GDP and Employment drag from State and Local Governments

[ProSense]

GDP and Employment drag from State and Local Governments

by Bill McBride

Two of the key U.S. economic trends I expected this year were 1) a recovery in residential investment, and 2) that most of the drag from state and local governments would be over by mid-year 2012. Just eliminating the drag from state and local governments would help GDP and employment growth.

I've written extensively about the housing recovery, and it is time to take another look at state and local government spending. In early August, the Rockefeller Institute of Government put out a report on state and local government revenue through Q1. From the press release:

Overall state tax revenues are now above pre-recession levels, as well as above peak levels that came several months into the Great Recession. In the first quarter of 2012, total state tax revenues were 4.8 percent higher than during the same quarter of 2008.

Starting at the end of 2008 and extending through 2009, states suffered five straight quarters of decline in tax revenues. They now have enjoyed nine consecutive periods of growth, and the second quarter of 2012 will likely extend the string to 10. Overall collections in 45 early-reporting states showed growth of 5.8 percent in the months of April and May of 2012 compared to the same months of 2011.

After adjusting for inflation, however, state tax revenues are still 1.6 percent lower compared to the same quarter four years ago, in 2008.

That is a little encouraging, but the news isn't as positive for local governments:

While state tax revenues have been recovering, many localities face significant fiscal challenges, according to the report’s author, Senior Policy Analyst Lucy Dadayan.

“The Great Recession led to a growing divergence between state and local government tax performance,” Dadayan said. “State tax revenues collapsed steeply from 2008 to 2010 while local tax revenues continued to grow. Such trends have reversed since 2010, and state tax revenues started trending upward while local tax revenues have been mostly heading downward. Fiscal pressures are continuously mounting for local governments, and depressed housing prices are now causing declines in local property taxes.”

The problem is local governments are mostly funded by property taxes, and property taxes react slowly to falling house prices - and property taxes are still declining. From the report:

- more -

http://www.calculatedriskblog.com/#W2iIBeHakT6HkRa1.99

This is interesting, especially after GOP media shills spent yesterday pushing lies.


http://thinkprogress.org/economy/2012/09/02/788021/hume-recession-obama/

Fact: The recovery was hindered by Republicans
http://www.democraticunderground.com/10021243365

[ProSense]

1. Kick! n/t