Local Governments NAICS 921110, 921130

Jul 6, 2026 - Flood Insurance Gap Will Squeeze Local Governments

• The consequences of a widening flood insurance gap in the US are about to worsen for property owners and state and local governments, according to credit rating, research, and data analysis firm Moody's. The gap is widening in areas where insurers exit the market due to increasing rainfall amounts, stronger storm surge, more development in flood zones, cutbacks in federal aid, and aging river levees. Local property tax revenue often decreases after flooding events, as damaged sites lose value. That’s especially true in smaller, less-affluent counties and cities. The decrease in revenue can affect local credit ratings, costing jurisdictions more to issue bonds and borrow money. More costs related to flooding are being shifted onto state and local governments even as revenue decreases, as they may be asked to pay for debris removal, demolition of flooded structures, bridge replacement, road repairs and temporary housing.
• States need more time to comply with new Medicaid requirements, according to a report from the Center on Budget and Policy Priorities think tank. Many Medicaid expansion enrollees must document at least 80 hours per month of work or similar activities, meet an income threshold, or qualify for an exemption to keep coverage under the new requirements. States face a tight timeline to comply with complex eligibility, reporting, and verification processes before the requirements take effect on January 1, 2027. The Congressional Budget Office estimates that millions of people could lose coverage not because they fail to meet requirements, but because they struggle to navigate reporting systems or encounter administrative barriers. Without more time and clearer federal guidance, the report argues, states risk deploying aging or overburdened systems that are not fully ready.

• Local sales and income taxes generate 13% and 5% of local tax revenue, respectively, making them the two main supplements to property taxes, according to the Tax Foundation. Local sales taxes are imposed by 36 states and the District of Columbia. They constitute more than 40% of local tax collections in Alabama, Arkansas, Louisiana, and New Mexico. Local income taxes are authorized in 16 states and the District of Columbia. They account for more than 20% of local tax collections in Kentucky, Maryland, and Ohio. Localities in only seven states, mostly in New England, do not impose either local income taxes or local sales taxes.
• Local government employment has rebounded from pandemic-era lows and remained above pre-pandemic levels in early 2026, according to the US Bureau of Labor Statistics. Local government revenue is forecast to grow at a 3.77% compounded annual rate from 2026 to 2030, slower than the growth of the overall economy, according to Inforum and the Interindustry Economic Research Fund, Inc. The primary revenue sources for local governments are taxes, federal and state funding, and fees charged for services.