The impact of a recession is different for local governments than for states. First, while states may face reductions or increases in federal aid during such periods, local governments almost always face reductions in state aid. Second, because they lack the range of revenue options that states have, local governments can be less flexible in dealing with shortfalls. And finally, the property tax (on which most local governments rely) behaves much differently than the sales or income tax, especially in the last recession that was driven by a collapse of the housing sector. Accordingly, the outlook for local governments at this juncture of the recovery is different—and worse—than for states.
