IN PRINT: State and Local Finance: Increasing Focus on Fiscal Sustainability June 2009

State and Local Finance: Increasing Focus on Fiscal Sustainability

Published in "Publius, The Journal of Federalism." (See below for article access.)

By Robert B. Ward and Lucy Dadayan

Robert B. WardLucy Dadayan

ABSTRACT: In recent decades, the scope of state and local governments’ budgetary commitments has expanded significantly due to a combination of policy decisions at all levels of government and sharply rising costs in one area, health care. At the same time, states and localities are confronted by challenges in their revenue systems, including heightened voter resistance to tax increases and tax structures that fail to capture growth in important sectors of the economy.  Meanwhile, states’ finances — long intertwined with those of localities — have become increasingly influenced by federal programs and policies.

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The full article is published in Publius: The Journal of Federalism 2009; doi:10.1093/publius/pjp014. Access the article: Abstract | Full text | PDF

State and local expenditures have not only grown sharply, but have changed qualitatively in important ways over the last three to four decades. Just as the federal budget is increasingly dominated by entitlement spending programs, state/local expenditures have taken on ‘‘entitlement’’ characteristics as well. Such expenditures have become more difficult to adjust when economic and revenue conditions deteriorate, largely because of growing costs for health care.

Government and academic researchers, and the agencies that set financial reporting standards for states and localities, are increasingly focusing attention on ‘‘fiscal sustainability.’’ This is a broad and longer-range concept that has been defined in varying ways to represent the ability of governments (whether at the national, state or local level) to meet existing program commitments with existing resources not only in current terms but into the future.

This article builds on previous research and analysis of fiscal sustainability for state and local governments. First, it reviews recent history of states’ expenditures and revenues, as background for the emerging concern over sustainability. The article describes evolving themes in analyses of state/local fiscal pressures over the last three decades, discusses varying definitions of fiscal sustainability that have been offered in previous literature, and argues for greater precision in such definitions. Finally, the article examines potential action by the Governmental Accounting Standards Board in this area, and discusses how developments in the economy, and potential action at the federal level, may influence state and local budgets in years to come.


The Nelson A. Rockefeller Institute of Government, the public policy research arm of the State University of New York, conducts fiscal and programmatic research on American state and local governments. It works closely with federal, state, and local government agencies nationally and in New York, and draws on the State University’s rich intellectual resources and on networks of public policy academic experts throughout the country.