Transcript Fiscal State of the States

The Economy and Budget:
Minnesota and the Nation
Legislative Conference
February 10, 2010
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
Current Fiscal Situation:
Overview
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State Budget Gaps
(in millions)
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Recent State Fiscal Situation

The “Great Recession” - Extremely difficult
fiscal period for states
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States experiencing significant shortfalls and
large revenue declines – many states still have not
had revenues meet lowered projections
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Widespread budget cuts, layoffs/furloughs
continue across the nation
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ARRA helping, but does not fully solve
shortfalls
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State of the State Speeches
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Common themes include the need for a
smaller and more efficient government, and
prioritizing job creation
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At least 5 governors have called for tax hikes
(AZ, IL, KS, NM, & WA), while others are looking at
tax reform
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Several governors have called for increased
federal aid
Source: Stateline, January 22, 2010
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Current Fiscal Situation:
Economic Overview
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The “New Normal” is Here
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National Recession is
Likely Over
Chicago Fed National Activity Index (standard deviation from trend, 3-month average)
3.0
2.0
1.0
Nov. 2009
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
1967
'70
'73
'76
'79
'82
'85
'88
'91
'94
'97
'00
'03
'06
'09
Source: Federal Reserve Bank of Chicago
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Unemployment Rate
in MN and Selected States
Source: U. S. Department of Labor, Bureau of Labor Statistics
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Who gets out 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
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Current Fiscal Situation:
Indicators
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Negative Spending in Both
FY 2009 and FY 2010
*
The New Normal?
*32-year historical average rate of growth is 5.6 percent
Source: NASBO Fall 2009 Fiscal Survey of States
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**Fiscal 10 numbers are appropriated
37 States with Negative
Growth Budgets in FY 2010
Source: December 2009 Fiscal Survey of States
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Balances in
MN and Selected States
Source: NASBO Dec. 2009 Fiscal Survey of States
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State Revenue Down 16% in 2nd
Quarter, 11% in 3rd Quarter
•Preliminary Oct . & Nov. data shows 6.5% decline in PIT ; 5.5% decline in Sales
•Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau
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State Tax Revenue Growth
in MN and Selected States
Source: Fiscal Studies Program, Rockefeller Institute of Government
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Job Growth – “The Lag”
Source: Washington Post; Bureau of Labor Statistics
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Other States:
CALIFORNIA
Source: December 2009 Fiscal Survey of States
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Other States:
MICHIGAN
May 2009
estimates
Source: Michigan Office of Revenue and Tax Analysis, Dept. of Treasury, 7/31/09
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Minnesota GF Revenue:
1997-2009
$15,510 $15,908
$9,836 $10,258 $9,867
$11,258 $11,682
$12,177 $12,575
$13,295
$14,250
$16,236
$14,954
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
(estimated)
Source: NASBO State Expenditure Report
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American Recovery and
Reinvestment Act (ARRA)
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American Recovery and
Reinvestment Act – State $
Approximately $246 billion+ going to
or through states
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State Fiscal Stabilization Fund - $53.6 billion:
 $39.5 billion to schools and higher ed
 $5 billion in incentive grants
 $8.8 billion in flexible funds
Medicaid Funding: $87 billion
$48 billion to transportation: highway and bridges
$27.5B; transit $8.4B; passenger rail $8B
Also safety net expansions, economic development,
other appropriated programs
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MN Recovery Act
Spending through 12/31/09
Funds Awarded*
Funds Received*
* Funds awarded: the sum of funds awarded by a federal agency to a prime recipient; Funds received : the sum of funds received from a federal agency by a prime recipient
Source: Recovery.gov
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The Cliff…
Source: Stateline.org
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Background on State
Spending Trends
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Spending by Funding Source
(Percentage)
Total State Expenditures By Funding Source, Estimated Fiscal 2009
Other State Funds
25.5%
Bonds
2.7%
Federal Funds
30.0%
General Funds
41.7%
Source: NASBO 2008 State Expenditure Report
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MN Spending by Funding
Source (Percentage)
MN Total State Expenditures By Funding Source, Estimated Fiscal 2009
Other State Funds
14.4%
Bonds
1.9%
Federal Funds
28.2%
General Funds
55.6%
Source: NASBO 2008 State Expenditure Report
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Total Expenditures Percentage
Growth in Spending Categories
Over 10 Years
Sources: NASBO 1999 and 2008 State Expenditure Reports
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General Fund Spending
Growth over 10 years
Sources: NASBO 1999 and 2008 State Expenditure Reports
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MN General Fund Spending
Growth over 10 years
MN Percentage Growth in Spending Categories
Between Fiscal 1998 and Fiscal 2008 (General Fund)
140
120
100 102.4
116
100
80
%
60
68.6
71.3
Total
Higher Ed
42.9
40
20.4
20
0
-20
-40
Public Assist.
-29.3
All Other
Corrections
Transport.
K-12
Medicaid
Sources: NASBO 1999 and 2008 State Expenditure Reports
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General Fund: Medicaid &
Education Over 62%
General Fund Expenditures by Function, Estimated Fiscal 2009
Transportation
0.7%
All Other
27.8%
Corrections
7.2%
Public Assistance
1.9%
Medicaid
16.2%
Elementary &
Secondary Education
35.1%
Higher Education
11.1%
Source: NASBO 2008 State Expenditure Report
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MN General Fund: Medicaid &
Education Over 72%
General Fund Expenditures by Function, Estimated Fiscal 2009
Transportation
0.6%
All Other
23.2%
Corrections
2.7%
Public Assistance
0.7%
Medicaid
17.1%
K-12
39.6%
Higher Education
16.1%
Source: NASBO 2008 State Expenditure Report
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Increases in Medicaid Spending
and Enrollment
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State Spending from
Federal Funds
Federal Funds Spending, Estimated Fiscal 2009
All Other
31.4%
Transportation
8.5%
Elementary &
Secondary Education
11.9%
Corrections
0.2%
Higher Education
3.5%
Public Assistance
2.8%
Medicaid
41.7%
Source: NASBO 2008 State Expenditure Report
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MN State Spending from
Federal Funds
Federal Funds Spending, Estimated Fiscal 2009
All Other
35.9%
K-12
10.0%
Transportation
9.5%
Higher
Education
0.4%
Corrections
0.1%
Public Assistance
3.2%
Medicaid
41.0%
Source: NASBO 2008 State Expenditure Report
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Outlook
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Promising Financial
Management Practices
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Add flexibility to the process
Use contingencies
Prudent use of debt
Rainy day funds and reserves
One time only revenue for one time only!
Use of performance information
Avoiding bad practices in good times
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Long Term Spending
Pressures
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Medicaid and Health
Care
K-12 and Higher
Education
Demographic
Changes
Corrections
Transportation
Infrastructure
Pensions
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State Fiscal Outlook
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Austere state budgets for at least the
next several years
Health care reform (what will it be?) will
have an impact on state finances
Tough competition for state general
funds
Federal deficits will impact states
Demand for performance and results
Opportunity for reform
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Rethinking State
Government
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“How much a state spends often matters less
than how it spends.”
The Economist, January 23, 2010
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Strategic thinking: should certain parts of
government continue to get general funds what’s the role?
Peter Drucker, 1995
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www.nasbo.org
Scott Pattison
(202) 624-8804
[email protected]
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