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State Fiscal Outlook
2012 NASACT Middle Management Conference
Scott PattisonExecutive Director
National Association of State Budget Officers
444 North Capitol Street, NW, Suite 642 • Washington, DC 20001 • (202) 624-5382 • www.nasbo.org
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NASBO 2
Current Economic and Fiscal Situation
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NASBO
“New Normal”
Definition:“No two recessions are alike…the more recent recessions of 1990-1 and 2001 were characterized as jobless recoveries with sluggish or nonexistent job growth even as the GDP recovered.”
“The New Normal?”, Region Focus, Richmond Federal Reserve Newsletter, First Quarter, 2010
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NASBO 4
Or… the New Norm
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NASBO
Economy
Though modest improvement is likely, it appears that growth will continue to be restrained through 2012… Federal Reserve, EconSouth, Fourth Quarter 2011
Deleveraging: “The U.S. still has a few years to go and the EU could have a decade… We’re not in the endgame, we’re in the middle game” Kenneth Rogoff, co-author of This Time is Different, quoted
in the Financial Times, February 4, 2012
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NASBO 6
The Forecast
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NASBO
State Government Challenges
Tighter Resources Demographic Changes Debt State Revenue
Will future revenue reflect economy? Enough for infrastructure?
Federal Spending Decline Direct - Decreased Federal Funds and Contracts Indirect – Defense Cuts
7
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NASBO
Who’s best positioned?
8
Source: Federal Reserve Bank of Kansas City, Economic Review, Fourth Quarter 2009
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NASBO
State Debt Not the Problem
9
Debt-to-GDP: U.S. States Compared to Advanced G20 Nations – Moody’s Investor Services & International Monetary Fund
%
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NASBO 10
Current Fiscal Situation:
Indicators
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NASBO
Medicaid Continues to Drive General Fund Spending Growth
11
Data is based on comparative levels of enacted spending in FY 2011 and FY 2012Source: NASBO Fall 2011 Fiscal Survey of States
Changes in General Fund Spending by Category Between FY 2011 and FY 2012
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NASBO
Budget Growth
-8
-6
-4
-2
0
2
4
6
8
10
12
%
General Fund Expenditure Growth (%)
*34-year historical average rate of growth is 5.6 percent *Fiscal ‘12 numbers are appropriated Source: NASBO Fall 2011 Fiscal Survey of States
* Average
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NASBO
FY 2012 Spending Remains $20 Billion Below FY 2008
($ in
bil
lion
s)
* FY 2007 – 2010 are actual, FY 2011 is preliminary actual and FY 2012 is enacted.
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NASBO
6 Quarters of Revenue Growth Following 5 Quarters of Declines
-20
-15
-10
-5
0
5
10
15
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011%
Year-Over-Year Real Change inQuarterly State Tax Revenue
Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau
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NASBO
* FY 2007- -2010 are actual. FY 2011 is preliminary actual and FY 2012 is enacted.
($ in
bil
lion
s)
Revenue Remains Below Pre-Recession Levels
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NASBO 16
State Balance Levels Recovering
$0
$10
$20
$30
$40
$50
$60
$70
$80
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Total Year-End Balances and Total Year-End Balances as a % of Expenditures, Fiscal 1979 - Fiscal 2012
Total Balances as a Percentage of Expenditures Total Balance
* Fiscal 2011 totals are preliminary actual nd fiscal 2012 are enacted **34-year historical average is 5.8%
Source: NASBO Fall 2011 Fiscal Survey
In Billions
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NASBO
Balances as a Percentage of Expenditures
* FY 2006 – FY 2010 are actual, FY 2011 is preliminary actual and FY 2012 is enacted.
(per
cen
tage
s)Total Balance Levels Remain Low for Most States
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NASBO
Budget Cuts Made After the Budget Passed
($ millions)
*FY 2012 mid-year budget cuts are ongoing Source: NASBO Fall 2011 Fiscal Survey
Mid-Year Budget Cuts
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NASBO
Taxes
Source: NASBO Fall 2011 Fiscal Survey of States
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NASBO 20
FY 11-12Background on State
Spending Trends
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NASBO 21
Spending by Funding Source(High Percentage Federal)
General Funds37.7%
Federal Funds34.1%
Other State Funds25.8% Bonds
2.5%
Total State Expenditures By Funding Source, Estimated Fiscal 2011
Source: NASBO 2010 State Expenditure Report
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NASBO 22
Total State Expenditures:Medicaid Grows Again
K-1220.1%
Higher Education10.1%
Medicaid23.6%
Public Assistance1.6%
Corrections3.1%
Transportation7.6%
All Other33.9%
Total Expenditures by Function, Estimated Fiscal 2011
Source: NASBO 2010 State Expenditure Report
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NASBO 23
General Fund: Growing Medicaid & Education 64%
Elementary & Secondary Education
35.0%
Higher Education11.5%
Medicaid17.4%
Public Assistance1.8%
Corrections7.4%
Transportation0.5%
All Other26.5%
General Fund Expenditures by Function, Estimated Fiscal 2011
Source: NASBO 2010 State Expenditure Report
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NASBO 24
Trend Continues:Focus on Outcomes
Focus on results and outcomes
Spend funds for effective programs
Improve management
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NASBO 25
Outlook
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NASBO 26
State Fiscal Outlook
Trends positive Back to pre-recession levels soonBut… Spending pressures will continue Federal funds will decline