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Discussion Paper
Helping State and Local Governments Stay Liquid
On April 9, the Federal Reserve announced up to $2.3 trillion in new support for the economy in response to the coronavirus pandemic. Among the initiatives is the Municipal Liquidity Facility (MLF), intended to support state and local governments. The details of the facility are described in the term sheet. The state and local sector is a unique but very important part of the economy. This post lays out some of the economics of the sector and the needs that the facility intends to satisfy.
Journal Article
COVID-19 Poses Risks for State and Local Public Pensions
If the coronavirus pandemic leads to a protracted recession, public pension funding could weaken further in the years to come. During the 2001 and 2007–09 recessions, investment returns failed to reach pension plans’ longer-term assumed returns, and shortfalls in state and local government budgets led some employers to temporarily reduce contributions. If pension funding falls during the current crisis, state and local governments may choose to adjust plan structures as they did after the Great Recession.
Discussion Paper
Fiscal Drag from the State and Local Sector?
With July just around the corner, most cities and states are preparing for the start of a new fiscal year. Since the start of the recent recession, some have worried that fiscal stress on the sector would result in massive municipal bond defaults. At the end of 2011, many breathed a sigh of relief as aggregate state government revenues finally re-attained the peak they had achieved before tumbling during and after the recession. Unfortunately, relief may be premature. When adjusted for inflation, 2011 state tax revenues were still below their levels of four years ago, and local tax revenue ...
Journal Article
Rainy Day Funds Have Grown as State Tax Revenue Strengthens
Many state governments have seen solid growth in their tax revenues over the past couple of years. We show that recent changes in the federal tax code contributed to the uptick in state revenues. In addition, we show that states have used the recent revenue windfall to build up rainy day funds at a much faster pace than they did before the Great Recession.
Journal Article
COVID-19 Challenges State and Local Government Finances
As the coronavirus pandemic wreaks havoc on the U.S. economy, state and local governments will not be immune from the pain. In the near term, governments face liquidity challenges, as many tax deadlines have been postponed. In the longer term, governments will experience large revenue declines that may lead to significant budget cuts.