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The State Fiscal Situation
NLC
March 15, 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
NASBO
MAJOR CHALLENGES TO STATE BUDGETS: Fiscal 2011 and 2012
Spending Demands and Some Revenue Growth Unlikely to return to 2008
Federal Government Health Care Cost Pressures
Medicaid 6.1 percent growth estimate for FY2011 Wind Down of Recovery Funds
$151 billion in flexible funding ends in June FY2011 Dealing with Long Term Liabilities
Tough choices, not defaults Health Care Reform Implementation
NASBO
Health Care Costs Key
“Containing growth in our health care costs… is something we absolutely need to do, because it is unsustainable at the rate that it’s been growing,’’ said Jay Gonzalez, Patrick’s budget chief.
“There are going to be some hard decisions.’’
Boston Globe 1/3/11
3
NASBO
Negative Spending Two Years in a Row, Increase in 2011
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
%
General Fund Expenditure Growth (%)
*33-year historical average rate of growth is 5.7 percent *Fiscal ‘11 numbers are enacted Source: NASBO Fall 2010 Fiscal Survey of States
* Average
The New Long-Term 10 year Normal?
NASBO
Revenue Not Yet Pre-Recession
InBillions
* FY 2007, 2008, and 2009 are actual. FY 2010 is estimated and FY 2011 is proposed
NASBO
Budget Cuts Made After the Budget Passed
($ millions)
*FY 2011 mid-year budget cuts are ongoing
Mid-Year Budget Cuts Continue
NASBO 7
The Cliff: Temporary Federal Aid to States (FY ’11 totals include both ARRA & Education Jobs Funds)
Source: Recovery Act data come from GAO Report to Congress, September 2010
In Billions
Fiscal Year
NASBO 8
Additional Aid 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
NASBO 9
Proposal: Federal Budget Cuts
HR 1 would reduce major discretionary program funding to states by $20.2 billion, or 10.7%
Cuts to major programs would be widespread with double digit declines from a number of agencies HUD – 10.4% HHS – 12.0% DHS – 14.3% DOL – 42.9%
DOT (5.0%) and Dept. of Ed (8.0%) would see cuts, but below 10% Clean Water State Revolving Fund and CDBG are cut more than 60%
Analysis of HR 1 performed by Federal Funds Information for States
NASBO 10
Spending by Funding Source(Percentage)
General Funds38.1%
Federal Funds34.7%
Other State Funds24.5% Bonds
2.7%
Total State Expenditures By Funding Source, Estimated Fiscal 2010
Source: NASBO 2009 State Expenditure Report
NASBO 11
General Fund: Medicaid & Education Over 63%
Elementary & Secondary Education
35.7%
Higher Education12.1%
Medicaid15.4%
Public Assistance1.9%
Corrections7.2%
Transportation0.8%
All Other27.0%
General Fund Expenditures by Function, Estimated Fiscal 2010
Source: NASBO 2009 State Expenditure Report
NASBO
State Budget Cycle
12
NASBO
Tough Decisions!Revenue $1 billion
Requests Medicaid $550 million K-12 $450 million
Higher ed $250 million Prisons $50 million Court cases $20 million Other $100 million
$420 million
Decisions Medicaid $500 million K-12 $400 million Already $900 million
spent
+++
Go back, cut Medicaid to $480, K-12 to $390
$100 million available becomes $130 million
13
NASBO 14
State Fiscal Outlook
Austere state budgets for at least the next several years Spending pressures; Revenue growth
Health care reform will have an impact on state finances
Limited federal funds
Tough competition for general funds
NASBO 15
Impact
MOE, Flexibility
Managing the Declines
Show Effectiveness
Yes, everything is still political…
Shared Sacrifice?
