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State Fiscal Outlook
NSAAJune 12, 2013
California Scott Pattison
Executive DirectorNational Association of State Budget Officers
444 North Capitol Street, NW, Suite 642 • Washington, DC 20001 • (202) 624-5382 • www.nasbo.org
NASBO 2
NASBO 3
Economic Outlook
Monday:S&P upgraded U.S. Outlook to
“Stable” from “Negative”
“things people worried might knock [the economy] into recession landed no more than glancing blows.”
Wall Street Journal, June 11, 2013
NASBO 4
Economic Outlook
Monday: Businesses have never been more
profitable Credit/Housing improving State Revenue:
2013: 5.5% 2014: 4.3% 2015: 5%
NASBO
State Revenue Continues to Grow in 4th Quarter
-20
-15
-10
-5
0
5
10
15
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012%
Year-Over-Year Real Change inQuarterly State Tax Revenue
Total
Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau
NASBO 6
State Fiscal Outlook
Trends positive: Surpluses Back to pre-recession levels soonBut… Spending pressures will continue Federal funds will decline
NASBO
MAJOR CHALLENGES TO STATE BUDGETS: Fiscal 2013+
Spending Demands and Some Revenue Growth
Health Care Costs Dealing with Long Term Liabilities Federal Cuts/Changes
Not enough to go around
NASBO 8
NASBO 9
Federal Dysfunction
“Today the country’s main businesses sit on nearly $2 trillion in cash, afraid to invest in part because corporate bosses cannot imagine any of Washington’s feuding partisans fixing anything.”
The Economist, March 16, 2013
NASBO 10
Federal Challenges
Sequester
Uncertainty
Many program authorizations set to expire
“Grand bargain” tax reform?
NASBO 11
Challenges:
Are states prepared?
NASBO 12
NASBO
The Challenges
Tighter Resources for Years Demographic Changes Debt and Pension Liability State Revenue Infrastructure Federal Cuts
13
NASBO 14
Current Fiscal Situation:
Indicators
NASBO
Slow Budget Growth
-8
-6
-4
-2
0
2
4
6
8
10
12
%
General Fund Expenditure Growth (%)
*36-year historical average annual rate of growth is 5.5 percent *Fiscal 2014 numbers are recommended Source: NASBO Spring 2013 Fiscal Survey of States
*Average
NASBO
FY 2014 GF Spending Estimated to Exceed Pre-Recession Level
16
Source: NASBO Spring 2013 Fiscal Survey of States *Fiscal 2014 numbers are recommended
NASBO
FY 2013 GF Revenue Also Expected to Exceed Pre-Recession Peak
17
Source: NASBO Spring 2013 Fiscal Survey of States *Fiscal 2014 numbers are recommended
NASBO
Budget Cuts Made After the Budget Passed
($ millions)
Source: NASBO Spring 2013 Fiscal Survey *Fiscal 2013 midyear cuts are ongoing
Minimal Net Midyear Budget Cuts in FY 2013, 11 States Cut $1.3B
NASBO
States Rebuilding Reserves, but Haven’t Reached Peak Levels
19
NASBO
Fiscal 2014 Recommended Program Area Cuts
Elementary and Secondary Education: 5 states
Higher Education: 3 states
Public Assistance: 12 states
Medicaid: 7 states
Corrections: 7 states
Transportation: 10 states
Other Cuts: 9 statesSource: NASBO Spring 2013 Fiscal Survey of States
NASBO 21
States and Locals Continue to Eliminate Positions
State and local employment has declined 750,000 from the start of the recession through this February
State employment declined 195,000 from Aug. 2008-Feb. 2013 Local employment declined 558,000 from Aug. 2008-Feb. 2013
Source: Bureau of Labor Statistics
NASBO
Personnel Strategies Used to Reduce or Eliminate Budget Gaps
Fiscal 2010
Layoffs: 26 states
Furloughs: 22 states
Early Retirement: 6 states
Salary Reductions: 12 states
Cuts to Employee Benefits: 9 states
Fiscal 2013 Layoffs: 9 states
Furloughs: 3 states
Early Retirement: 2 states
Salary Reductions: 4 states
Cuts to Employee Benefits: 9 states
Source: NASBO Fiscal Survey of States
NASBO 23
Background on State Spending Trends
NASBO 24
Spending by Funding Source(Percentage)
General Funds39.8%
Federal Funds31.2%
Other State Funds26.5% Bonds
2.5%
Total State Expenditures By Funding Source, Estimated Fiscal 2012
Source: NASBO State Expenditure Report
NASBO 25
Total State Expenditures
K-1219.8%
Higher Education9.9%
Medicaid23.9%
Public Assistance1.4%
Corrections3.2%
Transportation8.1%
All Other33.7%
Total Expenditures by Function, Estimated Fiscal 2012
Source: NASBO State Expenditure Report
NASBO 26
Total Expenditures Percentage Growth in Spending Categories Over 10 Years
-5
31.8 33.9 34.5
44.8 47.7
59.7 60.9
-10
0
10
20
30
40
50
60
70
%
Percentage Growth in Spending CategoriesBetween Fiscal 2003 and Fiscal 2012 (Total Funds)
Public Assist. Higher Ed K-12 Corrections Transport. Total All Other Medicaid
Sources: NASBO State Expenditure Reports
NASBO 27
General Fund: Medicaid & Education 64.3%
Elementary & Secondary Education
34.7%
Higher Education10.0%
Medicaid19.6%
Public Assistance1.5%
Corrections7.0%
Transportation0.5%
All Other26.6%
General Fund Expenditures by Function, Estimated Fiscal 2012
Source: NASBO State Expenditure Report
NASBO 28
General Fund Percentage Growth in Spending Categories Over 10 Years
-10.1
8 11.7
30.6 31.5 34.4
45.853.2
-20
-10
0
10
20
30
40
50
60
%
Percentage Growth in Spending CategoriesBetween Fiscal 2003 and Fiscal 2012 (General Funds)
Public Assist. Higher Ed Transport. K-12 Corrections Total All Other Medicaid
Sources: NASBO State Expenditure Reports
NASBO 29
State Spending from Federal Funds
Elementary & Secondary Education
10.9%
Higher Education3.5%
Medicaid43.9%
Public Assistance2.6%
Corrections0.2%
Transportation8.0%
All Other30.9%
Federal Funds Spending, Estimated Fiscal 2012
Source: NASBO State Expenditure Report
NASBO
Higher Ed Funding More Volatile than Other Program Areas
30
Source: Illinois State University, Center for the Study of Education Policy, Grapevine Reports
NASBO 31
Trend continues…A Focus on Outcomes
Focus on results and outcomes
Transparency
Spend funds for effective programs
NASBO 32
Outlook
NASBO 33
State Fiscal Outlook
Below average state budgets
Health care reform implementation
Tough competition for general funds and limited federal funds
Dealing with infrastructure, long-term liabilities
States will continue to make some painful choices
NASBO
Why am I still a optimistic?
34
NASBO 35
Sticky bun come soon mon!Sticky bun come soon mon!
