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State Fiscal Outlook. NAMM Washington, DC May 11, 2010 Brian Sigritz Director of State Fiscal Studies National Association of State Budget Officers. 444 North Capitol Street, NW, Suite 642 • Washington, DC 20001 • (202) 624-5382 • www.nasbo.org. Current Fiscal Situation.
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State Fiscal Outlook NAMM Washington, DC May 11, 2010 Brian Sigritz Director of State Fiscal Studies National Association of State Budget Officers 444 North Capitol Street, NW, Suite 642 • Washington, DC 20001 • (202) 624-5382 • www.nasbo.org
Recent State Fiscal Situation • The “Great Recession” - Extremely difficult fiscal period for states • States experiencing significant shortfalls and large revenue declines • Fiscal 2010 revenue projections: For the year, 41 states lower than projected, 6 on target, 3 higher • March and April revenue collections a mixed bag • Widespread budget cuts, layoffs/furloughs continue across the nation • ARRA helping, but does not fully solve shortfalls
Economics • 1st Quarter GDP grows 3.2% • Slow economic growth likely in calendar 2010 • Some economic improvement: • Stability in many indicators • Conference Board LEI up 11 straight months • Economy adds 290,000 jobs in April • 9 straight monthly increases in manufacturing
3-Month Index: Increases in 31 states, decreases in 17, unchanged in 2 Source: Federal Reserve Bank of Philadelphia State Coincident Index (March 2010)
This downturn vs. Post ‘01 • Last Time: • Housing sector relatively strong in ’01 • Primarily income tax decline This Time: • Broad economic decline; Longer recession • Localities will be hit this downturn • 17 states reduced local aid in ‘09; 20 in ‘10
State of the State Speeches • Common themes include the need for a smaller and more efficient government, and prioritizing job creation • A number of governors have called for tax hikes, often temporary sales tax increases • Several governors have called for increased federal aid • Especially extension of enhanced FMAP
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
37 States with Negative Growth Budgets in FY 2010 Source: December 2009 Fiscal Survey of States
Balances Declining *32-year historical average is 5.5% Source: NASBO Fall 2009 Fiscal Survey
Budget Cuts at Record Levels Source: NASBO Fall 2009 Fiscal Survey of States
State Revenue Down 4.2% in 4th quarter; 5th Straight Quarter Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau
Job Growth – “The Lag” Source: Washington Post; Bureau of Labor Statistics
State Budget Gaps (in millions) NGA & NASBO State Fiscal Update – February 2010
Michigan GF Revenue less in 2010 than in 1997 May 2009 estimates Source: Michigan Office of Revenue and Tax Analysis, Dept. of Treasury, 7/31/09
CA general fund spending declining at least $18B in 2 years Source: December 2009 Fiscal Survey of States
American Recovery and Reinvestment Act (ARRA)
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
The Cliff… Source: Stateline.org
Spending by Funding Source(Percentage) Source: NASBO 2008 State Expenditure Report
General Fund: Medicaid & Education Over 62% Source: NASBO 2008 State Expenditure Report 24
State Spending from Federal Funds Source: NASBO 2008 State Expenditure Report 25
Total Expenditures Percentage Growth in Spending Categories Over 10 Years Sources: NASBO 1999 and 2008 State Expenditure Reports
Long Term Spending Pressures • Medicaid and Health Care • K-12 and Higher Education • Demographic Changes • Corrections • Transportation • Infrastructure • Pensions
State Fiscal Outlook • Austere state budgets for at least the next several years • Health care reform will have an impact on state finances • Already seeing increases in Medicaid spending & enrollment; 21% of total expenditures • Tough competition for general funds • Demand for performance and results • Opportunity for reform
www.nasbo.org Brian Sigritz Director of State Fiscal Studies (202) 624-8439 bsigritz@nasbo.org