The Changing Face of GovernmentDAN WHITE, SENIOR ECONOMIST

Governing Outlook Conference – February 2, 2016

22

00100

100

100

01101

101

101

02102

102

102

03103

103

103

04104

104

104

05105

105

105

06106

106

106

0707107

107

088108

108

099109

109

1010110

110

1111111

111

1212112

112

1313113

113

1414114

114

15151515

80100120140160180200220240260280

Mandatory state and local spending, including Medicaid

and pensions

All other spending

The Changing Face of Government

Sources: BEA, Moody’s Analytics

Nominal, 2000Q1=100

33

S&L GovtFederal Govt

InformationMiningOther

WholesaleFinance

ConstructionTransportationManufacturing

-500-400-300-200-100 0 100 200 300 400 500 600 700

No Certainty, No Hiring

Sources: BLS, Moody’s Analytics

Net change in employment since July-09, ths

44

General funds

Federal funds

Other state funds

Bond proceeds

40%

2%

31.3%

26.7%

Why Federal Certainty Is So Important

Sources: NASBO, Moody’s Analytics

Estimated FY15 state spending by source, % of total

55

13 13 13 13 14 14 14 14 15 15 15 150

2

4

6

8

10

12Social benefit payments to persons (i.e. Med-icaid)

Total spending

All other spending

Spending More…On Medicaid

Sources: BEA, Moody’s Analytics

State and local government nominal spending, % change year ago

66

13 14E 15F 16F 17F 18F 19F 20F2

3

4

5

6

7

8

State Medicaid spending, CMS forecast

Structural State Medicaid Imbalance Will Persist

Sources: CMS, Census Bureau, Moody’s Analytics

% change yr ago

State tax revenue, average rate of growth last 30 years

77

Pensions Becoming Big Ticket Item for ManyADC* as a % of state governmental revenue

Sources: Moody’s Investor Services, Moody’s Analytics

1.5% to <3%< 1.5%

3% to 4.5%> 4.5%

Average FY12-FY14

*Actuarially determined contribution

88

Unpaid Bills Just Make Things WorseActual contribution as a % of ADC*

Sources: Moody’s Investor Services, Moody’s Analytics

60% to <80%< 60%

80% to 100%> 100%

Average FY12-FY14

*Actuarially determined contribution

99

05

0.209722222

0.210416667

0.211111111

06

0.251388889

0.252083333

0.252777778

07

0.293055556

0.29375

0.294444444

08

0.334722222

0.335416667

0.336111111

09

0.376388889

0.377083333

0.377777778

10

0.418055556

0.41875

0.419444444

11

0.459722222

0.460416667

0.461111111

12

0.501388889

0.502083333

0.502777778

13

0.543055556

0.54375

0.544444444

-10

-5

0

5

10

15

20

25

30Government social benefit payments

Recessions Affect Revenues AND Spending

Sources: BEA, Moody’s Analytics

% change year ago

1010

More States Squirreled Money Away for FY16Rainy day fund balances % of GF spending, ppt change from FY15

Sources: NASBO, Moody’s Analytics

> 1 ppt> -1 to < 1 ≤ -1N/A

1111

4748495051525354555657585960616263646566676869707172737475767778798081828384858687888990919293949596979899000102030405060708091011121314151.01.52.02.53.03.54.04.55.05.5

Shrinking Capital Spending a Growing Problem…

Sources: BEA, Moody’s Analytics

Real government infrastructure spending, non-defense, % of GDP

1212

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

0

200

400

600

800

1,000

1,200States and local governments

Federal government

…And Federal Funding Lagging the Most

Sources: Congressional Budget Office, Moody’s Analytics

Spending on transportation and water infrastructure, 1977 = 100

1313

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15E

16F

17F

18F

19F

20F

21F

22F

23F

24F

25F

20

30

40

50

60

70

80

Mandatory spending

Discretionary spendingTotal state and local government spending in 2015 = $2.49 trillion

Innovate To Do More With Less

Sources: BEA, Moody’s Analytics

State and local government spending as a % of total

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