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The Economy and Budget: Minnesota and the Nation

Learn about the current fiscal situation, economic indicators, and state budget gaps post-recession. Discover management practices and long-term spending pressures.

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The Economy and Budget: Minnesota and the Nation

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  1. The Economy and Budget: Minnesota and the Nation Legislative Conference February 10, 2010 Scott Pattison Executive Director National Association of State Budget Officers 444 North Capitol Street, NW, Suite 642 • Washington, DC 20001 • (202) 624-5382 • www.nasbo.org

  2. Current Fiscal Situation: Overview

  3. State Budget Gaps (in millions)

  4. Recent State Fiscal Situation • The “Great Recession” - Extremely difficult fiscal period for states • States experiencing significant shortfalls and large revenue declines – many states still have not had revenues meet lowered projections • Widespread budget cuts, layoffs/furloughs continue across the nation • ARRA helping, but does not fully solve shortfalls

  5. State of the State Speeches • Common themes include the need for a smaller and more efficient government, and prioritizing job creation • At least 5 governors have called for tax hikes (AZ, IL, KS, NM, & WA), while others are looking at tax reform • Several governors have called for increased federal aid Source: Stateline, January 22, 2010

  6. Current Fiscal Situation: Economic Overview

  7. The “New Normal” is Here

  8. National Recession is Likely Over Chicago Fed National Activity Index (standard deviation from trend, 3-month average) Nov. 2009 Source: Federal Reserve Bank of Chicago

  9. Unemployment Ratein MN and Selected States Source: U. S. Department of Labor, Bureau of Labor Statistics

  10. Who gets out first? Historical Boost to State Earnings and Employment due to Oil & Natural Gas Source: Federal Reserve Bank of Kansas City, Economic Review, Fourth Quarter 2009

  11. Current Fiscal Situation: Indicators

  12. Negative Spending in Both FY 2009 and FY 2010 * The New Normal? *32-year historical average rate of growth is 5.6 percent **Fiscal 10 numbers are appropriated Source: NASBO Fall 2009 Fiscal Survey of States

  13. 37 States with Negative Growth Budgets in FY 2010 Source: December 2009 Fiscal Survey of States

  14. Balances inMN and Selected States Source: NASBO Dec. 2009 Fiscal Survey of States

  15. State Revenue Down 16% in 2nd Quarter, 11% in 3rd Quarter • Preliminary Oct . & Nov. data shows 6.5% decline in PIT ; 5.5% decline in Sales • Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau

  16. State Tax Revenue Growth in MN and Selected States Source: Fiscal Studies Program, Rockefeller Institute of Government

  17. Job Growth – “The Lag” Source: Washington Post; Bureau of Labor Statistics

  18. Other States:CALIFORNIA Source: December 2009 Fiscal Survey of States

  19. Other States:MICHIGAN May 2009 estimates Source: Michigan Office of Revenue and Tax Analysis, Dept. of Treasury, 7/31/09

  20. Minnesota GF Revenue:1997-2009 (estimated) Source: NASBO State Expenditure Report 20

  21. American Recovery and Reinvestment Act (ARRA)

  22. American Recovery and Reinvestment Act – State $ Approximately $246 billion+ going to or through states • State Fiscal Stabilization Fund - $53.6 billion: • $39.5 billion to schools and higher ed • $5 billion in incentive grants • $8.8 billion in flexible funds • Medicaid Funding: $87 billion • $48 billion to transportation: highway and bridges $27.5B; transit $8.4B; passenger rail $8B • Also safety net expansions, economic development, other appropriated programs

  23. MN Recovery Act Spending through 12/31/09 Funds Awarded* Funds Received* * Funds awarded: the sum of funds awarded by a federal agency to a prime recipient; Funds received : the sum of funds received from a federal agency by a prime recipient Source: Recovery.gov

  24. The Cliff… Source: Stateline.org

  25. Background on State Spending Trends

  26. Spending by Funding Source(Percentage) Source: NASBO 2008 State Expenditure Report

  27. MN Spending by Funding Source (Percentage) Source: NASBO 2008 State Expenditure Report

  28. Total Expenditures Percentage Growth in Spending Categories Over 10 Years Sources: NASBO 1999 and 2008 State Expenditure Reports

  29. General Fund Spending Growth over 10 years Sources: NASBO 1999 and 2008 State Expenditure Reports

  30. MN General Fund Spending Growth over 10 years Sources: NASBO 1999 and 2008 State Expenditure Reports 30

  31. General Fund: Medicaid & Education Over 62% Source: NASBO 2008 State Expenditure Report 31

  32. MN General Fund: Medicaid & Education Over 72% Source: NASBO 2008 State Expenditure Report 32

  33. Increases in Medicaid Spending and Enrollment 33

  34. State Spending from Federal Funds Source: NASBO 2008 State Expenditure Report 34

  35. MN State Spending from Federal Funds Source: NASBO 2008 State Expenditure Report 35

  36. Outlook

  37. Promising Financial Management Practices • Add flexibility to the process • 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

  38. Long Term Spending Pressures • Medicaid and Health Care • K-12 and Higher Education • Demographic Changes • Corrections • Transportation • Infrastructure • Pensions

  39. State Fiscal Outlook • Austere state budgets for at least the next several years • Health care reform (what will it be?) will have an impact on state finances • Tough competition for state general funds • Federal deficits will impact states • Demand for performance and results • Opportunity for reform

  40. 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

  41. www.nasbo.org Scott Pattison (202) 624-8804 spattison@nasbo.org

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