1. State of the States: STATE FISCAL OUTLOOK
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) •

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. 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: Moody’s Investors Services, Annual Sector Outlook for U.S. State Governments, February 2010

4. New Leadership: 23 Open Governors’ Seats

5. Current Fiscal Situation:
Indicators

6. 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

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

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

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

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. 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)
Source: Standard & Poor’s, 12/28/09

12. Ratings Less rating downgrades this recession than 9/11 recession
14 Moody’s rating downgrades in
4 in 2001, 2 in 2002, 8 in 2003
7 rating downgrades in
1 in 2007, 0 in 2008, 6 in 2009, 0 in 2010
One Reason: This downturn slower and deeper
Source: Moody’s Investors Services

13. Future Implications

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

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

16. Volatility: The Example of Medicaid Spending and Enrollment16

17. The Cliff…
Source: Stateline.org

18. Who gets out of this first
Who gets out of this 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. 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. 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 - what’s the role?
Peter Drucker, 1995

21.
Scott Pattison
(202)