The Fiscal Situation: Where Do We Go From Here?

GoverningWashington, DC

February 1, 2011

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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Current Fiscal Situation:

Overview

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Recent State Fiscal Situation

The “Great Recession” - Extremely difficult fiscal period for states States experienced significant shortfalls and large

revenue declines Widespread budget cuts, layoffs/furloughs

continue across the nation Despite media attention, default and

bankruptcy are not at all expected ARRA funds ending

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MAJOR CHALLENGES TO STATE BUDGETS: Fiscal 2011 and 2012

Slow Revenue Growth Unlikely to return to 2008 levels until 2013 or 2014

Medicaid Enrollment Increase 8.5 percent growth in 2010, 6.1 percent growth estimate for 2011

Wind Down of Recovery Funds $151 billion in flexible funding ends in June 2011

Dealing with Long Term Liabilities Health Care Reform

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Rethinking State Government: Health Care Costs Alone

“Containing growth in our health care costs… is something we absolutely need to do, because it is unsustainable at the rate that it’s been growing,’’ said Jay Gonzalez, Patrick’s budget chief. “There are going to be some hard decisions.’’

“We now have to begin messing with Medicaid,’’ said House Member Harriett Stanley.

Boston Globe 1/3/11

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Current Fiscal Situation:

Indicators

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Negative Spending Two Years in a Row, Increase in 2011

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

%

General Fund Expenditure Growth (%)

*33-year historical average rate of growth is 5.7 percent *Fiscal ‘11 numbers are enacted Source: NASBO Fall 2010 Fiscal Survey of States

* Average

The New Long-Term Normal?

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Balances as a Percentage of Expenditures

* FY 2008, and 2009 are actual. FY 2010 is preliminary actual and FY 2011 is enacted.

(per

cen

tage

s)State Balances Near Historic Lows for Many States

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1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

-$10

-$5

$0

$5

$10

$15

$20

$25

$30

Enacted State Revenue Changes, Fiscal 1979 to Fiscal 2011

Fiscal Year

($ in

bill

ions

)Tax and Fee Increases Continue

NASBO

Budget Cuts Made After the Budget Passed ($ millions)

*FY 2011 mid-year budget cuts are ongoing

Mid-Year Budget Cuts Continue

NASBO

Percentage Change in Medicaid Spending and Enrollment

11

%

Source: Kaiser Commission on Medicaid and the Uninsured

Adopted

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Outlook

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No Additional Aid Likely from Federal Government

“We have no expectation or intention to get involved in state and local finance.” Federal Reserve Chairman Ben Bernanke, January 7, 2011

“I think most of the solutions for state government will have to come from state government.” Senate Majority Leader Harry Reid, January 17, 2011

“We are not interested in a bailout.” House Budget Committee Chairman Paul Ryan, January 6, 2011

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Who gets out first? Historical Boost to State Earnings and Employment due to Oil & Natural Gas

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

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State Fiscal Outlook

Austere state budgets for at least the next several years Slow revenue growth; ARRA declines

Health care reform will have an impact on state finances

Limited federal funds

Tough competition for general funds, BUT…

Opportunity for reform, restructuring

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www.nasbo.org

Scott Pattison

(202) 624-8804

spattison@nasbo.org