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Middle Management Conference NASACT April 20, 2010 Scott Pattison Executive Director National Association of State Budget Officers 444 North Capitol Street,

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Presentation on theme: "Middle Management Conference NASACT April 20, 2010 Scott Pattison Executive Director National Association of State Budget Officers 444 North Capitol Street,"— Presentation transcript:

1 Middle Management Conference NASACT April 20, 2010 Scott Pattison Executive Director National Association of State Budget Officers 444 North Capitol Street, NW, Suite 642 Washington, DC (202) State of the States: STATE FISCAL OUTLOOK

2 NASBO 2 State and Local Governments Play a Large Role in Economy State and local governments account for over 14% of total U.S. employment State and local governments contribute about 12% to national GDP Over $2 trillion in operating and capital expenditures in 2008 Source: Bureau of Labor Statistics; Government Accountability Office

3 NASBO 3 State Governments: Tough Fiscal Times Should Start to Improve Recession impacts Unemployment Slow improvement in housing sector Lower tax revenue for states should begin to improve Recovery Act has helped Tough choices Source: Moodys Investors Services, Annual Sector Outlook for U.S. State Governments, February 2010

4 NASBO New Leadership: 23 Open Governors Seats 4

5 NASBO 5 Current Fiscal Situation: Indicators

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

7 NASBO 7 Balances Declining *2009 totals without AK & TX **32-year historical average is 5.5% Source: NASBO Fall 2009 Fiscal Survey In Billions

8 NASBO Budget Cuts at Record Levels 8 Source: NASBO Fall 2009 Fiscal Survey of States

9 NASBO State Revenue Down 4.1% in 4 th quarter; 5 th Straight Quarter Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau

10 NASBO 10 State Revenue Impacted by Economic Conditions State revenue has become more sensitive to economic conditions during this past decade The change is especially noticeable with income tax Reasons for increased volatility: Reliant on upper income taxpayers Capital gains and investment income have become increasingly important Most states unwilling to raise taxes Source:Leslie McGranahan & Richard Mattoon, Federal Reserve Bank of Chicago

11 NASBO So far…State Bond Ratings Mostly Stable 44 have a stable outlook, 6 negative Recent Actions: 2 states have had ratings lowered (AZ, IL) 1 state raised (LA) 11 Source: Standard & Poors, 12/28/09

12 NASBO 12 Ratings Less rating downgrades this recession than 9/11 recession 14 Moodys rating downgrades in in 2001, 2 in 2002, 8 in rating downgrades in in 2007, 0 in 2008, 6 in 2009, 0 in 2010 One Reason: This downturn slower and deeper Source: Moodys Investors Services

13 NASBO 13 Future Implications

14 NASBO CA general fund spending declining at least $18B in 2 years 14 Source: December 2009 Fiscal Survey of States

15 NASBO 15 Example of Michigan Source: Michigan Office of Revenue and Tax Analysis, Dept. of Treasury, 7/31/09 May 2009 estimates

16 NASBO Volatility: The Example of Medicaid Spending and Enrollment 16

17 NASBO 17 The Cliff… Source: Statelin e.org

18 NASBO Who gets out of this first? Historical Boost to State Earnings and Employment due to Oil & Natural Gas 18 Source: Federal Reserve Bank of Kansas City, Economic Review, Fourth Quarter 2009

19 NASBO 19 State Fiscal Outlook Austere state budgets for at least the next several years Tough competition for state general funds Demand for performance, transparency and results Opportunity for reform

20 NASBO 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 - whats the role? Peter Drucker,

21 NASBO 21 Scott Pattison (202)


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