Subject: Studies in the News 03-62 (September 26, 2003)

Studies in the News:
Revenue, Taxation and Budgeting Supplement

Contents This Week

Introductory Material GENERAL GOVERNMENT
   Counting cost of federal programs
   Budget reform schemes
   Municipal bond interest rates
   Fiscal crisis for cities
   Budget and revenue trends
   Suit to block budget bond financing
   State rainy day funds
   Prospects for state and local government finance
   State budgets in flux
   Expanding sales taxation of services
   Extending sales tax to services
   Tax structures and state fiscal crises
   Tax policy responses to revenue shortfalls
   Capital gains impact on state revenues
   Studies in the News, August 13, 2003
   Studies in the News, August 24, 2003
   Studies in the News, September 5, 2003
   Studies in the News, September 22, 2003
Introduction to Studies in the News

Studies in the News is a very current compilation of items significant to the Legislature and Governor's Office. It is created weekly by the State Library's Research Bureau to supplement the public policy debate in California’s Capitol. To help share the latest information with state policymakers, these reading lists are now being made accessible through the State Library’s website. This week's list of current articles in various public policy areas is presented below.

Service to State Employees:

  • When available, the URL for the full text of each item is provided.

  • Items in the State Library collection can be checked out to state officials and staff.

  • Access to all materials listed will be provided by the State Information Reference Center, either by e-mail to or by calling 654-0261.

The following studies are currently on hand:



Reducing "Waste, Fraud, and Abuse": One Percent of What? Double-Counting and Other Budget Committee Mistakes Will Require Some Committees to Cut Entitlement Programs More Than One Percent. By Richard Kogan. (Center on Budget and Policy Priorities, Washington, DC.) September 2, 2003. 14 p.

Full Text at:

["In assigning savings targets ... Senate and House Budget Committees incorrectly counted as a cost to government both the payments from the Treasury to these trust funds and the payments from the trust funds to the beneficiaries.... In total, double-counting ... produces ten-year savings targets that are $24 billion too high."]

[Request #S9115]

Return to the Table of Contents

Budgeting in Tough Times: The Decisions that Matter Most to Improving Service to Citizens When Budgets Are Tight. And Making Ends Meet in Washington State. By Public Strategies Group. (The Group, St. Paul, Minnesota) 2003. Various pagings.

Full Text at:

["In Washington, Public Strategies helped the state start from scratch. Rather than beginning with last year's budget and asking for more money, they came up with a list of citizens' ten highest priorities from state government. That list included improved achievements by students, better health, enhanced natural resources, and a vital business climate. From there, a 'purchasing plan' was devised based on getting the most bang for the public's buck."]

[Request #S9116]

Return to the Table of Contents


"The Influence of Jurisdiction Size and Sale Type on Municipal Bond Interest Rates: An Empirical Analysis." By Bill Simonsen and others. IN: Public Administration Review, vol. 61, no. 6 (November/December 2003) pp. 709-717.

["The authors find that smaller jurisdictions pay an interest cost penalty in the municipal bond market, and that competitive sales result in significantly lower interest rates compared to negotiated sales. [They] suggest that measures to enhance the financial-management capacity of small governments are warranted and that state laws requiring justification for negotiated sales are appropriate."]

[Request #S9117]

Return to the Table of Contents

Fiscal Crisis Trickles Down as States Cut Aid to Cities. By Christopher Hoene and Michael A. Pagano, The National League of Cities (The League, Washington, DC) 2003. 8 p.

Full Text at:

["From March to August 2003, the National League of Cities conducted an analysis of the types and extent of state revenues provided to cities, using data and information provided by 49 state municipal leagues through surveys and interviews. Faced with record budget shortfalls, 24 state governments cut revenues provided to municipal governments. In 13 of the 16 states where cuts did not occur, growth in state revenues was negligible – less than 3.0 percent. In total, state revenues to cities were cut by 9.2 percent, or approximately $2.3 billion. The percentage decrease is the largest in at least a decade."]

[Request #S9118]

Return to the Table of Contents


Memorandums on the California Budget. By Stephen Levy, Center for the Continuing Study of the California Economy. (The Center, Palo Alto, California) July 8, 2003. Various paging.

Full Text at:

[Includes: "Analysis of California's Three Major Tax Bases;" "K-12 and Higher Education Enrollment Trends;" "Recent Census Migration Findings;" "Role of State Government in California Economic Growth."]

[Request #S9119]

Return to the Table of Contents

Fullerton Association of Concerned Taxpayers v. California Fiscal Recovery Financing Authority, et al. Superior Court of Sacramento County. Verified Complaint for Declaratory and Injunctive Relief and Determination of Invalidity. September 2003. 14 p.

["The Pacific Legal Foundation has challenged the legality of California's $10.7 billion deficit-reduction bonds, which the state intended to issue to avoid cutting that amount in spending on programs and services. The group, in its suit in Sacramento Superior Court, said the bond deal is illegal because it violates a constitutional provision requiring voter approval of deficit funding for state government above $300,000." San Francisco Chronicle (September 25, 2003)A1]

Complaint. 14 p.

Press release. 1 p.
press release

[Request #S9120]

Return to the Table of Contents


"State Rainy Day Funds and the State Budget Crisis of 2002." By Christian Gonzalez, the World Bank, and Arik Levinson, Georgetown University. IN: State Tax Notes vol. 29, no. 6 (August 11, 2003) pp 441 - 451.

["In this report the authors focus on three factors that may account for the discrepancy between the historic levels of state fiscal preparedness and the state budget crisis we face today (1) Rainy day savings may represent fungible transfers from accounts that existed before the establishment of the rainy day funds and not 'new' savings; (2) state savings may simply be insufficient to cover the recent revenue decline; and (3) the crisis may merely represent the reversal of an unusual tax revenue bubble of the late 1990s."]

[Request #S9121]

Return to the Table of Contents

"Problems and Prospects for State and Local Governments." By Brian Knight, Brown University and others. IN: State Tax Notes vol. 29, no. 6 (August 11, 2003) pp. 427 - 439.

["In this report the authors discuss the major factors contributing to the deterioration of [state finances], drawing in part on the results of a high-employment budget measure that was developed by the authors for the state and local sectors in the early 1990s and has been recently updated. The authors also compare the current situation with the budget crises of the early 1980s and the early 1990s"]

[Request #S9122]

Return to the Table of Contents

"State Budget Crisis: The Perfect Storm." By Don H. Chamberlain, Murray State University. IN: Journal of Government Financial Management, vol. 52, no. 3. (Fall 2003) pp. 10-16.

["States are facing a perfect storm: deteriorating tax bases, an explosion of health care costs, and a virtual collapse of capital gains and corporate profit tax revenues. The current problem is long run and structural, and will take at least 3-5 years to remedy. In the short run, states have no alternative but to cut spending or increase taxes; in the long run, Medicaid and state tax systems need major reform, as states no longer have the financial capacity to support their current commitments."]

[Request #S9123]

Return to the Table of Contents


"Expanding Sales Taxation of Services: Options and Issues." By Michael Mazerov, the Center on Budget and Policy Priorities. IN: State Tax Notes, vol. 29, no. 3 (July 21, 2003) pp 183 - 209.

["As this report stresses, expanding the sales taxation of services presents policymakers with numerous choices, each option having advantages, disadvantages, and inherent tradeoffs.... There is no one right approach to managing these tradeoffs. Policymakers will make choices based on their states' revenue needs, administrative resources, equity objectives, and economic structures."]

[Request #S9125]

Return to the Table of Contents

"The Uneasy Case for Extending The Sales Tax to Services." By Kirk J. Stark, UCLA School of Law. IN: State Tax Notes vol. 29, no. 3 (July 21, 2003) pp 211 - 225.

["This article examines the issue of whether to extend the retail sales tax to cover services. The article examines the principal arguments for and against the expansion of the sales tax base to cover services and concludes that, on balance, the case for reforming the sales tax in this manner is not persuasive."]

[Request #S9126]

Return to the Table of Contents

"Three Characteristics of Tax Structures Have Contributed to the Current State Fiscal Crises." By William F. Fox, the Center for Business and Economic Research, University of Tennessee. IN: State Tax Notes vol. 29, no. 5 (August 4, 2003) pp 375 - 383.

["The report begins with a review of recent state revenue performance. The second section contains a description of three key characteristics of state tax structures that determine how tax revenues respond to economic growth. The final section concludes by putting these factors together to analyze the implications for the future"]

[Request #S9127]

Return to the Table of Contents

"Tax Policy Responses to Revenue Shortfalls." By Elaine Maag, the Urban Institute and David Merriman, Loyola University. IN: State Tax Notes vol. 29, no. 5 (August 4, 2003) pp 363 - 373.

["In this report we contrast changes in tax policy following the recessions of 1990 and 2001. We show that the relatively large decline in revenue in the recession of 2001 was partly the result of a typical economic conditions and when compared wtih the previous recession, partly the result of an atypical policy response -- state legislators' unwillingness to raise taxes."]

[Request #S9128]

Return to the Table of Contents

"Capital Gains: Its Recent, Varied, and Growing Impact on State Revenues." By David L. Sjoquist and Sally Wallace, the Andrew Young School of Policy Studies, Georgia State University. IN: State Tax Notes, vol. 29, no. 7 (August 18, 2003) pp. 497 - 506.

["In this report, the authors analyze the impact of capital gains on the recent fall-off in state individual income tax revenues. Given the growing importance of the individual income tax, the authors analyze the impact of capital gains on state tax revenues since 1989 to determine whether capital gains have had more or less of an impact on state revenues over time."]

[Request #S9129]

Return to the Table of Contents

[This section links to items in Studies in the News since the last Revenue, Taxation and Budgeting Supplement.]

"General Government." IN: Studies in the News, 03-51 (August 13, 2003)

[Includes: "Major features of the state budget;" "Oregon tax breaks;" "The regressivity of sales taxes;" and others.]

[Request #S9130]

Return to the Table of Contents

"General Government." IN: Studies in the News, 03-54 (August 24, 2003)

[Includes: "California and the federal balance of payments;" "State utilization of federal funds;" "Competitive federal grants;" "Budget and tax actions by states;" and others.]

[Request #S9131]

Return to the Table of Contents

"General Government." IN: Studies in the News, 03-56 (September 5, 2003)

[Includes: "Federal deficit forecast;" "Pension funding and state finances;" "Understanding state budget troubles;" and others.]

[Request #S9132]

Return to the Table of Contents

"General Government." IN: Studies in the News, 03-59 (September 22, 2003)

[Includes: "Federal appropriations in spending bills;" "Competitive federal grants;" "Legislative intent regarding state budget;" and others.]

[Request #S9133]

Return to the Table of Contents