1. The “State” of the State Economy Dr. James Ramsey President, University of Louisville NOVEMBER 7, 2013

2. LOUISVILLE.EDU 2 Thank you for this opportunity We value our partnerships with the Owensboro community

3. LOUISVILLE.EDU 3 I have a job... But my passion... Today

4. LOUISVILLE.EDU 4 I don’t get to teach economics anymore, but I did find my notes from Econ 202 My notes from Econ 202

5. LOUISVILLE.EDU 5 In “Macro” we talk about exciting topics: GDP Full employment Inflation All that stuff … The Business Cycle

6. LOUISVILLE.EDU 6 While I was trained as an econometrician Today let me make some casual observations on: National economy Kentucky economy State budget Higher education

7. LOUISVILLE.EDU 7 (With apologies to a Dallas Federal Reserve Economist who I heard 14 years ago) The Business Cycle Still Exists! Observation I

8. LOUISVILLE.EDU 8 The Last Decade or so The “recession!” Quarterly Change in GDP (measure of macro economic activity)

9. LOUISVILLE.EDU 9 We know that nationally times have been unprecedented…11 post WWII recessions *Lowest level during the current recession. The next two quarters (2009: III and IV) have been positive. -http://books.google.com/books?id=g-L0iLH5u34C&pg=PA408&lpg=PA408&dq=Real+GDP+November+1948&source=bl&ots=1eT_Am6PKI&sig=hkYMPbaa6BWiE9 2o-tg8Z8DPBI4&hl=en&sa=X&ei=2gEJUrDyE-Hg2AX384DYDQ&ved=0CDcQ6AEwAQ#v=onepage&q=Real%20GDP%20November%201948&f=falsehttp://books.google.com/books?id=g-L0iLH5u34C&pg=PA408&lpg=PA408&dq=Real+GDP+November+1948&source=bl&ots=1eT_Am6PKI&sig=hkYMPbaa6BWiE9 2o-tg8Z8DPBI4&hl=en&sa=X&ei=2gEJUrDyE-Hg2AX384DYDQ&ved=0CDcQ6AEwAQ#v=onepage&q=Real%20GDP%20November%201948&f=false PeakDecline in real GDP Dec-07 (IV)-5.1%* Mar-01 (I)-0.5% Jul-90 (III)-1.3% Jul-81 (III)-2.9% Jan-80 (I)-2.2% Nov-73 (IV)-3.1% Dec-69 (IV)-0.6% Apr-60 (II)-1.6% Aug-57 (III)-1.2% Jul-53 (II)-2.7% Nov-48 (IV)-1.7%

10. LOUISVILLE.EDU 10 Just when we thought recovery was taking hold Observation II 2011 “Black Swans” Tsunamis/Nuclear Meltdown Japan Civic unrest Tunisia/Egypt/Libya/Yemen/etc. Europe Economic Meltdown Greece/Spain/etc. 2012 “Sandy” Sequestration 2013 And now shutdown So, we are recovering – but we are not back! Yet.

11. LOUISVILLE.EDU 11 The real problem! Observation III

12. LOUISVILLE.EDU 12 Slow recovery continued – September 2013

13. LOUISVILLE.EDU 13 National Employment 136,290,000 US jobs December 2007 137,982,000 Jobs lost in the recession Jobs gained in the recovery US jobs September 2013 Still 1.69m fewer people working today http://beta.bls.gov/dataViewer/view/timeseries/CES0000000001 http://www.deptofnumbers.com/employment/us/

14. LOUISVILLE.EDU 14 Observation IV We live in a: New Economy/Knowledge Based Economy (Human Capital most important input into production process) Global Economy (What happens…)

15. LOUISVILLE.EDU 15 The New Economy RankCompany Name Market Cap ($B) 1Exxon Mobil422.27 2Apple398.35 3Google292.92 4Berkshire Hathaway288.99 5Microsoft261.42 6Johnson & Johnson260.02 7Wal-Mart258.53 8General Electric255.3 9Chevron247.72 10Wells Fargo234.94

16. LOUISVILLE.EDU 16 Jobs of Today … Jobs of Tomorrow … Education Is …

17. LOUISVILLE.EDU 17 Less than H.S. Diploma H.S. graduate, no college Some college or Associates BA or Higher U.S. National Unemployment % % % % % September 2013 17 Observation V Education is Important! http://www.bls.gov/web/empsit/cpseea05.htm

18. LOUISVILLE.EDU 18 OK, so I am still awake (barely) But… What’s The Point Of All This

19. LOUISVILLE.EDU 19 Oh – so let’s talk about KY Kentucky’s Economy is Dependent on National Economy

20. LOUISVILLE.EDU 20 Kentucky’s Economy “A Quick History”

21. LOUISVILLE.EDU 21 Beginning in 2000 Kentuckians working August 2013

22. LOUISVILLE.EDU 22 Just a little comparison September 2013 U.S.KY Jobs Lost7,500,000120,000 Jobs Regained5,787,00096,300 % of Jobs Regained77%80%

23. LOUISVILLE.EDU 23 But there is more to it Kentucky Manufacturing Employment Why Important? WAGES! August 2013

24. LOUISVILLE.EDU 24 So, in Kentucky things are better but we are not back yet from the depths of recession

25. LOUISVILLE.EDU 25 “I am trying to hang with you but work with me … What’s all this mean?”

26. LOUISVILLE.EDU 26 The Kentucky “General Fund” Kentucky State General Fund$9.3B100% Individual Income Tax$3.7B40% State Sales Tax$3.1B32% Combined$6.7B72% Income Tax/Sales Tax highly correlated with economic activity — i.e. Employment! People working! State Funded? OR State assisted? FY 13

27. LOUISVILLE.EDU 27 Year($000,000)% Change 20057,6459.56% 20068,3769.56% 20078,5732.35% 20088,6641.06% 20098,426-2.75% 20108,225-2.39% 20118,7596.49% 20129,0263.05% 20139,3483.44% 20149,5782.4%* * Forecasted Recessionary years Modest recovery KY General Fund http://www.osbd.ky.gov/NR/rdonlyres/1ADF4A09-F159-40BE-9DD0-2156ACCD0276/0/1214BOCBudInBrief.pdf Legislative (budget) Session

28. LOUISVILLE.EDU 28 http://www.ksba.org/protected/PrintArticle.aspx?iid=50GAYB&dasi=3UBI So, While Modest Economic Recovery, State Budget (2008-14) Continues To Be Ugly Because of Expenditure Side of Budget

29. LOUISVILLE.EDU 29 Um – Not Good, is it Well – no one knows, but my guess is “OK” recovery will continue in Kentucky KY will continue to add jobs, but … probably late 2014 before we return to job level of late 2007 Jobs of the future continue to be different than jobs of the past “Pockets” of problems — e.g. Eastern KY But what does the future hold for Higher Education in 2014 Biennial Budget Session

30. LOUISVILLE.EDU 30 Continue to face difficult state and fiscal challenges that impact our future o Slow State General Fund revenue growth (estimate 2013-14 is 2.5%, FY14-15: 2.4%, FY15- 16: 2.3%) o State’s structural budget imbalance still exists (more funding needed for state pensions) And, We Will: http://www.kypolicy.us/content/revenue-forecast-next-budget-remains-weak

31. LOUISVILLE.EDU 31 Other Expenditure areas of budget will be higher priority than higher education – because questions of: o Is Higher Education accountable? o Is Higher Education effective? o Higher Education hasn’t sold itself o Higher Education has alternative revenue sources And:

32. LOUISVILLE.EDU 32 Limited / if any funding for higher education Funding, if available, tied to “performance” Funds, if available, tied to specific initiatives; i.e. “college readiness” Continued pressure on modest tuition increases What this means Tough Fiscal Outlook to Continue 2014 - 2016

33. LOUISVILLE.EDU 33 So!

34. LOUISVILLE.EDU 34 Thank you Questions?