Thursday, May 07, 2009
Just how bad is the current economic recession? Never before has the federal government been the No. 1 source of revenue for state and local governments. But that has changed as of 2009. Between the steep drop in tax revenues and the generous allocation of federal money from the stimulus plan, the U.S. government is now the most important source for keeping health care, education, transportation projects and other state responsibilities going during the economic downturn.
Since the mid-1970s, sales taxes have represented the financial backbone of state and local governments, with property and state income taxes also playing key roles. The drop in incomes taxes for states such as California, New York, Oregon, and Connecticut has been steep, because of fewer year-end bonuses and capital gains on investments in late 2008. In the first quarter of this year, sales tax revenues collectively fell across the country by 2%, while federal grants leaped 15%, thanks to the stimulus package adopted in February.
The dominance of federal money will only expand during 2009 as tax collections are expected to sink further and the bulk of stimulus grants get delivered. The federal government plans to provide about $300 billion in extra aid to state and local governments over the next two years. State and local governments spend about $2 trillion a year, and the federal government is now paying about 23% of those costs.
-Noel Brinkerhoff
Federal Aid is Top Revenue for States (by Dennis Cauchon, USA Today)
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