Fall 2016 issue of Horizons

PUBLIC SECTOR

earmarked to pay benefits for retirees often failing to keep pace. At the municipal level, budgets have followed a similar trend from year to year. As is the case at the state level, continued spending increases on health and welfare programs (including pension benefits for public employees) and other personnel costs have driven increases in local governmental budgeted expenditures. Budgets for the cities of St. Louis, Kansas City and Denver are all projected to increase slightly for FY17, while the city of Nashville, displaying more optimism about the upcoming year, has recommended an increase to the FY17 budget of over 4.0%. One area of renewed importance at the local level is the focus on public transit. Municipalities have realized the benefits (such as less vehicular traffic and fewer harmful emissions) of enhancing local public transit systems, and the local budgets for infrastructure and transportation reflect this, with each municipality requesting increases in this area in the most current fiscal year. governments have been forced to watch expenditures so closely is because one of its sources of revenue, income derived from investments, has not been increasing significantly in recent years. Most state and local governments are restricted by law as to the type of investments they are permitted to hold, with less risky investments like U.S. treasuries being a common choice. While these investment policies ensure the maintenance of a municipality’s investment corpus, they don’t offer significant returns, particularly since interest rates have been at or near historic lows since the heart of the recent economic crisis. Investments One reason that state and local

During stronger economic times, it is not uncommon to see increases from year to year in the 6.0 – 8.0% range, so the modest increases set forth by these states indicate an air of uncertainty with regard to revenue growth going forward. While the size of the increases for each state differed slightly, one thing these states have in common is the programs the majority of the state’s revenues are being directed toward, the first of which is education. Though many states are cutting higher education appropriations and putting more of a burden on public universities to increase tuition rates and other fees, budgets for elementary and secondary education continue to increase, as instilling a proper education into America’s youth appropriately remains an issue of paramount importance. The second significant area that states are directing revenues toward is health and human services. The continued expansion of the Medicare and Medicaid programs at the federal level has driven a similar increase in expenditures at the state level.

In addition, costs related to funding defined benefit pension plans for

government employees persist in growing each year, with pension investment earnings

page 38 | horizons Fall 2016