ECO 356 State and Local Finance
Summary: This past year has been an extraordinary one for so many reasons. We are living
through a historic period which has impacted each of us in several ways, both personally and
academically. Every semester when I start this class, my goal is to teach each of you, my
students, how the theory that is presented in the textbook operates in the real world of fiscal
policy. My hope is that you will have a better understanding of how and why you should stay
informed, and most importantly engaged in the process that involves how your Federal, state
and local government spend your money each day. Understanding the context of how these
decisions are made helps you become better informed taxpayers.
The recent events and how the Federal, states and localities will respond should be based on
some historical context as well as many of the theories we have been discussing throughout the
semester. As a result, this final exam is intended for you to show me that you have gained the
knowledge necessary to analyze what governments at all levels have done so far, and what they
should focus on in the upcoming fiscal years.
Instructions: You should answer 10 of the 17 following questions, each will be worth 10 points.
You may use your notes, slides, and any additional sources you find. I will be looking for you to
demonstrate that you understand these issues, the fundamentals or policy behind each, how
they will shape what we can anticipate from policy makers, and/or what you believe should be
done. The links included in the questions are intended to be a guide. Feel free to find other
sources to support your answer. Include sources as a link, formal citation is not necessary for
your additional sources (i.e. links are sufficient)
Please save this document and answer directly following the question. Your name and class
time should be on the cover, and the document file name should include your last name and
first name & class time.
Final exams should be returned to me via email by Monday November 30, 2020 at 11:59pm.
(1) TAX = EXP. From day one of this class, we discussed how the study of State and Local
finance is inherently different from the issues addressed by Federal Government in their
respective budgets. The article below is a great example of the fiscal choices that State/Local
governments make. How States and localities will manage through this crisis is dependent
upon their prior fiscal choices. What are the differences between what the Federal government
can do, and what the states and localities can do? What are the implications? You should
discuss why these differences matter. Your answer should include specific examples.
(2) Richard Musgrave’s 3-part definition of the “role” of government provides us with the rationalization
for many of the policies enacted by Federal, State, and Local governments. Please describe each and
provide an example of how a government program (or policy) enacted to date to address the COVID
crisis help accomplish each of the three roles. You should have a recent example for each role.
(3) The United States recently participated in the democratic tradition that stretches back to the
founding of the republic: the once-a-decade census of its population. From 1790 (U.S. population: 3.9
million) to 2010 (U.S. population: 309 million), the decennial census has changed alongside the nation
itself. From the territory it covers, to the questions it asks, to how it collects the information, the census
has reflected evolution in technology, the role of the federal government, and the size of the country
itself. The stakes are high for States, local governments, and regions across the country, which depend
on a full and accurate count of their populations to ensure their fiscal health and political strength.
How has the current crisis impact this vital account of the US population? What are areas of fiscal
health that the States and local governments should be concerned about? What will be some of the
(4) As we discussed in class, grants from the Federal government are generally provided through three
different types. Please describe the four elements that support grant policy and the three types of
grants that the Federal government utilizes. The article below discusses some of the outstanding issues
relating to the need for additional funds from the Federal governments for the states and localities.
Based on your knowledge of why grants exist, and how they are calculated, how would you alter some
of the formulas being used to distribute aid? What recommendations should policy makers consider
ensuring that the States that have been hardest hit by the crisis are compensated? Alternatively, if you
believe it is not up to the Federal government to support these states with additional relief, defend your
position and offer alternatives for revenues that the State should consider.
(5) Fiscal choices determine the mix of revenues that a State relies on to fund their budget on an annual
basis. The following article discusses the current estimate of the shortfalls that States are anticipating.
Describe the primary sources of revenues that the States rely on, noting if they are progressive,
regressive or proportional (explaining each). How has each source been impacted by the current crisis,
and what should policy makers do to address the shortfall in receipts that is likely to occur in the
upcoming fiscal years?
(6) When looking at the amount and proportion of state/local dollars that are spent annually on
education, it is easy to see why there is a concern regarding the question of declining performance –
that is, why, despite the investment by States/localities, scores for exams such as the SAT’s have
remained constant over the last several years. Describe the relationship between inputs and outputs or
outcomes in the production of education. What are at least two things that you believe are measured
currently in your local district. In thinking about the impact of the corona virus on lower education
across the country, how do you think these validation measures could/should change. Your answer
should address some of the inherent challenges many districts have been facing as they have moved to
(7) New York State recently enacted its State fiscal year budget for 2020-21. It was based on several
assumptions and included several provisions relating to borrowing by the State to provide a source of
funds for in the upcoming fiscal year. The article below describes most of the debt related provisions
included in the budget. What are the three primary reasons that State and local governments borrow?
What are the two types of debt which is utilized? What is the difference in growth rate between the
two? Using the article below give me an example of each type of debt, and what reason they support.
Do you agree with further increasing our debt burden? Support your position. Alternatively, if you do
not agree with these choices, defend your position, and offer alternatives for revenues that the State
(8) Please provide an overview of the role of the Federal Government in Transportation Financing (as it
relates to State & Local Governments). What funding streams are used to finance these projects?
What is the basis for the difference in level of funding between transportation modes (highways, mass
transit, rail, air & water)? Identify the rationale behind the Federal government’s level of involvement
historically. What are the current transportation issues facing New Yorkers (specifically those downstate
in the NYC metropolitan region)? How will the current economic crisis affect these revenues? What
additional issues do you foresee in the future?
(9) Economic Development is a significant programmatic area in the States, as they (i.e. the States)
compete against each other to attract new businesses and the accompanying jobs in a specific state. In
addition to comparison of tax rates, there are essentially two types of incentives offered by the states –
please define and explain the primary differences between the two approaches. Your answer should
include two examples of each. Which approach do you believe is most effective why? In light of the
current crisis, what would you change or recommend as an alternative economic development
(10) A year ago, former President Obama gave a speech in which he alluded to an economic theory we
discussed in class this semester. The press piece follows. What theory was he referring to, and how
does it relate to the other theory we also covered? How do they impact how policy makers determine
fiscal choices and level of public goods? What is the third element? Please discuss how these three
works together in determining a jurisdictions policy priority as reflected in their respective budgets. This
is a presidential election year, and you had the opportunity to vote for members of the New York State
legislature. Based on their respective handling of the current crisis, how did your individual demand
impact what your choice in candidates? How do the election results reflect this theory (if they do not,
or are uncertain, note the outstanding issues)
Obama warns Democrats against going too far left: ‘We have to be rooted in reality’
PUBLISHED SAT, NOV 16 20193:59 PM EST Emma Newburger@EMMA_NEWBURGER
• Former President Barack Obama on Friday warned Democratic primary candidates to avoid
moving too far left in their policy proposals.
“Even as we push the envelope and we are bold in our vision we also have to be rooted in
reality,” Obama said. “The average American doesn’t think we have to completely tear down the
system and remake it.”
Obama’s comments, made to the Democracy Alliance in Washington D.C., come as a large
spread of candidates compete in the Democratic primary.
The former president has mostly stayed quiet about the election and has told allies that he and
his wife have no plans to endorse anyone because they don’t want to influence the election.
Former President Barack Obama on Friday warned Democratic primary candidates to avoid leaning too
far left in their campaigns and raised concerns that certain liberal policy proposals on health care and
immigration might have gone further than public opinion.
In an unusual address to a room of wealthy Democratic donors, Obama urged Democratic candidates to
be pragmatic in their messages to voters. While he didn’t mention any specific presidential primary
candidate or proposal, Obama warned that the average American voter does not align with views from
“certain left-leaning Twitter feeds or the activist wing of our party.”
Obama said that his concerns aren’t a criticism of party activists, whose job he said is to “poke and prod
and text and inspire and motivate.” But he emphasized that whoever the candidate is, their ultimate job
is to get elected.
“Even as we push the envelope and we are bold in our vision we also have to be rooted in reality,”
Obama said. “The average American doesn’t think we have to completely tear down the system and
Obama’s comments, made to the Democracy Alliance in Washington D.C., come as a large spread of
candidates compete in the Democratic primary. The former president has mostly stayed quiet about the
election and has told allies that he and his wife have no plans to endorse anyone because they don’t
want to influence the election.
His statements could be seen as a nudge to Senators Bernie Sanders and Elizabeth Warren, who have
championed large, progressive policies aimed to significantly change the structure of the country.
“I don’t think we should be deluded into thinking that the resistance to certain approaches to things is
simply because voters haven’t heard a bold enough proposal and if they hear something as bold as
possible then immediately that’s going to activate them,” he said.
Obama said candidates should “push past” his achievements as president but embrace a message that
will keep them competitive across all parts of the country.
“For those who get stressed about robust primaries, I just have to remind you I had a very robust
primary,” he told the donors. “I’m confident that at the end of the process we will have a candidate that
has been tested.
(11) In 2017, tax reform took center stage at the Federal Level, with Congress debating the provisions
that should be enacted to “reform” the tax law for the first time since 1986. Following the 1986 Federal
change, in 1987 many states enacted additional tax reforms to benefit their individuals and corporations
at the State level. Based on your understanding the issues relating to the States tax law, if you were to
recommend tax policy changes in New York to offset the costs of the current crisis, what would they be?
Identify two tax policy recommendations for consideration in the upcoming budget which will be
introduced next year. Explain the tax you are proposing to change, what the issues are, and how your
recommendations would represent the four elements of good tax policy.
(12) After reading the below article and knowing what you do about the increase in the States of
gaming revenues generally, please provide a brief history of this monopoly revenue source. Your
answer should discuss why policy makers validate the high effective tax rate, why they continue to rely
on and potentially expand the types of gaming. While the revenue it generates cannot be disputed,
what are some of the issues associated with increasing our reliance on these funds? Should this
regressive source of revenue be used to offset the costs associated with the current crisis? Support your
position. While the article below is dated, it is still a current issue. Does your answer change in light of
the need for revenue as a result of the COVID-19 recession?
New York lawmakers mull sports betting on mobile devices by David Klepper, Associated Press
Updated 1:52 pm PDT, Wednesday, May 8, 2019
ALBANY, N.Y. (AP) — New York will lose out on hundreds of millions of dollars or more if it doesn't
authorize sports gambling on smartphones and other mobile devices, gambling supporters and
analysts told state lawmakers at a hearing Wednesday.
Lawmakers at the hearing said they are eager to capture that revenue — which is currently going to
illegal wagers or to states like New Jersey that have already approved sports gambling. They've
introduced bills to authorize wagers on mobile devices and, eventually, in person at sports venues.
There's one wrinkle: Democratic Gov. Andrew Cuomo argues such a move requires changing the
state Constitution, a multi-year process that requires voter approval. A U.S. Supreme Court ruling
last year opened the door to sports betting outside Nevada. Since then, several states have legalized
it and dozens are considering similar moves. In New York, sports wagers will begin at the state's four
non-Native American-owned casinos once regulations are finalized. With lawmakers expected to
conclude their annual session late next month, supporters of expanded sports betting are hoping
there's still time to pass legislation — even if it could face a veto by Cuomo.
"We can sit and watch it go by or we can do something about it," said Sen. Joseph Addabbo, DQueens, the chairman of the Senate's Committee on Racing, Gaming and Wagering.
Attorney Daniel Wallach, an expert on laws on sports betting, testified Wednesday that a
constitutional amendment is not needed. He noted that the state has tweaked its gambling laws
before — adding remote horse betting, for instance — without changing the constitution. "It's up to
state lawmakers," he said. Other experts told lawmakers that New York stands to lose up to $1
billion a year if it doesn't follow New Jersey's lead in permitting sports bets. Others testifying
Wednesday included a representative from the NBA, who said professional sports leagues deserve to
get a cut of the revenue from wagers. Cuomo, so far, hasn't changed his mind. "We have
constitutional concerns on this issue that we have raised for nearly a year," said spokesman Jason
Conwall. "Our position remains the same."
(13) Local Autonomy v. level of taxation. We talked about this with Lindahl pricing (i.e. What’s
your benefit) and how you, as an individual, validate what you pay in taxes to your local
jurisdiction. This validation can be used as the rationale for why we have so many different
levels of government. The article below discusses a community decision which recently
happened in Ohio. Describe the theory of Lindahl, other choices that may have been available
to the community and discuss what issues other local governments likely face in making a
similar decision considering the current crisis. How will the current property tax cap in New
York impact a jurisdictions decision on spending considering potential reductions in services?
A village of 5,000 people outside of Cincinnati revolted against a 1 percent income tax,
voting instead to dissolve the town, Sarah Mervosh, NY Times Nov. 26, 2019
AMELIA, Ohio — There were allegations of suspicious political donations and rumors about fake
social media accounts. Protesters wore T-shirts that said, “Stop the tyranny!” At one point, a
former official was escorted out of a public meeting in handcuffs. For more than a year, the
residents of Amelia, just outside Cincinnati, have been consumed by a fiery debate over a
proposal to impose a new local tax of just 1 percent. This month, voters found a way around the
problem — by getting rid of their 119-year-old village altogether.
In some ways, the dramatic move, which takes effect this week, reflects the frugal, smallgovernment mind-set that permeates Amelia, a conservative community of 5,000 people where
the median household income is $61,500. Many residents are reluctant to hand over any more
of their paychecks to the government, even the one that picks up their leaves in the fall and
plows snow from their streets through the winter.But at a time when Americans’ trust
in government is at historic lows, the fight in Amelia also shows what can happen when
polarized voters decide that their government is so broken that it simply shouldn’t exist.
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