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State Fiscal Outlook

State Fiscal Outlook. NAMM Washington, DC May 11, 2010 Brian Sigritz Director of State Fiscal Studies National Association of State Budget Officers. 444 North Capitol Street, NW, Suite 642 • Washington, DC 20001 • (202) 624-5382 • www.nasbo.org. Current Fiscal Situation.

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State Fiscal Outlook

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  1. State Fiscal Outlook NAMM Washington, DC May 11, 2010 Brian Sigritz Director of State Fiscal Studies National Association of State Budget Officers 444 North Capitol Street, NW, Suite 642 • Washington, DC 20001 • (202) 624-5382 • www.nasbo.org

  2. Current Fiscal Situation

  3. Recent State Fiscal Situation • The “Great Recession” - Extremely difficult fiscal period for states • States experiencing significant shortfalls and large revenue declines • Fiscal 2010 revenue projections: For the year, 41 states lower than projected, 6 on target, 3 higher • March and April revenue collections a mixed bag • Widespread budget cuts, layoffs/furloughs continue across the nation • ARRA helping, but does not fully solve shortfalls

  4. Economics • 1st Quarter GDP grows 3.2% • Slow economic growth likely in calendar 2010 • Some economic improvement: • Stability in many indicators • Conference Board LEI up 11 straight months • Economy adds 290,000 jobs in April • 9 straight monthly increases in manufacturing

  5. 3-Month Index: Increases in 31 states, decreases in 17, unchanged in 2 Source: Federal Reserve Bank of Philadelphia State Coincident Index (March 2010)

  6. This downturn vs. Post ‘01 • Last Time: • Housing sector relatively strong in ’01 • Primarily income tax decline This Time: • Broad economic decline; Longer recession • Localities will be hit this downturn • 17 states reduced local aid in ‘09; 20 in ‘10

  7. State of the State Speeches • Common themes include the need for a smaller and more efficient government, and prioritizing job creation • A number of governors have called for tax hikes, often temporary sales tax increases • Several governors have called for increased federal aid • Especially extension of enhanced FMAP

  8. 2010 Governor Races:37 Races, 23 Open Seats

  9. Negative Spending in Both FY 2009 and FY 2010 * The New Normal? *32-year historical average rate of growth is 5.6 percent **Fiscal 10 numbers are appropriated Source: NASBO Fall 2009 Fiscal Survey of States

  10. 37 States with Negative Growth Budgets in FY 2010 Source: December 2009 Fiscal Survey of States

  11. Balances Declining *32-year historical average is 5.5% Source: NASBO Fall 2009 Fiscal Survey

  12. Budget Cuts at Record Levels Source: NASBO Fall 2009 Fiscal Survey of States

  13. State Revenue Down 4.2% in 4th quarter; 5th Straight Quarter Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau

  14. Job Growth – “The Lag” Source: Washington Post; Bureau of Labor Statistics

  15. State Budget Gaps (in millions) NGA & NASBO State Fiscal Update – February 2010

  16. Michigan GF Revenue less in 2010 than in 1997 May 2009 estimates Source: Michigan Office of Revenue and Tax Analysis, Dept. of Treasury, 7/31/09

  17. CA general fund spending declining at least $18B in 2 years Source: December 2009 Fiscal Survey of States

  18. American Recovery and Reinvestment Act (ARRA)

  19. American Recovery and Reinvestment Act – State $ Approximately $246 billion+ going to or through states • State Fiscal Stabilization Fund - $53.6 billion: • $39.5 billion to schools and higher ed • $5 billion in incentive grants • $8.8 billion in flexible funds • Medicaid Funding: $87 billion • $48 billion to transportation: highway and bridges $27.5B; transit $8.4B; passenger rail $8B • Also safety net expansions, economic development, other appropriated programs

  20. The Cliff… Source: Stateline.org

  21. Significant Lag?

  22. Background on State Spending Trends

  23. Spending by Funding Source(Percentage) Source: NASBO 2008 State Expenditure Report

  24. General Fund: Medicaid & Education Over 62% Source: NASBO 2008 State Expenditure Report 24

  25. State Spending from Federal Funds Source: NASBO 2008 State Expenditure Report 25

  26. Health Care and Medicaid

  27. Total Expenditures Percentage Growth in Spending Categories Over 10 Years Sources: NASBO 1999 and 2008 State Expenditure Reports

  28. Increases in Medicaid Spending and Enrollment

  29. Outlook

  30. Slow Fiscal Recovery…

  31. Long Term Spending Pressures • Medicaid and Health Care • K-12 and Higher Education • Demographic Changes • Corrections • Transportation • Infrastructure • Pensions

  32. The “New Normal” is Here

  33. State Fiscal Outlook • Austere state budgets for at least the next several years • Health care reform will have an impact on state finances • Already seeing increases in Medicaid spending & enrollment; 21% of total expenditures • Tough competition for general funds • Demand for performance and results • Opportunity for reform

  34. www.nasbo.org Brian Sigritz Director of State Fiscal Studies (202) 624-8439 bsigritz@nasbo.org

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