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The labor force participation rate has been on the decline for more than a decade and the rate of decline has increased since the Great Recession began in December 2007. The likelihood of someone not participating in the labor force, as well as the reason for not participating, often depends on a person’s age. Participation rates vary significantly across states and regions, with a range of nearly 20 percentage points between the lowest and highest states.

State-federal relations continue to be buffeted by the increasing polarization between political parties that often accentuates intergovernmental conflict. The hoary antebellum doctrine of nullification also has risen from the dead to point to a future of more state-federal conflict as states controlled by one party, whether Democratic or Republican, enact policies contravening federal laws and judicial rulings. Nevertheless, coercive federalism continues its now 45-year-old onward march as federal power penetrates deeper into state and local authority.

States experienced their second consecutive year of positive but slow growth in the 2012 fiscal year. Both revenue collections and spending from state funds increased, although at growth levels below the previous year. Additionally, the number of states making mid-year budget cuts continued to decline in 2012 and states have begun to replenish their rainy day funds and reserves. In the 2013 fiscal year, states are expected to continue their improvement, with both state revenues and state spending projected to grow. Revenue growth since the recession, however, remains weak by historical standards and general fund spending is expected to remain below peak levels. States are expected to face tight fiscal conditions for a number of years to come due to federal uncertainty, the slow pace of economic growth and increased spending demands.
 
Local governments in the United States are the most important providers of services to their respective residents and also are major regulators of business firms and individuals. The U.S. is home to 89,476 local governments: 3,033 counties, 19,492 municipalities, 16,519 towns and townships, 37,381 special districts and 13,051 independent school districts. Powers exercisable by individual local governments vary considerably and are determined by the state constitution, state statutes, state administrative regulations and court decisions.
 
California enacted sweeping public pension reforms in 2012. Despite competing claims that extensive reform either wasn’t warranted or didn’t go far enough, California’s pension legislation will provide immediate savings and reduce unfunded liabilities over the long term.1
 
The U.S. Supreme Court’s October Term 2012 includes a number of significant cases affecting the states including two same-sex marriage cases, a challenge to the constitutionality of Section 5 of the Voting Rights Act and a claim that the National Voting Registration Act preempts Arizona’s evidence-of-citizenship requirement to register to vote.
 
Standard & Poor’s Ratings Services has public ratings on all 50 states and certain U.S. territories based on an analysis of a range of factors as outlined in its U.S. State Ratings Methodology. In addition to the ratings provided on general obligation bonds or ratings linked to the general credit rating of a state, such as appropriation secured bonds, hundreds of other state tax and revenue-supported obligations are rated. Similar to the broader municipal bond market, the range of bond security types issued by states is very diverse and runs the gamut of sales tax, gas tax, hotel tax, income tax, lottery revenue, liquor profits, and insurance premium assessments. The diversity of issuance in the state sector reflects the broad service and infrastructure responsibilities each state is responsible for funding.
 
2012 was marked by a shift to political poles. Both parties built on their leads in regional strongholds, with Republicans picking up 59 seats in the South and Democrats adding 168 to their total in the East. The number of divided governments dropped to a 60-year low, while outsized legislative supermajorities climbed to historic highs.
 
The movement of women into state-level offices has slowed in recent years after several decades of gains, and following the 2012 elections, the numbers of women in both state legislative and executive branch offices increased only slightly. Efforts to actively recruit women for elected and appointed positions will be critical in determining what the future holds for women in state government.
 
The State of State Addresses: Settling in for the Long Haul1
 
Governors were more likely this year than last to address a broader range of issues in their state of the state addresses. At least two-thirds of them considered five issues in 2013, compared to just three issues in 2012. Education, jobs and taxes remain hot topics, but health care and public safety also moved up the list. Health care was the second most mentioned issue by governors this year, not a surprise since the start date for implementation of the Affordable Care Act is less than a year away. Also, governors’ consideration of gun control and safety issues was not unlikely given the tragic mass shootings in Colorado and Connecticut in 2012. Governors seemed hesitant to pursue expansive budget and policy agendas, recognizing that fiscal recovery from the Great Recession will remain sluggish.
 

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