State Fiscal Conditions: Temporary Downturn or New Normal? MAGNY March 15, 2013 New York Scott Pattison Executive Director National Association of State Budget Officers 444 North Capitol Street, NW, Suite 642 Washington, DC (202)

NASBO 2 Current Fiscal Situation: Overview

NASBO Major Challenges to State Budgets - Spring 2013 Improved revenue growth, but not enough to go around… Federal government Health care changes, implementation Dealing with long term liabilities

NASBO 4 Federal Overhang… Sequester Debt ceiling Many program authorizations set to expire “Grand bargain” tax reform?

NASBO 5 National Economic Indicators 4th Quarter GDP grows a modest 0.1%  3 rd Quarter GDP increased 3.1%  14 th straight quarter of at least some growth Federal Reserve projects 2.3%-3.0% growth in 2013 Other economic figures:  Unemployment rate at 7.7% in February  Manufacturing grows for 3 rd consecutive month in February  New Home Sales rose 15.6% in January - “… the still-moderate underlying pace of economic growth…” - Federal Reserve Chairman Ben Bernanke, 2/26/13

NASBO 6 Current Fiscal Situation: Indicators

NASBO GF Growth *35-year historical average rate of growth is 5.6 percent *Fiscal ‘13 numbers are appropriated Source: NASBO Fall 2012 Fiscal Survey of States * Average

NASBO FY 2013 Appropriated Spending Still $5.9 Billion Below FY Source: NASBO Fall 2012 Fiscal Survey of States

NASBO FY 2013 General Fund Revenue is Expected to Surpass FY 2008 by $13B 9 Source: NASBO Fall 2012 Fiscal Survey of States

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

NASBO States Continue To Rebuild Budgetary Reserves After Recession 11

NASBO Budget Cuts Made After the Budget Passed ($ millions) Source: NASBO Fall 2012 Fiscal Survey Minimal Midyear Budget Cuts in FY 2012, 8 States Cut $1.7 Billion

NASBO Strategies Used to Reduce or Eliminate Budget Gaps, FY 2013 Reduce Local Aid: 8 states Layoffs: 9 states Furloughs: 3 states Cuts to Employee Benefits: 9 states Across-the-Board Cuts: 13 states Targeted Cuts: 21 states Rainy Day Fund: 4 states Reorganize Agencies: 10 states Source: NASBO Fall 2012 Fiscal Survey of States

NASBO 14 States and Locals Continue to Eliminate Positions State and local employment has declined 753,000 from the start of the recession through this February  State employment declined 195,000 from Aug Feb  Local employment declined 558,000 from Aug Feb State governments eliminated 8,000 positions in February; local employment declined by 2,000 Source: Bureau of Labor Statistics

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

NASBO 16 Background on State Spending Trends

NASBO 17 Spending by Funding Source (Percentage) Source: NASBO State Expenditure Report

NASBO 18 Total State Expenditures Source: NASBO State Expenditure Report

NASBO 19 Total Expenditures Percentage Growth in Spending Categories Over 10 Years Sources: NASBO State Expenditure Reports

NASBO 20 General Fund: Medicaid & Education 64.3% Source: NASBO State Expenditure Report

NASBO 21 General Fund Percentage Growth in Spending Categories Over 10 Years Sources: NASBO State Expenditure Reports

NASBO 22 State Spending from Federal Funds Source: NASBO State Expenditure Report

NASBO 23 Outlook

NASBO 24 State Fiscal Outlook Below average state budgets for at least the next several years 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

NASBO 25 Scott Pattison (202)