Strengthening Local Fiscal Health

Local governments play a critical role in daily American life, providing essential services such as responding to emergencies, maintaining and improving infrastructure, and supporting the economy. These important functions, and their costs, have been underscored during the pandemic.

Tax limitations can create daunting challenges for cities and counties as they try to balance their budgets while maintaining the level of services their residents expect in the long term. And evaluating if and how states’ tax limitations impede the ability of local officials to manage their finances and provide services effectively is a key first step. Policymakers can then take the appropriate measures to ensure that local governments have the necessary tools to weather unexpected budget crises and strengthen their fiscal health into the future.

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.

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.