain flows downhill. Although state tax collections are finally improving again after the longest and deepest decline on record, they remain well below their prerecession levels. Stimulus money from Washington, which helped keep many states afloat over the last two years, is drying up. So states facing large deficits are proposing cuts in local aid.

The article references a report from Moody’s Investor Services, entitled “2011 Sector Outlook for U.S. Local Governments — Toughest Year Yet.” The full reportis available to Moody’s subscribers.

Michael Sanderson

Executive Director Maryland Association of Counties

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