State and Local Finances

In many cities and counties, inmate health care comprises as much as a third of the cost of the corrections department. Options are presented on ways to substantially reduce the costs without reducing the quality of the care. We drew on practices of jails and prison across the nation. The approaches for cost reduction include ways to reduce demand or need for health care (e.g., screening need for hospitalization), and ways to reduce the cost per inmate when care is need (e.g. use of telemedicine.)

Federal tax reform may put added pressure on state and local governments that already face severe fiscal challenges. Tax-exempt bonds and the deduction for state and local taxes are among the major preferences likely to come under scrutiny in any rewrite of the Revenue Code. In addition, lower income tax rates themselves would limit the market for tax-exempt debt. As a result, tax reform is likely to have significant policy and revenue implications for state and local governments and will raise important questions about federalism.

Driven by increasing pressure on local budgets, some municipalities have sought a reexamination of the property-tax exemption for nonprofit organizations provided by state law. The property tax is a major source of revenue for many municipalities, and large nonprofits such as universities and hospitals may own significant portions of land within a given city. Some cities have begun asking nonprofits for voluntary PILOTs, or Payments in Lieu of Taxes—an attempt to collect a portion of the property tax revenue which would be owed if nonprofits were not tax-exempt. However, concerns from nonprofit organizations have arisen regarding PILOTs.

This working paper examines the performance of the state unemployment insurance (UI) financing system during and after the Great Recession of 2007-2009. It documents the patterns of borrowing by the states and the response of UI taxes and other policy actions to restore state UI trust fund balances. The final section explores alternative policy options for improving the long run solvency of state UI programs.

In deciding whether to implement the ACA's expansion of Medicaid to adults up to 138 percent of FPL, states must assess fiscal effects carefully. States would pay a small percentage of costs for newly eligible adults, beginning in 2017. Enrollment would rise among currently eligible adults, for whom states pay their standard Medicaid share. However, the expansion would increase federal payments for some current Medicaid beneficiaries. With fewer uninsured, states could cut non-Medicaid payments for hospital uncompensated care, mental health services, etc. Federal Medicaid dollars would boost state economies, increasing state revenues. Net gains or losses will vary by state.

To control rising pension costs, many states are reducing the generosity of the retirement plans they offer their employees, partly by increasing required employee contributions. These reforms, however, ignore the employee recruitment and retention problems created by traditional pension plans. Using New Jersey as a case study, this brief shows how state retirement plans discourage younger workers from joining the state's workforce, lock in middle-aged workers even if a job is not a good fit, and push older workers into retirement. Recent reforms make these plans even less appealing to a modern, mobile workforce.

When state pension plans are underfunded, someone eventually has to pay for the shortfall. Many recent reforms designed to improve plan finances shift burdens to the young, particularly by making many new employees net contributors to—rather than beneficiaries of—these plans. Using New Jersey as a case study, this brief shows how states require higher levels of employee contributions, invest them in somewhat risky assets, and then, like a bank or financial intermediary, pay back many employees less in benefits than what they contributed and expected to earn on those contributions.

Twenty-somethings fresh out of college or graduate school may need to rethink starting jobs in state government, cautions a report from the Urban Institute's Program on Retirement Policy. The new recruits could end up paying for their state’s unfunded pension liabilities without much to show for their efforts.

This policy brief summarizes the first of many Urban Institute cost-benefit analyses employing an innovative statistical method that enables policymakers to assess the range of possible costs and benefits associated with specific evidence-based programs designed to prevent crime and recidivism. This particular study examined the costs and benefits of the District of Columbia's Community-Based Substance Abuse Treatment (CBSAT) program. The analysis found a 55 percent chance, on average, that the CBSAT program serving 150 people will yield benefits exceeding its costs.

State-financed unemployment insurance (UI) programs owe the U.S. Treasury and the private securities market more than $46 billion. In testimony before a U.S. House Ways and Means subcommittee, Wayne Vroman discusses the causes of this debt, UI benefit payments since the onset of the Great Recession, and how a financing crisis can be avoided in the next recession.