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Chicago Fed Letter, No. 97, September 1995
Public Finance in the Midwest: The Calm before the Storm?
Since 1990, state and local governments in the Midwest have fiscally outperformed their counterparts in many other regions of the country. During the 1990-91 recession, most midwestern governments avoided major tax increases and received high marks from analysts for instituting conservative budgeting techniques to rein in expenditure growth. During the current expansion, many have begun to amass significant budget reserves that suggest that state and local finances will continue as a source of economic stability even if the overall economy declines. The question that remains is, does this newfound stability reflect the beginning of a new era for Midwest public finance? Are the old days of fiscal crises a thing of the past, along with the massive tax increases and patched-together budgets that were so common during the recessions of 1975, 1980, and 1981-82?
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