Editor's note: The following is the fourth of a six-part series on government budgets and government spending that comprise the Keating Report mid-year 2011 forecast. The topics we are covering include: federal budgets, transportation projects, state tax revenue, local government budget trends, ARRA-funded construction and government spending.

News reports show some cities are seeing a boost in tax revenues. Workers and businesses in Toledo, Ohio, for instance, have paid more income taxes to the city so far this year compared to last year. The latest data shows Toledo collected almost $2.3 million more in income tax from January through April of 2011 compared with the same period last year. The numbers appear to reflect a decrease in the local unemployment rate and increased activity at area businesses, say city officials.

Even with higher revenues, local and state governments will be prudent in their purchases, says Steven Latin-Kasper, market data and research director at the Farmington Hills, Mich.-based National Truck Equipment Association. "Most municipal and state governments are really still waiting to see a big tax revenue increase compared to the previous period, especially 2011 compared to 2010," he says. "Tax revenues will be up generally speaking, but it's not going to be huge increases, and big chunks of those revenue increases, whatever they end up being, will be used to pay down deficits. So, there is not going to be a whole lot of new spending going on as a result of tax revenues starting to go up."

Counties around the U.S. are receiving far less in mortgage-related filing fees since the Reston, Va.-based Mortgage Electronic Registration Systems, Inc. (MERS) started tracking real estate transactions in its electronic database. The Washington-based National Association of Counties reports counties in North Carolina and Pennsylvania, in particular, have lost millions in fee revenue since the mid 2000s.

When a mortgage is sold or there is a transfer of mortgage servicing interests, MERS tracks the transaction in its electronic files, but it does not record subsequent mortgage assignments. More importantly, MERS does not pay fees to local county recorders and registrars. "MERS has cut into a key revenue-generating source in each county in the U.S.," says Penni Dudley, a real estate attorney at the Atlanta law firm of Holt Ney Zatcoff & Wasserman. "One of the alleged benefits of MERS is that a lender who is selling a mortgage to another lender does not record an assignment of the mortgage with each county to evidence the sale. Instead, MERS provides a type of 'internal' assignment from lender to lender and there is no public record of who owns the mortgage. The county is losing income from the recording fees."

Dudley notes that although it is not costly to file an assignment, the loss of the recording fees income is "just one more straw on the camel's back in this era of lower property values producing less tax revenue."

Recession-stressed cities are asking universities, hospitals and other nonprofits in their communities that do not pay property taxes to support city services with annual fees. Many of the institutions occupy key parcels of land. Chicago's mayor, Rahm Emanuel, for instance, wants the city to begin charging water consumption fees to nonprofits, which have not had to pay them in past years.

View additional installments of our second-half 2011 forecast as well as the January 2011 forecast.

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