America's States Of (Fiscal) Siege

America's states and municipalities should be awash in good budget news. Unemployment remains below 5%, inflation is tame, and the stock market rose more than 20% in 2017 — the ninth year of a bull market. Yet many local governments faced intense struggles last year to balance their books.

Localities have confronted unrelenting fiscal pressure since 2008, a result of the  weakest recovery since World War II of tax revenues combined with ever-escalating costs. Many states and localities have had to rewrite budget books in ways that leave taxpayers paying more — and receiving less.

"U.S. states have entered a new era characterized by chronic budget stress," the financial analyst Gabriel Petek, a managing director in the U.S. Public Finance group at S&P Global Ratings, wrote last April.
 
President Trump has promised $1 trillion in infrastructure spending that could provide some help to localities, but what governments across the country really need is a return to economic growth rates of 3% or higher.

Tax reform passed in December looks like it will help but states and cities will also need to become more efficient and innovative in delivering basic services, or else face a future of tax hikes and service cuts to keep up with their mounting bills.

Local governments got a sense that something might be different starting in 2009, when state tax revenues, hammered by the steep recession, collapsed by nearly 9% — only the second time in the postwar era that state revenues had declined from one year to the next.

Then revenues slumped again in 2010, by 4% this time, leaving governments tens of billions of dollars short of where they'd been just two years earlier.

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