The state and local governments have various sources of revenue. One of the essential sources is federal aid which primarily comes as grants to fund multiple basic programs such as Medicaid. In most cases, this source forms a significant amount of revenue. For example, New Jersey received $ 15.3 billion from the federal government in 2014 (Ballotpedia, 2021). Also, the governments get revenue from income, sales and other taxes such as license fees for the business. For instance, revenue from sales accounted for 23% of the state government's revenue in 2017 (Bartik, 2017). This fact indicates that own-source revenue is also crucial.
Tax dollars are primarily used to strengthen service provision by the government. For instance, New Jersey spends its revenue on education divided into elementary and secondary school categories (Ballotpedia, 2021). This money is hence used to build and renovate schools and fund government-sponsored programs such as counselling. Also, the money is utilized in public assistance and emergency (Solis, 2013). Money allocated to schools is used to ensure security as well as infrastructural development.
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Municipal bonds are debt securities that states, cities and county governments offer and which are utilized in daily funding activities and massive projects. These projects include the building of roads and hospitals. These bonds work by allowing investors to loan the government, and in return, the governments repay with interests. The main aim is to preserve wealth rather than increasing it. The two common bonds are general obligation and revenue bonds. In essence, the general obligation bond is not backed by any assets, while revenue bonds are powered by revenue from various projects and are non-recourse.
Before the enactment of the tax reform act of 1986, banks and insurers commonly held the bonds. However, after this act, the holders include households and household or mutual fund investors (USSEC, 2021). The primary issuers of these bonds are the state and local governments, such as the city authority. Bonds can be bought directly from the treasury or through auctions enabled by banks and brokers.
The budget process for local governments involves various steps. The first step is input which is the planning for funds that are available for public services. The organization of these services is tied to the available finances. The other step is preparing the budget, which includes administrative preparation, approval by legislature, implementation and accounting and reporting at the end of the year. Significantly, after preparation, the output of the budget process is carried out. The available money is allocated to various services. The approved projects receive funding at the beginning of the fiscal year. In the final step of the process, administrators receive financial feedback based on an audit (USSEC, 2021). There is an emphasis on accountability and integrity in the budgeting and implementation of the budget. Projects have to be approved to be funded. The essence of this precautionary measure is to avoid funding projects that are not feasible or to eliminate loopholes for loss of revenue through nonexistent projects.
In conclusion, federal government aid plays a vital role in the funding of state and local governments. The governments also utilize revenues from sales and income taxes to support the building of schools. The municipal bonds are also helpful in the management of projects such as infrastructural development. The local government's budget process involves steps such as approval by the legislature and audit to avoid instances of loss of funds due to corruption.
References
Ballotpedia. (2021). New Jersey state budget and finances. Ballotpedia. https://ballotpedia.org/New_Jersey_state_budget_and_finances
Bartik, T. J. (2017). A new panel database on business incentives for economic development offered by state and local governments in the United States.
Solis, Jesse. (2013). Where Do State and Local Governments Get Their Revenue? Tax foundation. https://taxfoundation.org/press-release/where-do-state-and-local-governments-get-their-revenue/
USSEC. (2021). Municipal Bonds . Investor.Gov. https://www.investor.gov/introduction-investing/investing-basics/investment-products/bonds-or-fixed-income-products-0
