In the wake of the recent economic crisis, many statehouses and
city halls face worrying fiscal stress that could have national
ramifications. Federal stimulus funding—a multi-year lifeline
for state and city coffers—is petering out before tax revenues
fully recover and forcing many sub-national governments to
consider tax hikes and/or spending cuts that could slow recovery
and, in some cases, undermine long-term growth. In particular,
funding for infrastructure and education—of which states and
cities are by far the primary sources—are under the budget
knife. A particular concern for many sub-national governments is
ballooning personnel costs, including public employee/retiree
pensions and health care. In some acute cases, this financial
burden has swept governments into bankruptcy protection; in
others, broad changes in policy will be required in order
maintain long-term solvency. And at the state level, the soaring
costs of Medicaid threaten to crowd out other spending in the
long term. A potential spillov