The current fiscal conditions for local and regional governments in Ohio, Indiana, Michigan, Illinois, Wisconsin, Iowa, and Kentucky is less than stable and the future outlook is not promising.

Overall, the evidence suggests that each of these states has a large, but shrinking, manufacturing base resulting in higher unemployment rates than last year. Consequently, state and local income tax revenue will decline. In addition, sales tax revenue for states and ultimately local government revenue by way of revenue sharing and other forms of state aid will decline as consumer and business spending continues to decrease. The reduction in consumer and business spending slows state gross domestic product, which in turn, results in slower growth in revenue sources that are elastic. To combat the reduction in revenue and cover the unanticipated deficit, many states are spending down their fund balances. Smaller fund balances and lower than anticipated revenue for state governments translates into fewer dollars in state aid and revenue sharing for local and regional governments.

The article is supporting documentation for the Alliance for Innovation Navigating the Fiscal Crisis White Paper.