NESTOA

September 16, 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 3

Current Fiscal Situation

NASBO 4

State Fiscal Outlook

Revenue Improvement Spring Spending Pressure Health care reform Limited federal funds Significant restructuring

NASBO

Medicaid

5

Fiscal 2011 data is based on enacted budgets and fiscal 2012 data is based on governors’ proposed budgetsSource: NASBO Spring 2011 Fiscal Survey of States

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National Economic Indicators

2nd Quarter GDP grows 1.0% 8th straight quarter of some growth; grew 0.4% in 1st Q.

Growth forecasts revised downward CBO revises GDP forecast to 1.5% in 2011 and 2.5% in 2012 NABE revises GDP forecast to 1.7% in 2011 and 2.3% in 2012

Other economic figures: Unemployment rate unchanged at 9.1% in August CBO projects it will remain near 9% through 2012

12 Federal Reserve Districts report modest or slow growth Manufacturing grows for 25th straight month in August, although

growth slows Home Sales fell in July; still higher than last year

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State and Local Employment Continues to Decline

State and local employment has declined 620,000 from the start of the recession through July

State employment declined 145,000 from Aug. 2008-July 2011 Local employment declined 475,000 from Sept. 2008-July 2011

State governments eliminated 23,000 positions in July alone

States have also taken other personnel actions such as furloughs, early retirement, salary reduction, cuts to state employee benefits, etc.

Source: Bureau of Labor Statistics

NASBO

State Debt Level Remains Comparatively Low

8

Debt-to-GDP: U.S. States Compared to Advanced G20 Nations – Moody’s Investor Services & International Monetary Fund

%

NASBO

Tax and Fee Increases

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Current Fiscal Situation:

Indicators

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BudgetImprovement

-8

-6

-4

-2

0

2

4

6

8

10

12

%

General Fund Expenditure Growth (%)

*34-year historical average rate of growth is 5.7percent *Fiscal ‘12 numbers are recommended Source: NASBO Spring 2011 Fiscal Survey of States

* Average

NASBO

Budget Cuts Made After the Budget Passed

($ millions)

*FY 2011 mid-year budget cuts are ongoing Source: NASBO Spring 2011 Fiscal Survey

Mid-Year Budget Cuts Decline

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FY 2012 Proposed Spending Still Less than FY 2008

($ in

bil

lion

s)

* FY 2007, 2008, 2009 and 2010 are actual. FY 2011 is estimated and FY 2012 is proposed..

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6 Quarters of Revenue Growth Following 5 Quarters of Declines

-20

-15

-10

-5

0

5

10

15

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011%

Year-Over-Year Real Change inQuarterly State Tax Revenue

Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau

NASBO

* FY 2007, 2008, 2009 and 2010 are actual. FY 2011 is estimated and FY 2012 is proposed.

($ in

bil

lion

s)

Revenue Remains Below Pre-Recession Levels

NASBO

Balances as a Percentage of Expenditures

* FY 2006, 2007, 2008, 2009, 2010 are actual, FY 2011 is estimated and FY 2012 is proposed.

(per

cen

tage

s)Balance Levels are Below Historical Average for Most States

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Background on State Finance Trends

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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

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Total State Expenditures

K-1220.8%

Higher Education10.1%

Medicaid21.8%

Public Assistance1.7%

Corrections3.1%

Transportation8.1%

All Other34.4%

Total Expenditures by Function, Estimated Fiscal 2010

Source: NASBO 2009 State Expenditure Report

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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

Percentage Change in Medicaid Spending and Enrollment

21

%

Source: Kaiser Commission on Medicaid and the Uninsured

Adopted

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What Can Be Done?

Financial Management

Ask performance questions

Ask for outcome data

Use performance information to justify changes to programs

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Outlook

NASBO

Major Challenges to State Budgets

Spending Demands and Some Revenue Growth Dependent on Economic Growth

Health Care Cost Pressures

Wind Down of Recovery Funds (Planned For)

Dealing with Long Term Liabilities

Court Cases/Federal Government Mandates

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Source: New York Times, 6/12/11

Tough Decisions to Make…

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www.nasbo.org

Scott Pattison

(202) 624-8804

spattison@nasbo.org