STaylor

Article 1
State of State


The purpose of this paper is to summarize Dr. Fisher works concerning the relationship between
State of State and Local Government Finance, or at least government spending, and economic
development in the states. Dr. Fisher indicated that the State of State expenditures was nearly
$9000 per person in 2008 which is about 14% Gross Domestic Product. However, both state and
local expenditures has grown more rapidly than income over past 50 years, even though the
income has remained relatively in the mid to low percentile.

Dr. Fisher speaks in terms of revenue and how to expand tax bases to make the primary state
government taxes (income and sales) more relevant to the modern economy. This may deem
more problematic if the appropriate policy changes are not implemented delicately. There can be
some substantial political challenges. There are interesting parallels between reforming and
modernizing income and sales taxes at the state government level and reforming and
modernizing Social Security at the federal government level. Everyone seems to think it is
necessary, but implementation is another matter. And if these difficult political decisions are not
made, then the fiscal problems of the relevant governments certainly seem likely to worsen.
Finally, given the continuing aversion to taxes and the growing use of digital technology,
increased interest in charging for services provided through state and local governments seems
likely.

Dr. Fisher goes on to talks about various types of service and expenditures which education and
welfare. The make is about 35% for Education and 17% for welfare. These two make up more
than half of state and local spending. In 2001, President Bush instituted No Child Left Behind
Act. This Act requires state to develop assessment in basic skill. With these not rules and act in
effect. The education spending should be the largest expense for all state and local expenditures.
How are these expenditures funding? The state and local government must have a source of
revenue. The Short and Long Policies can often effects the revenue stream for state government.
That effect can potentially cause recession a number of ways. The decrease in state and local
revenue crimple with increase in demand of services can cause a budget gap for the fiscal year.
Conversely, long-term policy issues often provide preferred treatment for retirees by taxing
certain types of income at a lower rate. This provides them with additional exemptions or credits.

In closing, Dr. Fisher thinks the basic structure of local government should be reexamined, with
two aspects often mentioned. First, nearly 90,000 local governments including but not limited to
counties, municipalities, townships, school districts, and other special districts, some with
overlapping responsibilities and boundaries. During in time the questions were being raised as to
whether some consolidation in this structure would reduce costs or improve accountability to
citizens. Therefore, one important aspect of state-local budgets corrections costs is influenced by
another important state-local service (education) and influences the fastest-growing component
of state spending (Medicaid).