State Fiscal Outlook: Minnesota and the Nation One Minnesota January 9, 2013 Scott Pattison Executive Director National Association of State Budget Officers.

State Fiscal Outlook: Minnesota and the Nation

One MinnesotaJanuary 9, 2013

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 Fiscal Situation:

Overview

NASBO

State Fiscal Overview

The “Great Recession” was an extremely difficult fiscal period for states in all regions

Fiscal 2013 projections show aggregate expenditures and revenues continue to improve For many states, general fund revenues and expenditures still

below fiscal 2008

States recovering, but not recovered; resources remain tight

Federal uncertainty in a number of areas Federal spending expected to decline

3

NASBO 4

Federal Overhang…

Sequestration Cuts now scheduled for March 1, 2013

Debt Ceiling will need to be raised in February or March

Many program authorizations set to expire

“Grand bargain” Tax Reform?

NASBO 5

Current Fiscal Situation:

Indicators

NASBO

3 Years of Slow GF Growth Following 2 Years of Declines

-8

-6

-4

-2

0

2

4

6

8

10

12

%

General Fund Expenditure Growth (%)

*35-year historical average rate of growth is 5.6 percent *Fiscal ‘13 numbers are appropriated Source: NASBO Fall 2012 Fiscal Survey of States

* Average

NASBO

FY 2013 Appropriated Spending Still $5.9 Billion Below FY 2008

7

Source: NASBO Fall 2012 Fiscal Survey of States

NASBO

State Revenue Continues to Grow in 3rd Quarter, but at Slower Rate

-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

FY 2013 General Fund Revenue is Expected to Surpass FY 2008 by $13B

9

Source: NASBO Fall 2012 Fiscal Survey of States

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Minnesota GF Revenue:1997-2012

Source: NASBO State Expenditure Report

(estimated)

NASBO

States Enact $6.9 Billion in Additional Taxes and Fees

11

NASBO

States Continue To Rebuild Budgetary Reserves After Recession

12

NASBO 13

Balances inMN and Selected States

Source: NASBO Dec. 2011 Fiscal Survey of States

NASBO

Budget Cuts Made After the Budget Passed

($ millions)

Source: NASBO Fall 2012 Fiscal Survey

Minimal Midyear Budget Cuts in FY 2012, 8 States Cut $1.7 Billion

NASBO

Strategies Used to Reduce or Eliminate Budget Gaps, FY 2013

Reduce Local Aid: 8 states

Layoffs: 9 states

Furloughs: 3 states

Cuts to Employee Benefits: 9 states

Across-the-Board Cuts: 13 states

Targeted Cuts: 21 states

Rainy Day Fund: 4 states

Reorganize Agencies: 10 statesSource: NASBO Fall 2012 Fiscal Survey of States

NASBO 16

Current Fiscal Situation:

Economic Overview

NASBO 17

Unemployment Ratein MN and Selected States

Source: U. S. Department of Labor, Bureau of Labor Statistics

NASBO

National Unemployment Rate Compared to MN

18

%

Source: U.S. Department of Labor, Bureau of Labor Statistics

NASBO 19

Background on State Spending Trends

NASBO 20

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 21

MN Spending by Funding Source (Percentage)

Source: NASBO State Expenditure Report

NASBO 22

MN Total State Expenditures

K-1223.3%

Higher Education9.4%

Medicaid26.7%

Public Assistance1.3%

Corrections1.5%

Transportation10.7%

All Other27.0%

MN Total Expenditures by Function, Estimated Fiscal 2012

Source: NASBO State Expenditure Report

NASBO 23

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 24

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 25

MN General Fund: Medicaid & Education 76.4%

K-1236.8%

Higher Education16.2%

Medicaid23.4%

Public Assistance1.0%

Corrections2.5%

Transportation0.3%

All Other19.9%

General Fund Expenditures by Function, Estimated Fiscal 2012

Source: NASBO State Expenditure Report

NASBO 26

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 27

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 28

MN State Spending from Federal Funds

K-1210.1%

Higher Education

0.1%

Medicaid49.5%

Public Assistance2.9%

Corrections0.1%

Transportation5.2%

All Other32.3%

Federal Funds Spending, Estimated Fiscal 2012

Source: NASBO State Expenditure Report

NASBO 29

Promising Practices

NASBO 30

Promising Financial Management Practices

Use contingencies Prudent use of debt Rainy day funds and reserves One time only revenue for one time only! Use of performance information Avoiding bad practices in good times

NASBO 31

Focus on Outcomes

Focus on results and outcomes

Spend funds for effective programs

Improve management

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Model: The “Drilling Rig”

High

er Pr

ioritie

sLo

wer P

riorit

iesHi

gher

Prior

ities

Lowe

r Prio

rities

NASBO 33

Outlook

NASBO 34

State Fiscal Outlook

Austere state budgets for at least the next several years (Slow revenue growth, ARRA declines, economic uncertainty)

Health care reform, federal government will have an impact

Tough competition for general funds and limited federal funds

Dealing with long-term liabilities

States will continue to make painful choices

NASBO 35

www.nasbo.org

Scott Pattison

(202) 624-8804

[email protected]