The State Fiscal Situation

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The State Fiscal Situation

• NLC
• March 15, 2011
• Scott Pattison
• Executive Director
• National Association of State Budget Officers

444 North Capitol Street, NW, Suite 642
Washington, DC 20001 [phone]
www.nasbo.org
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MAJOR CHALLENGES TO STATE BUDGETS Fiscal 2011
and 2012

• Spending Demands and Some Revenue Growth
  Unlikely to return to 2008
• Federal Government
• Health Care Cost PressuresMedicaid 6.1 percent
  growth estimate for FY2011
• Wind Down of Recovery Funds 151 billion in
  flexible funding ends in June FY2011
• Dealing with Long Term Liabilities
• Tough choices, not defaults
• Health Care Reform Implementation

3
Health Care Costs Key

• Containing growth in our health care costs is
  something we absolutely need to do, because it is
  unsustainable at the rate that its been
  growing, said Jay Gonzalez, Patricks budget
  chief.
• There are going to be some hard decisions.
• Boston Globe 1/3/11

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Negative Spending Two Years in a Row, Increase in
2011
Average
The New Long-Term 10 year Normal?
33-year historical average rate of growth is 5.7
percent
Fiscal 11 numbers are
enacted
Source NASBO Fall 2010 Fiscal
Survey of States
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Revenue Not Yet Pre-Recession
In Billions
FY 2007, 2008, and 2009 are actual. FY 2010 is
estimated and FY 2011 is proposed
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Mid-Year Budget Cuts Continue

• Budget Cuts Made After the Budget Passed
  ( millions)

FY 2011 mid-year budget cuts are ongoing
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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
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Additional Aid from Federal Government?

• We have no expectation or intention to get
  involved in state and local finance.
• Federal Reserve Chairman Ben Bernanke, January 7,
  2011
• I think most of the solutions for state
  government will have to come from state
  government.
• Senate Majority Leader Harry Reid, January 17,
  2011
• We are not interested in a bailout.
• House Budget Committee Chairman Paul Ryan,
  January 6, 2011

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Proposal Federal Budget Cuts

• HR 1 would reduce major discretionary program
  funding to states by 20.2 billion, or 10.7
• Cuts to major programs would be widespread with
  double digit declines from a number of agencies
• HUD 10.4
• HHS 12.0
• DHS 14.3
• DOL 42.9
• DOT (5.0) and Dept. of Ed (8.0) would see cuts,
  but below 10
• Clean Water State Revolving Fund and CDBG are cut
  more than 60

Analysis of HR 1 performed by Federal Funds
Information for States
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Spending by Funding Source(Percentage)
Source NASBO 2009 State Expenditure Report
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General Fund Medicaid Education Over 63
Source NASBO 2009 State Expenditure Report
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State Budget Cycle
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Tough Decisions! Revenue 1 billion

• Requests

• Decisions

• Medicaid 550 million
• K-12 450 million
• Higher ed 250 million
• Prisons 50 million
• Court cases 20 million
• Other 100 million
• 420 million

• Medicaid 500 million
• K-12 400 million
• Already 900 million spent
• Go back, cut Medicaid to 480, K-12 to 390
• 100 million available becomes 130 million

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State Fiscal Outlook

• Austere state budgets for at least the next
  several years
• Spending pressures Revenue growth
• Health care reform will have an impact on state
  finances
• Limited federal funds
• Tough competition for general funds

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Impact

• MOE, Flexibility
• Managing the Declines
• Show Effectiveness
• Yes, everything is still political
• Shared Sacrifice?

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www.nasbo.org

Scott Pattison [phone] spattison_at_nasbo.org