Policy Research

State and Local Government Finance: The New Fiscal Ice Age

D. Roderick Kiewiet, Mathew D. McCubbins

Summary

State and local governments remain strained after the recession and are struggling to keep up with promised Medicaid and retirement expenditures. The state of parks, infrastructure, and education are declining with limited funds. Low tax revenues are forcing services to shrink until a long-term solution is found.

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Policy Implications

State and local governments cannot ignore healthcare and retirement promises to their aging populations. However, the disproportionate number of retirees in comparison to the working population poses a challenge. Many governments have responded by enacting radical budget cuts to avoid bankruptcy. However, the problems that arise from these budget cuts often hurts the city more than the bankruptcy alone.