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Chapter 10 People and Money in State and Local Governments Multiple-Choice Questions 1. A ________ is where public employment hiring and promotion are based on demonstrated skill, training, and performance rather than on political patronage. A. merit system B. connector model C. two-track system D. de facto segregation E. spoils system Answer: A Rationale: The merit system is designed to ensure that public employment decisions, such as hiring and promotion, are made based on the qualifications and performance of individuals rather than political factors like patronage. It aims to promote fairness, efficiency, and professionalism in government staffing. 2. A system of public employment based on rewarding party loyalists and friends is known as a ________. A. merit system B. connector model C. two-track system D. de facto segregation E. spoils system Answer: E Rationale: The spoils system, also known as patronage, involves appointing individuals to government positions based on their political allegiance or personal connections rather than their qualifications or merit. It often leads to corruption and inefficiency in public administration. 3. The factor that distinguishes merit system from spoils system is that ________. A. it is generally used to hire only male employees B. it is used to select employees for subordinate positions C. hiring is based on demonstrated skill, training, and performance D. hiring is based on rewarding party loyalists and friends E. employees hired through merit system usually show poor performance Answer: C Rationale: The key distinction between the merit system and the spoils system is that the merit system emphasizes hiring and promoting individuals based on their demonstrated skill, training, and performance, while the spoils system relies on political connections and patronage. 4. In 1883, Congress passed the ________, which began to move the federal government from the spoils system to the merit system. A. Taft-Hartley Act B. Pendleton Civil Service Reform Act C. American Recovery and Reinvestment Act D. Affordable Care Act E. Morrill Act Answer: B Rationale: The Pendleton Civil Service Reform Act of 1883 was a landmark legislation that established the merit-based civil service system in the United States federal government. It aimed to reduce political influence in government appointments and ensure that hiring and promotion were based on merit rather than political affiliation. 5. State and local governments enacted the ________ that enforced merit principles and restricted the political activities of their employees. A. Taft-Hartley Act B. little Hatch Acts C. American Recovery and Reinvestment Act D. Affordable Care Act E. Morrill Acts Answer: B Rationale: The "little Hatch Acts" are state and local laws modeled after the federal Hatch Act, which aimed to enforce merit principles in public employment and restrict the political activities of government employees. These laws help maintain professionalism and impartiality in the public sector. 6. In the context of the merit system of staffing, according to a 1976 Supreme Court decision, states ________. A. cannot dismiss civil servants for political reasons B. cannot hire employees based on their performance C. can hire and promote civil servants based on the spoils system D. cannot promote employees based on their demonstrated skill set E. can dismiss civil servants who belong to a particular political party Answer: A Rationale: The 1976 Supreme Court decision established that states cannot dismiss civil servants for political reasons, affirming the principle of protecting government employees from arbitrary dismissal based on their political affiliation. This decision reinforces the merit-based nature of public employment. 7. Identify the American state that gave managers great control over employee hiring and firing by adopting personnel system reforms. A. South Carolina B. Texas C. Vermont D. Florida E. Nebraska Answer: D Rationale: Florida implemented personnel system reforms that gave managers significant control over employee hiring and firing, aiming to streamline government operations, increase accountability, and improve efficiency in public administration. 8. Identify the American state that first introduced a merit pay plan, in which employees‘ salaries were tied to managers‘ assessments of their performance. A. South Carolina B. Texas C. Vermont D. Georgia E. Nebraska Answer: D Rationale: Georgia was the first American state to introduce a merit pay plan, linking employees' salaries to managers' assessments of their performance. This approach aimed to incentivize high performance, reward excellence, and increase productivity in the public sector. 9. In the 1990s, Georgia introduced a merit pay plan, in which ________. A. employees‘ performance did not influence their pay structure B. managers‘ salary was purely based on their subordinates‘ performance C. employees‘ salaries were based on their qualification and gender D. managers decided their subordinates‘ salaries based on their political favoritism E. all newly hired or promoted persons served “at will,” that is, at the discretion of the managers. Answer: E Rationale: In the 1990s, Georgia introduced a merit pay plan where all newly hired or promoted employees served "at will," meaning their continued employment was at the discretion of managers. This approach granted managers significant control over personnel decisions, including salary determination. 10. ________ refers to the negotiations between an employer and a labor union to set wages, benefits, and working conditions. A. Lobbying B. Contracting C. Reapportionment D. Collective bargaining E. Gerrymandering Answer: D Rationale: Collective bargaining involves negotiations between an employer or management and a labor union representing employees to determine terms and conditions of employment, including wages, benefits, and working conditions. It is a key process in labor relations aimed at reaching agreements that satisfy both parties' interests. 11. Some 24 American states are referred to as “right to work” states, meaning that one‘s employment cannot be dependent on whether ________. A. one belongs to a particular minority group B. one belongs to a labor union or not C. one‘s performance is good or bad D. one has a suitable skill set or not E. one‘s total years of experience is adequate or not Answer: B Rationale: "Right to work" laws prohibit employers from requiring employees to join or financially support a union as a condition of employment. Therefore, in these states, individuals cannot be denied employment based on their union membership status. 12. Twenty-six American states allow labor unions to engage in collecting dues automatically from employees‘ paychecks, as allowed by the federal ________ Act of 1947. A. Taft-Hartley B. Pendleton Civil Service Reform C. American Recovery and Reinvestment D. little Hatch E. Morrill Answer: A Rationale: The Taft-Hartley Act of 1947, also known as the Labor Management Relations Act, permits states to enact laws allowing labor unions to automatically collect dues from employees' paychecks. This act provides the legal framework for labor relations and regulates the activities of labor unions and employers. 13. Governor Rick Snyder signed a legislation doing away with the automatic collection of union dues for all workers into law, making ________ the twenty-fourth right-to-work state in the U.S. A. Indiana B. Ohio C. Wisconsin D. Nebraska E. Michigan Answer: E Rationale: Governor Rick Snyder's action in signing legislation to eliminate automatic union dues collection made Michigan the twenty-fourth right-to-work state in the U.S. This decision reflects the state's adoption of policies prohibiting mandatory union membership or financial support as a condition of employment. 14. Which of the following is true of labor unions and collective bargaining? A. In “right to work” states, one‘s employment is dependent on whether one belongs to a labor union. B. The private sector has a higher rate of union membership than does the public sector. C. Collective bargaining refers to contracting of government services to private firms. D. State and local government employees have greater collective bargaining rights. E. The federal Taft-Hartley Act of 1947 does not allow labor unions to automatically collect dues from employees‘ paychecks. Answer: B Rationale: The statement that the private sector has a higher rate of union membership than the public sector is true. Historically, union membership has been higher in industries such as manufacturing and transportation, which are predominantly in the private sector, compared to government employment. 15. Contracting of government services to private firms is referred to as ________. A. outsourcing B. bargaining C. lobbying D. gerrymandering E. gentrification Answer: A Rationale: Outsourcing refers to the practice of contracting government services to private firms or organizations rather than providing those services directly through government agencies. It is a common practice aimed at increasing efficiency and reducing costs in the delivery of public services. 16. Which of the following is an advantage of outsourcing? A. Private organizations can bring a lot of expertise to public projects. B. It makes governments responsible for maintaining a workforce between projects. C. It allows elected officials to trust their states‘ own public bureaucracies. D. It allows governments to avoid paying for the completion of a specific project. E. It allows governments to maintain a workforce whose skills are appropriate for later projects. Answer: A Rationale: Outsourcing often allows governments to tap into the specialized expertise and resources of private organizations, which can contribute to the successful implementation of public projects. Private firms may have greater flexibility, efficiency, and innovation compared to government agencies. 17. State and local governments get most of their money from ________. A. congestion pricing B. taxes C. lobbying D. outsourcing E. privatization Answer: B Rationale: Taxes, including income, property, and sales taxes, constitute the primary source of revenue for state and local governments. These taxes provide the funding needed to support public services and infrastructure. 18. State and local governments tax income, property, and sales since all three of these are indicators of what government would really like to tax—________. A. status B. growth C. wealth D. education E. power Answer: C Rationale: Income, property, and sales are commonly taxed by state and local governments because they are indicators of individuals' or entities' wealth or financial resources. Taxing these sources of wealth helps governments generate revenue to fund public services and programs. 19. The ________ is not easy to administer, and it sometimes bears little relationship to taxpayers‘ income or other measures of their ability to pay. It has been described as the “least fair” tax in U.S. public opinion surveys. A. sales tax B. property tax C. individual income tax D. severance tax E. corporate income tax Answer: B Rationale: The property tax is often considered complex to administer and can be perceived as unfair because it may not always accurately reflect taxpayers' income or ability to pay. Additionally, property values may not correlate directly with taxpayers' financial circumstances, leading to perceptions of inequity. 20. Which of the following is true about property tax? A. Economist Edwin Seligman called the property tax “the best tax known in the civilized world.” B. State and local governments do not tax income, property, and sales since all three of these are indicators of power. C. The general property tax is a minor revenue source for local governments. D. Calculating property tax is a single-step process where an assessment of the property is conducted. E. Assessment is the valuation a government places on property for the purposes of taxation. Answer: E Rationale: Assessment is indeed the valuation that a government places on property for the purposes of taxation. It determines the taxable value of properties, which is used to calculate property tax liabilities. Property tax assessments can be based on various factors, including property size, location, and improvements. 21. The ________ tax is a major revenue source for local governments, even though it is considered the “least fair” or the “worst” tax in U.S. public opinion surveys. A. general property B. individual income C. corporate income D. sales E. severance Answer: A Rationale: General property tax is a significant revenue source for local governments, despite being perceived as the "least fair" tax according to public opinion surveys. This tax is levied on real estate properties owned by individuals and businesses within a locality, contributing to funding various local services and infrastructure. 22. During the collection of property taxes, which of the following steps is taken after the local governing body sets the millage? A. gerrymandering B. severance C. assessment D. malapportionment E. referendum Answer: C Rationale: After the local governing body sets the millage, the next step in the collection of property taxes is assessment. Assessment involves determining the value of properties within the jurisdiction to calculate the property tax liabilities of property owners accurately. 23. ________ refers to a reduction in the property tax one owes if the calculated tax grows to be larger than a given percentage of one‘s income. A. The two-track system B. The circuit breaker exemption C. Malapportionment D. Gerrymandering E. Collective bargaining Answer: B Rationale: The circuit breaker exemption refers to a mechanism that provides relief to property owners from high property tax burdens. It reduces property tax obligations when the calculated tax exceeds a certain percentage of the property owner's income, thereby preventing excessive tax burdens, particularly for low-income individuals or seniors. 24. Property tax is a stable, predictable source of funding, especially important for ________. A. local governments B. interest groups C. federal government D. constituents E. state governments Answer: A Rationale: Property tax serves as a stable and predictable source of funding, which is especially crucial for local governments. It provides a consistent revenue stream for financing essential local services such as education, public safety, infrastructure maintenance, and other municipal operations. 25. ________ refers to a general tax on commercial transactions, sometimes exempting food and medicine. A. Individual income tax B. Property tax C. Sales tax D. Severance tax E. Corporate income tax Answer: C Rationale: Sales tax is a general tax imposed on commercial transactions, typically levied on the sale of goods and services. While sales tax rates and exemptions vary by jurisdiction, it is a common form of taxation used by state and local governments to generate revenue. 26. A tax on the increased worth of a product at each stage of production and distribution rather than just at the point of sale is known as a ________ tax. A. value-added B. severance C. payroll D. property E. sales Answer: A Rationale: A value-added tax (VAT) is imposed on the incremental increase in value of a product or service at each stage of production and distribution. Unlike traditional sales tax, which is levied only at the final point of sale, VAT applies to the value added at each step of the supply chain. 27. The type of state sales tax levied on most retail goods is referred to as a(n) ________ sales tax. A. specific B. general C. selective D. active E. excise Answer: B Rationale: A general sales tax is levied on most retail goods sold within a state. It is a broad-based tax that applies to a wide range of consumer goods and services, contributing to state and local government revenue streams. 28. The type of state sales tax levied on specific items like motor vehicle fuel, alcohol, and tobacco products is referred to as a(n) ________ sales tax. A. securities turnover B. general C. selective D. active E. passive Answer: C Rationale: A selective sales tax is imposed on specific goods or services rather than being applied uniformly across all retail transactions. Items subject to selective sales taxes may include motor vehicle fuel, alcohol, tobacco, and other products deemed non-essential or subject to special regulation. 29. Which of the following is true of sales tax? A. The sales tax is the most important source of local revenue. B. State sales tax on most retail goods is referred to as excise tax. C. The general sales tax is set at a much higher rate than the specific sales tax. D. State sales tax on specific items is referred to as general sales tax. E. Every state, even those without a general sales tax, imposes selective sales taxes on some items. Answer: E Rationale: Every state, including those without a general sales tax, imposes selective sales taxes on specific items. These selective taxes may vary depending on state regulations and taxation policies, providing additional revenue sources for state and local governments. 30. ________ taxes are unpopular with local merchants, who fear they drive business away. A. Sales B. Income C. Property D. Severance E. Securities Answer: A Rationale: Sales taxes are often unpopular with local merchants because they can drive up the overall cost of goods and services, potentially reducing consumer demand and negatively impacting businesses. Merchants may fear that higher sales taxes will discourage spending and drive customers to seek cheaper alternatives or shop in neighboring jurisdictions with lower tax rates. 31. Sales taxes on fuel, alcohol, and tobacco products are also known as ________ taxes. A. severance B. turnover C. excise D. flat sales E. general sales Answer: C Rationale: Sales taxes on specific goods such as fuel, alcohol, and tobacco products are commonly referred to as excise taxes. These taxes are levied on the sale or consumption of specific commodities rather than being applied uniformly across all retail transactions. 32. A tax graduated so that people of higher incomes pay a larger fraction of their income than people of lower incomes is known as a ________ tax. A. selective B. general C. property D. severance E. progressive Answer: E Rationale: A progressive tax system is one in which tax rates increase as income levels rise, resulting in higher-income individuals paying a larger proportion of their income in taxes compared to lower-income individuals. This approach to taxation aims to distribute the tax burden more equitably across different income groups. 33. A tax on the privilege of removing such natural resources as coal, oil, timber, and gas from the land is known as ________ tax. A. selective B. general C. property D. severance E. progressive Answer: D Rationale: A severance tax is imposed on the extraction or removal of natural resources such as coal, oil, timber, and gas from the land. This tax is levied as a fee for the privilege of exploiting or depleting these resources, with the revenue typically used to fund various government programs or initiatives. 34. Identify the American state that collects individual income taxes. A. South Dakota B. Florida C. Wyoming D. Washington E. Oregon Answer: E Rationale: Oregon is one of the American states that collects individual income taxes. Individual income taxes are levied on the income earned by residents of the state, with the revenue used to fund various state government programs and services. 35. Identify the American state that taxes an individual‘s dividend and interest income but not his or her wages. A. South Dakota B. Florida C. Wyoming D. Washington E. Tennessee Answer: E Rationale: Tennessee is the American state that taxes an individual's dividend and interest income but not wages. It imposes taxes on certain types of income while exempting others, with dividend and interest income subject to taxation but wage income not taxed. 36. State individual income taxes are usually based on ________ taxable income that refers to income from all sources minus personal exemptions and itemized deductions, if any. A. state B. individual C. federal D. corporate E. local Answer: C Rationale: State individual income taxes are typically based on federal taxable income, which includes income from all sources minus personal exemptions and itemized deductions, if any. States often use federal income tax returns as a basis for calculating state income tax liabilities. 37. Which of the following statements is true of individual income taxes? A. State individual income taxes rise as sharply as the federal income tax. B. Most states allow local governments to levy income taxes. C. It is one of the two largest revenue sources for state government. D. Individual income tax is an important source of revenue for local government. E. All states collect individual income taxes without any exception. Answer: C Rationale: Individual income taxes constitute one of the two largest revenue sources for state governments, along with sales taxes. These taxes contribute significantly to state government budgets and fund various programs and services. 38. Which of the following American states does not permit some form of legalized gambling? A. California B. Utah C. Florida D. Louisiana E. Mississippi Answer: B Rationale: Utah is the American state that does not permit any form of legalized gambling. Gambling activities such as casinos, lotteries, and sports betting are prohibited by law in Utah, making it one of the few states with stringent anti-gambling policies. 39. Which of the following statements is true of legalized gambling? A. There has been a dramatic decrease in legalized gambling in the United States. B. All states permit legalized casino gambling. C. State revenues from non-lottery gambling decrease every year since 1998. D. The spread of casinos was in part a consequence of Native American tribes asserting their right to self-rule on reservations. E. Legalized gambling is one of the largest revenue sources for local government. Answer: D Rationale: The spread of casinos in the United States was, in part, a consequence of Native American tribes asserting their right to self-rule on reservations. Many tribal casinos operate on Native American land under the authority of tribal governments, contributing to the growth of the gambling industry. 40. Which of the following statements is true about American state lottery revenues? A. In recent decades, state lotteries have decreased in popularity because they raise taxes. B. Church groups are very vocal in their support of state lotteries. C. Lottery revenues are spread evenly across all the states. D. All states earmark all of their proceeds from lotteries for education. E. A significant number of states commit their proceeds from lotteries to the state general fund. Answer: E Rationale: A significant number of states commit their proceeds from lotteries to the state general fund, rather than allocating them exclusively for education or other specific purposes. Lottery revenues are often used to support various state government initiatives and programs, contributing to the state's general budget. 41. The Continental Congress financed the Revolutionary War by ________. A. issuing a tax on farm goods B. running a lottery C. non-lottery gambling D. borrowing money from the French E. receiving grants from the federal government Answer: B Rationale: During the Revolutionary War, the Continental Congress resorted to running a lottery as a means of financing the war effort. Lotteries were a common method of raising funds during this period, providing a source of revenue for various governmental and civic projects. 42. ________ between governments, usually from higher levels of government to lower levels, are essential and influential sources of revenue for state and local governments. A. Grants B. Sales C. Taxes D. Lotteries E. Bonds Answer: A Rationale: Grants between governments, typically from higher levels of government to lower levels, such as from the federal government to state or local governments, are crucial sources of revenue for funding various projects and initiatives at the state and local levels. 43. Which of the following statements about grants is true? A. Grants between governments are usually from lower levels of government to higher levels. B. Grants are not very significant sources of revenue for state and local governments. C. Most of the growth in federal grants as sources of revenues for state governments has come from Medicaid. D. Local governments do not usually rely on grants from states. E. Local governments do not receive federal grants for education and transportation. Answer: C Rationale: The statement that most of the growth in federal grants as sources of revenues for state governments has come from Medicaid is true. Medicaid is a significant component of federal grants to states, representing a substantial portion of the funds distributed from the federal government to state governments. 44. Building schools, constructing roads, and clearing slums are examples of ________. A. capital expenditures B. malapportionment C. reinvestments D. capital gains E. severances Answer: A Rationale: Building schools, constructing roads, and clearing slums are all examples of capital expenditures, which involve investments in infrastructure, facilities, or assets intended to generate benefits over the long term rather than immediate consumption. 45. ________ are financial instruments issued by state and local governments and bought by investors. A. Grants B. Sales C. Taxes D. Lotteries E. Bonds Answer: E Rationale: Bonds are financial instruments issued by state and local governments to raise funds for various projects or initiatives. Investors purchase these bonds, effectively lending money to the issuing government, which promises to repay the principal amount along with interest over a specified period. 46. Which of the following statements is true of borrowing money? A. Bonds are financial instruments issued by federal governments and bought by state governments. B. The power to borrow money for the long term does not require any voter approval. C. In most cases, revenue bonds require voter approval. D. State and local bonds are attractive to investors because the interest they earn is exempt from federal income tax. E. Private businesses can borrow money at a lower interest rate than state and local governments can. Answer: D Rationale: State and local bonds are attractive to investors because the interest they earn is typically exempt from federal income tax, making them relatively more appealing compared to other investment options subject to taxation. 47. More than half of the total money collected by state and local governments through taxes, federal grants, and other sources is spent on the functions of ________. A. cash assistance and administration B. health and education C. transportation and public safety D. social services and libraries E. higher education and tuition Answer: B Rationale: More than half of the total funds collected by state and local governments through taxes, federal grants, and other revenue sources are allocated to the functions of health and education. These areas represent significant priorities for government spending, reflecting the importance of public health and educational initiatives. 48. Which of the following statements is true about the expenditures of state and local governments? A. State and local governments spend most of their money on cash assistance and administration. B. State and local governments are not able to collect much money through taxes, federal grants, and other sources. C. State and local governments spend very little on health and education. D. Public safety expenditures exclude police, fire protection, and corrections. E. Most of the spending on health is disbursed through the Medicaid program. Answer: E Rationale: Most of the spending on health by state and local governments is disbursed through the Medicaid program, which provides medical assistance to low-income families, elderly individuals, disabled individuals, and other eligible recipients. Medicaid represents a significant portion of state and local government expenditures on healthcare. 49. Most of the state and local government spending on health is disbursed through the Medicaid program, a joint federal–state program that provides medical assistance to ________. A. needy children B. elderly citizens C. low-income families D. disabled individuals E. minority groups Answer: C Rationale: Most of the state and local government spending on health is disbursed through the Medicaid program, which provides medical assistance to low-income families. This program is jointly funded by the federal government and individual states, with states administering Medicaid benefits to eligible recipients within their jurisdictions. 50. Expenditures of state and local governments which included police, fire protection, and corrections come under the category of ________ expenditures. A. public safety B. environment C. transportation D. administration E. social service Answer: A Rationale: Expenditures of state and local governments related to police, fire protection, and corrections are categorized as public safety expenditures. These expenditures are essential for maintaining law and order, ensuring public safety, and providing emergency response services within communities. 51. ________ expenditures of state and local governments encompass parks and recreation facilities, waste management, and natural resource management. A. Public safety B. Environment C. Transportation D. Administration E. Social service Answer: B Rationale: Environment expenditures of state and local governments cover various aspects such as maintaining parks and recreation facilities, waste management, and natural resource management. These expenditures aim to preserve and enhance environmental quality and public spaces within communities. 52. ________ expenditures of state and local governments consist of expenditures on roads and highways. A. Public safety B. Environment C. Transportation D. Administration E. Social service Answer: C Rationale: Transportation expenditures of state and local governments primarily involve funding for infrastructure projects related to roads, highways, bridges, and public transportation systems. These expenditures are essential for maintaining and improving transportation networks to facilitate economic activity and mobility. 53. ________ is a health care program in which the federal government provides at least $1 (and sometimes up to $3) for every dollar the state spends. A. Military Health System B. Medicaid C. Medicare D. Veterans Health Administration E. Prescription Assistance Answer: B Rationale: Medicaid is a health care program jointly funded by the federal government and individual states. Through the Medicaid program, the federal government matches state spending on eligible health care services, providing financial support to states based on a predetermined matching formula. 54. State and local governments spend the least amount of money on ________. A. cash assistance payments B. environment and housing C. public safety D. administration E. higher education Answer: A Rationale: State and local governments typically allocate the least amount of money to cash assistance payments compared to other expenditure categories. Cash assistance programs often constitute a smaller portion of government budgets compared to areas such as public safety, education, and healthcare. 55. Which of the following is true of state revenue and management systems? A. In the new economy, services, intangible property, and business activities without clear geographic locations are increasingly uncommon. B. They are better at collecting taxes on services rather than on goods. C. They are better at collecting taxes on businesses whose operations occur in specific locations. D. They are better at collecting taxes on intangible property rather than tangible property. E. States do not differ greatly in their fiscal capacities. Answer: C Rationale: State revenue and management systems tend to be more effective at collecting taxes from businesses whose operations occur in specific locations rather than from businesses engaged in activities without clear geographic locations. Taxes on businesses with physical establishments are easier to administer and enforce. 56. Fiscal capacities can be defined as ________. A. limits placed on state spending by the U.S. Congress B. the potential borrowing power of a state or municipality C. the revenues a state brings in within a fiscal year D. the economic resources a state may tax E. the expenditures of states on cash assistance Answer: D Rationale: Fiscal capacities refer to the economic resources available to a state or municipality that can be taxed to generate revenue. These resources include income, property, sales, and other taxable assets within the jurisdiction. 57. Which of the following economic activities is difficult to tax due to the emergence of services, intangible property, and business activities without clear geographic locations? A. Internet sales B. outsourcing C. corporate income D. assessment E. collective bargaining Answer: A Rationale: Internet sales are difficult to tax due to the challenges associated with determining jurisdiction and enforcing tax collection on online transactions. The emergence of ecommerce has led to increased sales of goods and services across state lines, posing challenges for traditional state tax systems. 58. Which of the following is true of state revenue and management systems? A. Medicaid provides equal financial support to all states, irrespective of their economic status. B. Although states vary in their natural resources, it does not affect their ability to obtain severance taxes. C. States do not vary greatly in their fiscal capabilities. D. State and local governments vary greatly in their administrative capabilities. E. State revenue systems are better at collecting taxes on services than on goods. Answer: D Rationale: State revenue and management systems vary significantly in their administrative capabilities, reflecting differences in tax structures, revenue sources, and administrative efficiency among states and localities. 59. Which of the following is true of the challenges faced by state revenue and management systems? A. States differ substantially in what they can do for their residents, and this is seen to create inequities. B. State revenue systems are better at collecting taxes on services than on goods. C. State revenue systems are better at collecting taxes on intangible property rather than tangible property. D. State revenue systems are better at collecting taxes on businesses whose operations are partly virtual and global than on those whose businesses occur in specific locations. E. States do not vary greatly in their fiscal capacities. Answer: A Rationale: States differ substantially in their fiscal capacities and ability to provide services to residents, leading to perceived inequities in the level and quality of services across jurisdictions. Fiscal disparities can exacerbate socioeconomic inequalities and affect residents' access to essential services. 60. Which of the following is true of the challenges faced by state revenue and management systems? A. State and local governments do not vary greatly in their administrative capabilities. B. The federal government may attempt to reduce differences by giving larger federal grantsin-aid to low-fiscal capacity states. C. State spending on functions such as health care and social services is not affected by differences in their fiscal capacity. D. Higher incomes are associated with lower consumption and property values. E. State revenue systems are better at collecting taxes on services than on goods. Answer: B Rationale: The federal government may attempt to mitigate fiscal disparities among states by providing larger federal grants-in-aid to states with lower fiscal capacities. This redistribution of funds helps ensure that states with fewer economic resources can still provide essential services and maintain adequate levels of public infrastructure. True-False Questions 1. More than one-third of the cost of state and local government is employees‘ salaries. Answer: True Rationale: Employee salaries typically constitute a significant portion of state and local government expenditures. These salaries cover a wide range of public sector employees, including teachers, police officers, firefighters, administrative staff, and various other government workers. 2. Dealing with public sector labor unions is a major focus of state and local government in many states. Answer: True Rationale: Negotiating with public sector labor unions regarding wages, benefits, and working conditions is a significant aspect of state and local government operations. Labor unions represent the interests of government employees and engage in collective bargaining with government officials to secure favorable employment terms. 3. One way for contractors to be more efficient than the government in delivering services is to pay their employees higher salaries and increased benefits in comparison to public sector employees. Answer: False Rationale: Typically, contractors aim to achieve efficiency by minimizing costs, including labor costs. Paying employees higher salaries and benefits would increase the contractor's expenses, potentially making their services more expensive than those provided by government employees. 4. State and local governments in America get most of their money from taxes. Answer: True Rationale: Taxes, including income taxes, property taxes, sales taxes, and various other forms of taxation, constitute the primary source of revenue for state and local governments in the United States. These tax revenues fund government operations, services, and infrastructure projects. 5. State constitutions cannot restrict state legislatures‘ taxing powers. Answer: False Rationale: State constitutions can indeed impose restrictions on state legislatures' taxing powers. These restrictions may include limitations on the types of taxes that can be levied, tax rates, and the use of tax revenue. State constitutions play a crucial role in shaping fiscal policy and taxation within each state. 6. The property tax is easy to administer, and it bears no relationship to taxpayers‘ income or other measures of their ability to pay. Answer: False Rationale: The property tax is often complex to administer due to factors such as property valuation, assessment methods, and exemptions. Additionally, property taxes are typically based on the value of the property, which may correlate with taxpayers' income and ability to pay. 7. The multi-step process of calculating property taxes has led to some gamesmanship on the part of local governments. Answer: True Rationale: The complexity of calculating property taxes, including factors such as assessment methods, exemptions, and appeals processes, has sometimes led to manipulation or strategic maneuvers by local governments to maximize tax revenue or influence property values. 8. Property tax is an unstable and unpredictable source of funding for state governments. Answer: False Rationale: Property tax is generally considered a stable and predictable source of revenue for state and local governments. Property values tend to change gradually over time, providing a relatively consistent stream of revenue for government operations and services. 9. Often the general sales tax is set at a much higher rate than the specific sales tax. Answer: False Rationale: The general sales tax rate is typically uniform across most taxable goods and services within a jurisdiction. In contrast, specific sales taxes may vary depending on the type of goods or services being taxed. However, the general sales tax rate is usually consistent across different categories of taxable items. 10. Sales taxes are unpopular with local merchants, who fear they drive business away. Answer: True Rationale: Local merchants may perceive sales taxes as a deterrent to consumer spending, as higher taxes can increase the overall cost of goods and services for customers. This perception may lead to resistance or opposition to sales tax initiatives by local businesses. 11. Many states have cut corporate income tax rates or granted generous exemptions as a way to try to attract businesses to their state. Answer: True Rationale: To attract businesses and stimulate economic growth, many states have implemented policies aimed at reducing corporate income tax rates or offering incentives and exemptions to corporations. These measures are intended to make states more competitive in attracting investment and fostering business development. 12. There has been a dramatic decrease in legalized gambling in the United States. Answer: False Rationale: Legalized gambling remains prevalent in many parts of the United States, with various forms such as casinos, lotteries, and horse racing establishments operating in numerous states. The gambling industry continues to generate substantial revenue for both state and local governments. 13. In recent decades, state lotteries have decreased in popularity, in part because they increase revenues by raising taxes. Answer: False Rationale: State lotteries have not significantly decreased in popularity in recent decades. While concerns about the regressive nature of lottery taxes and potential negative social consequences exist, lotteries remain a popular form of gambling and revenue generation for state governments. 14. Grants between governments pass from lower levels of government to higher levels. Answer: False Rationale: Grants between governments typically flow from higher levels of government (e.g., federal) to lower levels of government (e.g., state, local). These grants are often allocated for specific purposes such as infrastructure projects, education initiatives, or social welfare programs. 15. Most of the growth in federal grants as sources of revenues for state governments has come from TRICARE. Answer: False Rationale: TRICARE is a healthcare program primarily for military personnel and their families and does not constitute a significant source of federal grants for state governments. Growth in federal grants for state governments has been driven by various programs and initiatives across different policy areas, including healthcare, education, transportation, and social services. 16. Bonds are financial instruments issued by state and local governments and bought by investors. Answer: True Rationale: Bonds issued by state and local governments, known as municipal bonds, are common financial instruments used to raise funds for various public projects and initiatives. Investors purchase these bonds, essentially lending money to the government entity, and in return receive periodic interest payments until the bond matures. 17. State and local bonds are attractive to investors because the interest they earn is exempt from federal income tax. Answer: True Rationale: Interest earned on municipal bonds issued by state and local governments is typically exempt from federal income tax, making them an attractive investment option for investors seeking tax-exempt income. This tax advantage enhances the appeal of state and local bonds to investors, particularly those in higher tax brackets. 18. Private businesses can borrow money at a lower interest rate than state and local governments can. Answer: False Rationale: State and local governments often have access to lower interest rates when borrowing money compared to private businesses. This is primarily due to the perception of lower default risk associated with government entities, as well as the tax-exempt status of interest earned on municipal bonds, which makes them attractive to investors and allows governments to secure financing at lower rates. 19. State and local governments spend most of the money on social services and transportation. Answer: False Rationale: State and local government expenditures cover a wide range of areas, including education, public safety, healthcare, infrastructure, social services, transportation, and administration. While social services and transportation are significant areas of expenditure, they do not necessarily constitute the majority of government spending. 20. The Medicaid program is a joint federal–state program that provides medical assistance to low-income families. Answer: True Rationale: Medicaid is indeed a joint federal-state program designed to provide medical assistance to eligible low-income individuals and families. The program is administered by individual states within broad federal guidelines, and eligibility criteria and benefits may vary from state to state. 21. States and localities are where and how most government services in the United States are delivered. Answer: True Rationale: State and local governments play a crucial role in delivering a wide range of government services to residents, including education, healthcare, public safety, transportation, social services, and infrastructure development. They are responsible for implementing and managing many programs and initiatives that directly impact the daily lives of individuals within their jurisdictions. 22. Since economic activities such as Internet sales are easy to tax, state and local governments can increase their revenues greatly. Answer: False Rationale: Economic activities such as Internet sales present challenges for taxation due to factors such as jurisdictional issues, technological complexities, and evolving business models. While online commerce has the potential to generate significant revenue for state and local governments, taxing Internet sales effectively requires addressing these challenges through legislative and administrative measures. 23. State and local governments do not vary considerably in their administrative capabilities. Answer: False Rationale: State and local governments vary considerably in their administrative capabilities, including factors such as organizational structure, management practices, technological sophistication, and workforce capacity. Differences in administrative capabilities can significantly impact the efficiency and effectiveness of government operations and service delivery. 24. Challenges for state and local government are great, especially in a time of financial hardship and economic change. Answer: True Rationale: State and local governments face numerous challenges, including fiscal constraints, demographic shifts, infrastructure needs, service demands, economic fluctuations, and evolving policy priorities. These challenges are further exacerbated during periods of financial hardship and economic change, requiring government leaders to adapt and respond effectively to meet the needs of their constituents. 25. States vary in the natural resources, such as oil, that can be extracted from their lands, differences that in turn affect their abilities to obtain severance taxes. Answer: True Rationale: States possess varying degrees of natural resources, such as oil, gas, timber, and minerals, which can be subject to severance taxes upon extraction. The availability and exploitation of these resources impact state revenues and fiscal policies, with states rich in natural resources often deriving significant revenue from severance taxes imposed on resource extraction industries. Short Answer Questions 1. What is a merit system? Who administers it? Answer: An ideal response would be: A merit system is a system where public employment hiring and promotion are based on demonstrated skill, training, and performance rather than on political patronage. Merit systems are generally administered by an office of state personnel, which prepares and administers examinations, provides lists of job openings, establishes job classifications, and determines salary schedules. 2. What is a spoils system? Name the Act that restricted it. Answer: An ideal response would be: A system of public employment based on rewarding party loyalists and friends is known as the spoils system. State and local governments enacted “little Hatch Acts” that enforced merit principles and restricted the political activities of their employees. 3. Define collective bargaining. What are “right to work” states? Answer: An ideal response would be: Negotiations between an employer and a labor union to set wages, benefits, and working conditions are termed as collective bargaining. Some 24 states are referred to as “right to work” states, meaning that one‘s employment cannot be dependent on whether one belongs to a labor union or not. 4. What is outsourcing? List two advantages of outsourcing. Answer: An ideal response would be: Contracting of government services to private firms is referred to as outsourcing. The advantages of outsourcing are: a) Private organizations can bring a lot of expertise to public projects. b) It allows governments to pay only for the completion of a specific project and not be responsible for maintaining a workforce between projects—or a workforce whose skills are not appropriate for later projects. 5. What are the characteristics of a good tax? Answer: An ideal response would be: A good tax may be one that is easy to administer fairly; one that does not burden individuals and corporations with a lot of extra paperwork and activities; one that does not demand enormous and intrusive governmental agencies to ensure compliance; and one that does not allow some people to avoid paying their taxes. 6. Define general property tax. Answer: An ideal response would be: The general property tax is defined as a tax levied by local and some state governments on real property or personal, tangible property, the major portion of which is on the estimated value of one‘s home and land. 7. Define sales tax. What are the types of sales taxes? Answer: An ideal response would be: A general tax on sales transactions, sometimes exempting food and medicine is known as a sales tax. There are two different kinds of state sales taxes—the general sales tax on most retail goods (many states exempt necessities like food and medicine from the general sales tax)—and the selective sales tax (also called excise taxes) on specific items like motor vehicle fuel, alcohol, and tobacco products. 8. Define progressive tax and severance tax. Answer: An ideal response would be: A tax graduated so that people of higher incomes pay a larger fraction of their income than people of lower incomes is called a progressive tax. A tax on the privilege of “severing” such natural resources as coal, oil, timber, and gas from the land is called a severance tax. 9. What are grants? Identify a few major areas of federal assistance. Answer: An ideal response would be: Grants between governments, usually from higher levels of government (federal and state) to lower levels (counties, cities, and townships), are essential and influential sources of revenue for state and local governments. Most of the growth in federal grants as sources of revenues for state governments has come from Medicaid, a federal program that provides health coverage for low-income individuals. Medicaid accounted for 44 percent of federal grants in 2008, much more than its 30 percent share in 1990. Some major areas of federal assistance include income support (21 percent in 2008), education and training (13 percent), and transportation (11 percent). 10. What are the challenges faced by state and local governments in revenue management? Answer: An ideal response would be: Challenges for state and local government are great, especially in a time of financial hardship and economic change. Finding the revenues needed in a changing economy and in the aftershocks of a deep recession is a major challenge. Pensions for state employees are projected to run an increasing percentage of state revenues for the foreseeable future. Educating children and young adults, providing health care for the poor, and protecting society against crime, fire, natural disaster, and both domestic and international terrorism are all funded by state and local governments. Cutting funding in any of these policy areas is at best politically difficult and at worst impossible. Essay Questions 1. What are the major criticisms of the merit system? Answer: An ideal response would be: Merit systems increasingly came under attack, particularly in the 1990s. Critics complained that state personnel systems were overly centralized and regulated. State personnel offices used procedures, job descriptions, and tests that often failed to fit the needs of state agencies. Job descriptions were detailed and hard to change, and agency managers were thus prevented from adapting their workforces to changing needs. Procedures for filling jobs involved several levels of bureaucracy, and vacancies took a long time to fill. Critics also complained that hiring and firing rules deprived responsible officials of authority over their subordinates. They argued that there was so much emphasis on insulating public employees from political coercion that employees enjoyed too much job security. Administrators could not get rid of incompetent workers. Sometimes, it took months and several elaborate hearings to dismiss public employees unwilling or unable to do their jobs. Also, public managers could not use salaries to reward and retain the best employees because most of the older merit systems permitted only a narrow pay range for any one job. In summary, although merit systems were supposed to emphasize ability and minimize political favoritism, they came to be viewed as clumsy, complicated, and unresponsive to the needs of public managers and agencies. 2. Describe the privatization of public services. Answer: An ideal response would be: Rather than relying on their own employees, many state and local governments have “contracted out” public services to private sector organizations, including for profit corporations as well as nonprofit agencies. This practice, called outsourcing, can sometimes have advantages. Private organizations can bring a lot of expertise to public projects. It allows governments to pay only for the completion of a specific project and not be responsible for maintaining a workforce between projects—or a workforce whose skills are not appropriate for later projects. In addition, when governments award contracts competitively—that is, when many private firms seek contracts by submitting bids—there are incentives for suppliers to improve the quality of their services and reduce their costs. Privatization of social services is often hard to put into practice, as it often requires that public officials exercise sophisticated management skills in developing appropriate contracts, finding and evaluating competing contractors, and closely monitoring the quality of services provided by the private agencies. Delegation of emergency and police powers to profit-making corporations also raises many other fundamental questions, particularly those touching on liability and protection of individual rights. Outsourcing also raises fears that private contractors will hire transient or even overseas help at lower pay, undermining merit systems and public employee morale and angering some citizens. Nonetheless, despite all the issues raised by privatization, it is likely to continue or even grow, as cities and states pressed for cash look for ways to cut back on their permanent workforces and rely increasingly on private contractors to provide basic services. 3. Describe severance taxes. Answer: An ideal response would be: In several states, severance taxes have been a key source of revenue. These are taxes on the privilege of “severing,” or removing from the land, such natural resources as coal, oil, timber, and natural gas. In the nation as a whole, severance taxes account for only slightly more than 1 percent of all state taxes but a few states rely heavily on them. Severance taxes are the main tax source in Alaska, where they make up more than 50 percent of tax collections, and Wyoming (46 percent), New Mexico, Montana, North Dakota, and Oklahoma also get more than 10 percent of their tax revenue from the severance tax. Although 35 states have some type of severance tax, significant revenues from it are not available to most because they do not produce large amounts of natural resources. Tax revenues from severance taxes go up and down with the price of oil, gas, and coal. The state and local taxes described here do not begin to exhaust the kinds of taxes collected by state and local governments. Admission taxes, stock transfer taxes, inheritance taxes, pari-mutuel taxes, and taxes on utilities and insurance are also common. 4. Explain legalized gambling as a source of revenue. Answer: An ideal response would be: There has been a dramatic increase in legalized gambling in the United States. For many years, only Nevada permitted legalized casino gambling, but in 2010, 15 states permitted commercial casinos, 31 had casinos operated by Native American tribes, and 43 permitted pari-mutuel betting on horse and greyhound races and the game of jai alai (in Florida). Only Hawaii and Utah do not permit some form of legalized gambling, although as of 2012 Hawaii was considering changing its law. The spread of casinos was in part a consequence of Native American tribes asserting their right to selfrule on reservations and establishing casinos in states such as California, Michigan, Connecticut, and South Dakota. In addition, gambling companies asserted that prohibitions against land-based casinos did not apply to floating ones, and they promoted gambling on riverboats and dockside casinos. State revenues from non-lottery gambling (casinos, pari-mutuel betting, and hybrid casino-racetrack facilities) grew every year from 1998 through 2008 but then dropped in 2009 and started to grow again in 2010. In 1998 states collected some $2.9 billion in revenue from non-lottery gambling; by 2010 this had grown to just over $6 billion. Yet states varied greatly in their reliance on this revenue source. In 2009, Nevada received 12.5 percent of its general revenue from gambling while Rhode Island and West Virginia received 8.4 percent, and 19 other states received 2 percent or less of their revenues from these sources. 5. What are the grounds for concern that some people have about states‘ capacities to fund and administer the programs they enact. Answer: An ideal response would be: There are some grounds for concern about states‘ capacities to fund and administer the programs they enact. First, many people worry that state revenue systems do not function well in the new global economy. For instance, these systems are better at collecting taxes on goods than on services, on tangible property (such as buildings and land) than on intangible property (such as patents and information), and on businesses whose operations occur in specific locations than on those that are partly virtual and global. In the new economy, however, services, intangible property, and business activities without clear geographic locations are increasingly common. If these trends mean that an increasing number of economic activities such as Internet sales are hard or even impossible to tax, state and local governments may either lose revenues or be forced to raise rates on the activities they can still tax, possibly increasing differences in tax burdens across different businesses and activities and exacerbating inequities. Second, states vary greatly in their fiscal capacities—the economic resources they may tax— and these differences lead to large differences in the extent to which they can meet demands for public programs. Third, state and local governments also vary greatly in their administrative capabilities. Bad management can mean delays in completing important projects, whereas strong state management capacities can be critically important in implementing challenging new programs. Test Bank for State and Local Government by the People David B. Magleby Paul C. Light, Christine L. Nemacheck 9780205966530, 9780205828401
