Strengthening Local Fiscal Health

Strengthening Local Fiscal Health
Last Updated June 10, 2021

Local governments are essential to the nation’s prosperity—central to the quality of life, jobs, and long-term prospects of most Americans. However, research from Pew finds that even as many cities and towns struggle to recover from the Great Recession, new challenges are emerging. Local governments face costly infrastructure needs, reduced state and federal aid, and growing long-term liabilities.

Both state and local policymakers have a critical stake in ensuring that localities remain fiscally sound. Strong local economies, in turn, generate revenue for governments at all levels.

By working together, state and local decision-makers can strengthen cities’ long-term fiscal and economic well-being and generate opportunities for economic development. To inform these critical conversations, Pew conducts research on the fiscal landscape of cities, best practices for proactively assessing local governments’ financial condition, and promising policy options that can improve localities’ fiscal outcomes. 

School buses line and parked at DPS- Hilltop Terminal in Denver, Colorado on Tuesday. November 10, 2020.
School buses line and parked at DPS- Hilltop Terminal in Denver, Colorado on Tuesday. November 10, 2020.
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Just months ago, many states feared their budgets might face shortfalls for years because of the COVID-19 pandemic. But now most could have temporary surpluses after President Joe Biden signed the American Rescue Plan Act (ARPA) into law in March.

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Incentive Evaluations Limit Fiscal Doubt and Improve Effectiveness

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Even as the pandemic forced states to shift their policy priorities and grapple with the economic downturn during the 2020 legislative session, governments continued to enact major reforms to economic development tax incentives.

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Where States Get Their Money, FY 2019
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Where States Get Their Money, FY 2019

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Data Visualization

Taxes and federal funds together account for 80.5% of revenue for the 50 states. Taxes are the largest revenue source in 46 states, while federal funds are greatest in four: Alaska, Louisiana, Montana, and Wyoming.

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State Strategies to Detect Local Fiscal Distress
State Strategies to Detect Local Fiscal Distress
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State Strategies to Detect Local Fiscal Distress

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Report

As local governments across the country struggle to resolve budgetary challenges, some states are exploring ways to help their counties, cities, towns, and villages avoid defaulting on loans or filing for bankruptcy.

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The State Role in Local Government Financial Distress

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iStock Note: In April 2016, this report was updated to include revised information about Louisiana’s intervention practices and to improve the clarity of citations. What role, if any, should states play in helping cities, towns, and counties recover from serious financial trouble, what officials generically call “intervention?” The Pew Charitable Trusts conducted a study examining the range of state involvement in local government finances that drew on current literature, statutes, a survey of state officials, and interviews with government finance analysts. "The State Role in Local Government Financial Distress" examines various intervention practices, identifies challenges, and elaborates on three key policy guidelines. The analysis and state profiles can help inform state decision making about whether, when, and how to assist municipalities facing fiscal stress, the likely outcomes of various approaches, and the implications for cities, counties, states, and taxpayers.