State Fiscal Outlook 2012 NASACT Middle Management Conference Scott Pattison Executive Director National Association of State Budget Officers 444 North.

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

NASBO 2

Current Economic and Fiscal Situation

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

NASBO 4

Or… the New Norm

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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The Forecast

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

NASBO

Who’s best positioned?

8

Source: Federal Reserve Bank of Kansas City, Economic Review, Fourth Quarter 2009

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

%

NASBO 10

Current Fiscal Situation:

Indicators

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

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

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.

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

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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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

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

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

NASBO

Taxes

Source: NASBO Fall 2011 Fiscal Survey of States

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FY 11-12Background on State

Spending Trends

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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

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

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

NASBO 24

Trend Continues:Focus on Outcomes

Focus on results and outcomes

Spend funds for effective programs

Improve management

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Outlook

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State Fiscal Outlook

Trends positive Back to pre-recession levels soonBut… Spending pressures will continue Federal funds will decline

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www.nasbo.org

Scott Pattison

(202) 624-8804

spattison@nasbo.org