2011 State and Local Fiscal Outlook

2 State and Local Governments in the U.S. Economy Major employer (about 14 percent of total U.S. employment in 2009) Key contributor to GDP (about 16 percent of GDP through more than $2 trillion in operating and capital expenditures in 2009) Recipients of about $530 billion in federal grant funds in 2010

3 State and Local Governments Face Increasing Fiscal Challenges Source: GAO simulations, updated April Note: Historical data are from the Bureau of Economic Analysiss National Income and Product Accounts from 1980 to Data in 2010 are GAO estimates aligned with published data where available. GAO simulations are from 2011 to 2060, using many Congressional Budget Office projections and assumptions, particularly for the next 10 years. Simulations are based on current policy.

4 Source: GAO simulations, updated April Note: Historical data are from the Bureau of Economic Analysiss National Income and Product Accounts from 1980 to Data in 2010 are GAO estimates aligned with published data where available. GAO simulations are from 2011 to 2060, using many Congressional Budget Office projections and assumptions, particularly for the next 10 years. Simulations are based on current policy. Nonhealth care expenditures Health care expenditures Estimated Growth in Health Care Costs Exceeds Nonhealth Costs

5 Aggregate Shifts in State and Local Intergovernmental Grants Source: GAO analysis of historical data from the Bureau of Economic Analysiss National Income and Product Accounts. Note: Medicaid grants comprised 92 percent of health grants in Other includes national defense, public order and safety, and recreation and culture.

6 Aggregate Shifts in State and Local Government Expenditures Source: GAO analysis of historical data from the Bureau of Economic Analysiss National Income and Product Accounts. Note: The Other category includes Housing and Community Services and Recreation and Culture. Economic affairs includes transportation, space, agriculture, and natural resources. Health includes Medicaid. General public service includes interest payments and tax collection and financial management services. Income security, includes disability, welfare, and social services. State and local government pension contributions are considered part of employee compensation and accounted for within the categories.

7 Aggregate Shifts in State and Local Government Revenues Source: GAO analysis of historical data from the Bureau of Economic Analysiss National Income and Product Accounts. Note: Federal grants as a percentage of state and local revenues increased from 22 percent in 1979 to 24 percent in 2009.

8 Long-term Challenge Exacerbated by Short-term Economic Conditions Source: GAO analysis of data from the Bureau of Economic Analysiss National Income and Product Accounts.

9 American Recovery & Reinvestment Act Signed February 17, 2009 Purposes: preserve and create jobs and promote recovery assist those most impacted by the recession invest in science and health care technology invest in infrastructure stabilize state and local government budgets

10 Projected and Actual Federal Outlays to States and Localities under the Recovery Act Source: GAO analysis of data from CBO, Recovery.gov and Federal Funds Information for States. Outlays in billions of dollars

11 Composition of State and Local Recovery Act Funding: 2009 Actual and 2012 Estimated Source: GAO analysis of CBO and FFIS data. Data reflect estimated and actual federal outlays for a select set of Recovery Act-funded programs administered by states and localities. The Supplemental Nutrition Assistance Program (Food Stamps) and Unemployment Compensation payments are not included. Fiscal Year 2009 Fiscal Year 2012

12 Recovery Act Challenges for Officials at All Levels of Government Expectations for an unprecedented level of transparency and accountability Qualified personnel need to implement proper controls and accountability at all levels of government Close and ongoing coordination needed among federal, state, and local governments Accountability community: special responsibility to ensure collective efforts are well-coordinated

13 Lessons from the Recovery Act May Help Address Intergovernmental Challenges Moving Forward The Recovery Act and other countercyclical efforts helped cushion near term revenue shortfalls, but will not resolve the long- term structural deficits impacting state and local governments Looking forward, actions to address the nations long-term fiscal challenges may require a reexamination of intergovernmental roles and relationships GAOs review of the Recovery Act provides insight into some of the innovative practices used by government and others to implement the Act Lessons from implementing the Recovery Act may provide insights as well as concrete tools to help address current and future challenges facing federal, state, and local governments and their nongovernmental partners

14 GAO on the Web General Web site: ARRA Oversight: Long Term Federal and State/Local Fiscal Outlook: Contact Stanley J. Czerwinski, Director, Strategic Issues, (202) Chuck Young, Managing Director, Public Affairs, (202) U.S. Government Accountability Office 441 G Street NW, Room 7149, Washington, D.C Copyright This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.