Nine Facts About State and Local Policy

Economic Significance of State and Local Policies

1. State and Local Government Budgets are Large and Represent a Sizable Portion of the Economy

  • Total expenditures of state and local governments in the U.S. amount to $2.9 trillion.

  • Federal government expenditures total $4.3 trillion, but nearly two-thirds of this is transfers to individuals or to state and local governments.

  • This structure implies that state and local governments have a more direct role in decision-making regarding key investments, such as infrastructure and education.

  • State and local governments enact laws and regulations affecting economic activity, ranging from labor market rules to tax policies and environmental regulations.

  • Policymakers' resource allocation affects educational and transportation services, which are essential for economic growth.

2. State Budgets Focus on Public Welfare and Postsecondary Education; Local Budgets are Dominated by K–12 Education

  • Direct general expenditures in 2016 were $1.4 trillion for state governments and $1.6 trillion for local governments.

  • State governments primarily address public welfare concerns, including means-tested programs like Medicaid, while local governments focus on K–12 education.

  • Higher education funding predominantly comes from state governments, contributing to nearly 85% of total spending.

  • States face budgetary pressures from rising Medicaid and public employee health/retirement costs, leading to potential crowding out of educational investments.

  • K–12 spending per pupil varies significantly, with amounts ranging from $7,000 in Utah to $22,400 in New York.

Making Effective State and Local Policies

3. States Differ in Their Use of Cost-Benefit Analysis

  • Cost-benefit analysis (CBA) measures the net impact of proposals in monetary terms but is used sporadically at state and local levels.

  • The Pew-MacArthur Results First Initiative identifies differences in CBA adoption across states addressing areas such as behavioral health, child welfare, and criminal justice.

  • Example states demonstrating robust CBA usage include Florida (juvenile justice programs) and Colorado (regulatory analysis).

  • Challenges to implementing CBA include resource constraints and lack of demand from policymakers.

4. Non-Compete Enforcement Rules are Particularly Employer Friendly in Some States

  • The regulation of non-compete agreements, which limit employee mobility, varies significantly between states.

  • California notably does not enforce these agreements, while Florida enforces them in a pro-employer manner.

  • Legal considerations differ statewide—locations like Virginia may allow modifications during litigation, whereas states like Wisconsin view inconsistent terms as rendering the entire agreement unenforceable.

5. The Cost of Building New Rail Infrastructure is Both High and Variable Across the United States

  • Rail transit costs per mile vary widely, with average expenditures exceeding $100 million in the U.S. compared to $40-100 million in France.

  • Measures highlight the variability in per-mile costs: for instance, Boston costs 12 times those of Sacramento.

  • The costs are influenced by factors such as regulatory requirements, contracting, and whether rail systems are underground or above ground.

Geographic Access to Employment

6. Low-Income Workers are More Likely to Use Bus Transit and Less Likely to Use Rail

  • Public transit use varies by income level; 84% of workers generally commute by car.

  • Low-income households disproportionately face higher vehicle ownership costs compared to their income.

  • High-income workers are more likely to commute via rail, while low-income workers often rely on bus, walking, or cycling.

  • Public policy improvements in bus systems could enhance economic mobility for low-income workers.

7. Transportation Infrastructure Underlies the Growth of Large Metropolitan Areas

  • Transportation innovations have historically shaped economic landscapes, facilitating movement and economic development.

  • The construction of the Interstate Highway System has led to suburban expansion, influencing both population and employment distribution across metropolitan areas.

8. Places Where Housing is Hard to Build Tend to Have Higher Housing Prices

  • Real estate prices reflect local demand relative to supply elasticity; high-demand areas like NYC and SF exhibit low elasticity, further pushing prices up.

  • The price of housing in densely populated areas is significantly higher, often exceeding 21 times the cost of housing further away from city centers.

9. Land-Use Restrictions Make Housing More Expensive

  • Rising housing prices are not entirely constructed from increasing land development costs; regulatory constraints also significantly contribute to the higher prices.

  • Stringent land-use regulations restrict supply elasticity, intensifying housing price inflation, particularly in competitive markets.

References

  • Detailed reference list with citations from various sources supporting claims raised in this document, providing a solid foundation for data used.

  • This includes studies from Pew-MacArthur Results First Initiative, Census Bureau, economic analysis papers that examine the intersections between policymaking and economic outcomes related to state and local governance.