1. State Fiscal Outlook NSAA June 12, 2013 California Scott Pattison Executive Director National Association of State Budget Officers 444 North Capitol Street, NW, Suite 642 Washington, DC 20001 (202) 624-5382 www.nasbo.org

2. NASBO 2

3. 3 Economic Outlook Monday: S&P upgraded U.S. Outlook to Stable from Negative things people worried might knock [the economy] into recession landed no more than glancing blows. Wall Street Journal, June 11, 2013

4. NASBO 4 Economic Outlook Monday: Businesses have never been more profitable Credit/Housing improving State Revenue: 2013: 5.5% 2014: 4.3% 2015: 5%

5. NASBO State Revenue Continues to Grow in 4th Quarter Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau

6. NASBO 6 State Fiscal Outlook Trends positive: Surpluses Back to pre-recession levels soon But… Spending pressures will continue Federal funds will decline

7. NASBO MAJOR CHALLENGES TO STATE BUDGETS: Fiscal 2013+ Spending Demands and Some Revenue Growth Health Care Costs Dealing with Long Term Liabilities Federal Cuts/Changes Not enough to go around

8. NASBO 8

9. 9 Federal Dysfunction Today the countrys main businesses sit on nearly $2 trillion in cash, afraid to invest in part because corporate bosses cannot imagine any of Washingtons feuding partisans fixing anything. The Economist, March 16, 2013

10. NASBO 10 Federal Challenges Sequester Uncertainty Many program authorizations set to expire Grand bargain tax reform?

11. NASBO 11 Challenges: Are states prepared?

12. NASBO 12

13. NASBO The Challenges Tighter Resources for Years Demographic Changes Debt and Pension Liability State Revenue Infrastructure Federal Cuts 13

14. NASBO 14 Current Fiscal Situation: Indicators

15. NASBO Slow Budget Growth *36-year historical average annual rate of growth is 5.5 percent *Fiscal 2014 numbers are recommended Source: NASBO Spring 2013 Fiscal Survey of States * Average

16. NASBO FY 2014 GF Spending Estimated to Exceed Pre-Recession Level 16 Source: NASBO Spring 2013 Fiscal Survey of States *Fiscal 2014 numbers are recommended

17. NASBO FY 2013 GF Revenue Also Expected to Exceed Pre-Recession Peak 17 Source: NASBO Spring 2013 Fiscal Survey of States *Fiscal 2014 numbers are recommended

18. NASBO Budget Cuts Made After the Budget Passed ($ millions) Source: NASBO Spring 2013 Fiscal Survey *Fiscal 2013 midyear cuts are ongoing Minimal Net Midyear Budget Cuts in FY 2013, 11 States Cut $1.3B

19. NASBO States Rebuilding Reserves, but Havent Reached Peak Levels 19

20. NASBO Fiscal 2014 Recommended Program Area Cuts Elementary and Secondary Education: 5 states Higher Education: 3 states Public Assistance: 12 states Medicaid: 7 states Corrections: 7 states Transportation: 10 states Other Cuts: 9 states Source: NASBO Spring 2013 Fiscal Survey of States

21. NASBO 21 States and Locals Continue to Eliminate Positions State and local employment has declined 750,000 from the start of the recession through this February State employment declined 195,000 from Aug. 2008-Feb. 2013 Local employment declined 558,000 from Aug. 2008-Feb. 2013 Source: Bureau of Labor Statistics

22. NASBO Personnel Strategies Used to Reduce or Eliminate Budget Gaps Fiscal 2010 Layoffs: 26 states Furloughs: 22 states Early Retirement: 6 states Salary Reductions: 12 states Cuts to Employee Benefits: 9 states Fiscal 2013 Layoffs: 9 states Furloughs: 3 states Early Retirement: 2 states Salary Reductions: 4 states Cuts to Employee Benefits: 9 states Source: NASBO Fiscal Survey of States

23. NASBO 23 Background on State Spending Trends

24. NASBO 24 Spending by Funding Source (Percentage) Source: NASBO State Expenditure Report

25. NASBO 25 Total State Expenditures Source: NASBO State Expenditure Report

26. NASBO 26 Total Expenditures Percentage Growth in Spending Categories Over 10 Years Sources: NASBO State Expenditure Reports

27. NASBO 27 General Fund: Medicaid & Education 64.3% Source: NASBO State Expenditure Report

28. NASBO 28 General Fund Percentage Growth in Spending Categories Over 10 Years Sources: NASBO State Expenditure Reports

29. NASBO 29 State Spending from Federal Funds Source: NASBO State Expenditure Report

30. NASBO Higher Ed Funding More Volatile than Other Program Areas 30 Source: Illinois State University, Center for the Study of Education Policy, Grapevine Reports

31. NASBO 31 Trend continues… A Focus on Outcomes Focus on results and outcomes Transparency Spend funds for effective programs

32. NASBO 32 Outlook

33. NASBO 33 State Fiscal Outlook Below average state budgets Health care reform implementation Tough competition for general funds and limited federal funds Dealing with infrastructure, long-term liabilities States will continue to make some painful choices

34. NASBO Why am I still a optimistic? 34

35. NASBO 35 Sticky bun come soon mon!

36. NASBO 36 www.nasbo.org Scott Pattison (202) 624-8804 spattison@nasbo.org