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Middle Management Conference
NASACTApril 20, 2010
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
State of the States:STATE FISCAL OUTLOOK
NASBO 2
State and Local Governments Play a Large Role in Economy
State and local governments account for over 14% of total U.S. employment
State and local governments contribute about 12% to national GDP Over $2 trillion in operating and capital
expenditures in 2008
Source: Bureau of Labor Statistics; Government Accountability Office
NASBO 3
State Governments: Tough Fiscal Times Should Start to Improve
Recession impacts Unemployment Slow improvement in housing sector Lower tax revenue for states should begin to improve
Recovery Act has helped
Tough choices
Source: Moody’s Investors Services, Annual Sector Outlook for U.S. State Governments, February 2010
NASBO
New Leadership:23 Open Governors’ Seats
4
NASBO 5
Current Fiscal Situation:
Indicators
NASBO
Negative Spending in Both FY 2009 and FY 2010
*32-year historical average rate of growth is 5.6 percent **Fiscal 10 numbers are appropriated Source: NASBO Fall 2009 Fiscal Survey of States
*
The New Normal?
NASBO 7
Balances Declining
$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
Total Year-End Balances and Total Year-End Balances as a % of Expenditures, Fiscal 1979-Fiscal 2009
Total Balances as a Percentage of Expenditures Total Balance
**
*2009 totals without AK & TX **32-year historical average is 5.5%
Source: NASBO Fall 2009 Fiscal Survey
In Billions
NASBO
Budget Cuts at Record Levels
8
Source: NASBO Fall 2009 Fiscal Survey of States
NASBO
State Revenue Down 4.1% in 4th quarter; 5th Straight Quarter
Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau
NASBO 10
State Revenue Impacted by Economic Conditions
State revenue has become more sensitive to economic conditions during this past decade
The change is especially noticeable with income tax
Reasons for increased volatility: Reliant on upper income taxpayers Capital gains and investment income have become
increasingly important Most states unwilling to raise taxes
Source:Leslie McGranahan & Richard Mattoon, Federal Reserve Bank of Chicago
NASBO
So far…State Bond Ratings Mostly Stable
44 have a stable outlook, 6 negative
Recent Actions: 2 states have had
ratings lowered (AZ, IL) 1 state raised (LA)
11
Source: Standard & Poor’s, 12/28/09
NASBO 12
Ratings
Less rating downgrades this recession than 9/11 recession
14 Moody’s rating downgrades in 2001-2003 4 in 2001, 2 in 2002, 8 in 2003
7 rating downgrades in 2007-2010 1 in 2007, 0 in 2008, 6 in 2009, 0 in 2010
One Reason: This downturn slower and deeper
Source: Moody’s Investors Services
NASBO 13
Future Implications
NASBO
CA general fund spending declining at least $18B in 2 years
14
Source: December 2009 Fiscal Survey of States
NASBO 15
Example of Michigan
Source: Michigan Office of Revenue and Tax Analysis, Dept. of Treasury, 7/31/09
May 2009 estimates
NASBO
Volatility: The Example of Medicaid Spending and Enrollment
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NASBO 17
The Cliff…
Source: Stateline.org
NASBO
Who gets out of this first?Historical Boost to State Earnings and Employment due to Oil & Natural Gas
18
Source: Federal Reserve Bank of Kansas City, Economic Review, Fourth Quarter 2009
NASBO 19
State Fiscal Outlook
Austere state budgets for at least the next several years
Tough competition for state general funds
Demand for performance, transparency and results
Opportunity for reform
NASBO
Rethinking State Government
“How much a state spends often matters less than how it spends.”
The Economist, January 23, 2010
Strategic thinking: should certain parts of government continue to get general funds - what’s the role?
Peter Drucker, 1995
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