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The Economy and Budget: Minnesota and the Nation

The Economy and Budget: Minnesota and the Nation. Legislative Conference January 12, 2011 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.

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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 January 12, 2011 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. Rethinking State Government • “How much a state spends often matters less than how it spends.” The Economist, January 23, 2010 • Should certain parts of government continue to be funded - what’s the role of government? Peter Drucker, 1995

  3. Rethinking State Government “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

  4. Current Fiscal Situation: Overview

  5. 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 • ARRA funds ending

  6. 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 • Growing Long Term Liabilities The unfunded liability is at least $1 trillion • Health Care Reform Uncertain costs

  7. Current Fiscal Situation: Indicators

  8. Negative Spending Two Years in a Row, Increase in 2011 * Average The New Normal Worst Case Scenario *33-year historical average rate of growth is 5.7 percent *Fiscal ‘11 numbers are enacted Source: NASBO Fall 2010 Fiscal Survey of States

  9. State Balances Near Historic Lows for Many States Balances as a Percentage of Expenditures (percentages) * FY 2008, and 2009 are actual. FY 2010 is preliminary actual and FY 2011 is enacted.

  10. Balances inMN and Selected States Source: NASBO Dec. 2010 Fiscal Survey of States

  11. Tax and Fee Increases Continue

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

  13. Minnesota GF Revenue:1997-2010 (estimated) Source: NASBO State Expenditure Report 13

  14. Mid-Year Budget Cuts Continue Budget Cuts Made After the Budget Passed ($ millions) *FY 2011 mid-year budget cuts are ongoing

  15. Current Fiscal Situation: Economic Overview

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

  17. National Unemployment Rate Compared to MN % Source: U.S. Department of Labor, Bureau of Labor Statistics

  18. 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

  19. MN Recovery Act Spending through 12/07/10 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

  20. The Cliff: Temporary Federal Aid to States (FY ’11 totals include both ARRA & Education Jobs Funds) In Billions Fiscal Year Source: Recovery Act data come from GAO Report to Congress, September 2010

  21. Background on State Spending Trends

  22. Spending by Funding Source(Percentage) Source: NASBO 2009 State Expenditure Report

  23. MN Spending by Funding Source (Percentage) Source: NASBO 2009 State Expenditure Report

  24. Total Expenditures Percentage Growth in Spending Categories Over 10 Years Sources: NASBO 2001 and 2009 State Expenditure Reports

  25. General Fund: Medicaid & Education Over 63% Source: NASBO 2009 State Expenditure Report

  26. MN General Fund: Medicaid & Education Over 70% Source: NASBO 2009 State Expenditure Report 26

  27. General Fund Percentage Growth in Spending Categories Over 10 Years Sources: NASBO 2001 and 2009 State Expenditure Reports

  28. MN General Fund Spending Growth over 10 years Sources: NASBO 2001 and 2009 State Expenditure Reports 28

  29. Percentage Change in Medicaid Spending and Enrollment % Adopted Source: Kaiser Commission on Medicaid and the Uninsured

  30. State Spending from Federal Funds Source: NASBO 2009 State Expenditure Report 30

  31. MN State Spending from Federal Funds Source: NASBO 2009 State Expenditure Report 31

  32. Promising Practices

  33. 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

  34. Focus on Outcomes • Focus on results and outcomes • Spend funds for effective programs • Improve management

  35. Model: The “Drilling Rig” Health CareSpending Plan:$4.2 billion GF-S and HSA • Key purchases with existing revenue: • Medicaid health care for 891,000 vulnerable children and adults • All current children’s health programs • Statewide public health programs to protect all citizens • Public health programs to improve testing, surveillance and follow-up for childhood diseases • Health insurance for 81,600 low-income people, which is 17,200 fewer than currently served • New revenue buys: • Basic Health Plan coverage for 17,200 people • Dental care for adults • Partial restoration of cuts to community clinics • $98 million for new, higher Medicaid payments to care providers • Examples of what’s not purchased: • Reduced Medicaid payments to teaching hospitals • 25 percent of state grants to community clinics • Optional Medicaid coverage for workers with disabilities Cuts and Savings: $97 million GF-S $6 million HSA

  36. What Can Be Done? • Ask performance questions • Ask for outcome data • Use performance information to justify changes to programs.

  37. Outlook

  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 • Slow revenue growth; ARRA declines • Health care reform will have an impact on state finances • Tough competition for general funds • Opportunity for reform, restructuring

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

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