NEW DELHI: Only seven states — Rajasthan, Haryana, Tamil Nadu, Bihar, Kerala, Assam and Himachal Pradesh — have constituted all seven State Finance Commissions (SFCs) since 1992–93, when Parliament passed two constitutional amendment Acts to institutionalise local govts in urban and rural areas, according to a report published by Janaagraha, a think tank on local governance.This highlights how most state govts have failed to prioritise the institutionalisation of SFCs, which play a crucial role in devolution of finances to municipal and other local bodies. The study on SFCs flagged chronic delays in constituting these commissions, weakening them from inception. In many cases, SFCs were constituted with truncated tenures — sometimes as short as six months — and continued functioning through repeated extensions.In contrast, the Finance Commission (FC) set up by Centre has a fixed two-year term. The report noted that despite being the most predictable source of funding for cities and towns, SFCs remain neglected and unevenly empowered across states.It called for giving SFCs the same standing as FC. Its recommendations include fixing timelines for constituting SFCs, ensuring adequate staffing and data systems, and requiring state govts to present Action Taken Reports in their assemblies within six months, with clear explanations for accepted or rejected proposals.The report highlighted that transfers from state govts to local bodies, as recommended by SFCs, are, on average, nearly four times larger than those by FC, making SFCs vital to local govts. This is particularly significant given that most urban local bodies have weak own-source revenues.According to the report, own-source revenues of municipal bodies cover only 60–70% of their recurrent expenditure. They largely depend on state and central grants for capital investment and some operational spending. It also noted that 72% of urban infrastructure is financed by central and state govts.“Scheme funding is typically sector-linked, and its continuity cannot always be guaranteed. In comparison, devolutions recommended by FC and SFCs are meant to provide predictable, flexible and autonomous funding to meet local needs,” the report said. It added that in many states, SFC grants are the only predictable source of funds for municipal bodies — not just for asset creation but also for payment of staff salaries and operational and maintenance expenses.For instance, in Karnataka, SFC grants accounted for over 75% of total receipts in smaller municipalities and 40–50% in larger cities.

Billionaire Warren Buffett’s advice for most investors has been to buy a low-cost fund that tracks the S&P 500. But that looks like a risky proposition to me right now.

The index is heavily concentrated around a few very similar companies. And the rest of the US economy doesn’t give me much encouragement either.

Concentration

Overall, the S&P 500’s done very well in recent years. But not every company’s done equally well — a handful of strong performers have offset much weaker results elsewhere.

For example, Microsoft’s revenues grew by around 15% in 2025, while Kraft Heinz saw a 2.5% decline in sales. For the index as a whole though, the net effect’s positive.

Microsoft’s sales increased by $36bn, while the drop at Kraft Heinz was less than $1bn. In other words, growth at bigger firms offsets a lot of smaller businesses going backwards.

The trouble is, it also creates risk. If at business like Microsoft falters for any reason, I don’t think there are going to be enough Kraft Heinz-like firms to offset this. 

The US economy

Something similar is true of the US economy. Consumer spending – which accounts for around 70% of US GDP – looks resilient, but there’s more going on beneath the surface.

In reality, the overall resilience is being driven by strong contributions from the most well-off in society. And just like the index, this has the power to cover a lot of weakness elsewhere. 

A a result, the same risk emerges. If anything causes the wealthiest households in the US to rethink their consumption levels, this is unlikely to be offset by increased spending elsewhere.

As a result, I’m wary of the idea that investing in an S&P 500 fund is a good idea right now. But I do think there are potential opportunities within the index.

Insurance

One stock I’ve been buying recently is Brown & Brown (NYSE:BRO). The stock’s 37% off its 52-week highs, but I think there are some strong signs for the underlying business.

The insurance broker’s been dealing with two major issues recently: a weak market for insurers and integration costs after a large acquisition weighs on margins.

Both are genuine challenges, but I expect they will prove to be temporary. So I think the two of them combining to push the stock to unusually low levels could be a huge opportunity.

Brown & Brown aims to combine the advantages of local knowledge with the economic benefits of scale. In an industry I think will be durable, that’s a powerful combination.

Investing strategy

One of the things I want from my Stocks and Shares ISA is diversification. And that’s why I’m unwilling to just ignore US stocks even when the S&P 500 as a whole looks risky.

I think Brown & Brown could be set to benefit from a double boost. A more helpful market for insurers could push sales higher while lower integration costs cause margins to expand.

The company’s long-term competitive position also looks strong to me. That’s why it’s still on my ‘to-buy’ list as I look for stocks to scoop up during a tricky time for the S&P 500 and the US economy.

In a recent note, Chris Brightman, who is a partner, senior advisor, and board member at the firm, and Alex Pickard, senior vice president for research, traced the historical trend between the deficit and how earnings are recycled to inflate asset prices.

“In the financialized U.S. economy, each dollar of deficit spending may flow into a dollar of corporate profit,” they wrote.

Annual budget deficits have reached $2 trillion, with debt-servicing costs alone hitting $1 trillion. As federal spending exceeds revenue by wider margins, the Treasury Department must issue greater volumes of bonds.

Much of the money the government raises by selling debt goes into consumers’ pockets, primarily via entitlement payments, which eventually boost profits, according to Research Affiliates.

But for decades, companies largely didn’t invest those profits to expand their capacity. Due to intense global competition, especially from China, returns from U.S domestic production were kept low. And even the money that is invested wound up replacing depreciated capacity rather than expanding it.

As a result, companies returned much of their capital to shareholders in the form of buybacks and dividends, which were plowed back into financial markets, often in price-insensitive passive funds that inflate valuations, the report argued.

“Mandated to remain fully invested, these funds then recycle the inflows to purchase stocks in proportion to their market capitalization indifferent to valuation, thus bidding up prices without any change in fundamentals,” Brightman and Pickard wrote.

They pointed to a real-world experiment that reinforces their thesis. During the late 1990s, the federal government briefly erased its budget deficit and actually boasted a surplus.

That came as the booming economy helped lift revenue while cuts to federal welfare programs limited spending. During this period, corporate profits fell too, they added.

This dependence on federal deficits has left financial markets increasingly fragile, the report warned, as corporate earnings have shifted away from relying on returns from private investment.

“Reversion to a healthier macroeconomic environment of declining deficit spending and greater net investment may cause sharp declines in both corporate profits and valuation multiples and likely trigger a financial crisis with politically toxic consequences,” Brightman and Pickard concluded.

“Ironically, the more palatable option may be to remain on the current path until a financial crisis imposes on us the discipline that we are unwilling to impose on ourselves.”

Changing U.S. debt market

Despite surging revenue from President Donald Trump’s tariffs, debt continues to pile up, drawing alarm bells from Wall Street heavyweights like JPMorgan CEO Jamie Dimon and Bridgewater Associates founder Ray Dalio.

Meanwhile, Trump plans to grow defense spending by 50%, pushing it to $1.5 trillion a year and blowing up the debt even more.

At the same time, the holders of U.S. debt have shifted drastically over the past decade, tilting more toward profit-driven private investors and away from foreign governments that are less sensitive to prices.

That threatens to turn the U.S. financial system more fragile in times of market stress, according to Geng Ngarmboonanant, a managing director at JPMorgan and former deputy chief of staff to Treasury Secretary Janet Yellen.

Foreign governments accounted for more than 40% of Treasury holdings in the early 2010s, up from just over 10% in the mid-1990s, he wrote in a New York Times op-ed last month. This reliable bloc of investors allowed the U.S. to borrow vast sums at artificially low rates. Now, they make up less than 15% of the overall Treasury market.

To be sure, the federal budget deficit isn’t the only driver of growth. The AI boom has set off a massive investment wave, spurring demand for chips, data centers, and construction materials.

But so-called AI hyperscalers are also turning to the bond market to raise capital for annual expenditures of hundreds of billions of dollars. And their debt issuance represents more competition to the Treasury Department, which is looking to ensure investors continue absorbing the fresh supply of debt it must sell.

In a note last week, Apollo Chief Economist Torsten Slok pointed out that Wall Street estimates for the volume of investment grade debt that’s on the way this year reach as high as $2.25 trillion.

“The significant increase in hyperscaler issuance raises questions about who will be the marginal buyer of IG paper,” he said. “Will it come from Treasury purchases and hence put upward pressure on the level of rates? Or might it come from mortgage purchases, putting upward pressure on mortgage spreads?”