The Economy and Budget: Minnesota and the Nation Legislative Conference February 10, 2010 Scott...

The Economy and Budget: Minnesota and the Nation

Legislative Conference

February 10, 2010

Scott PattisonExecutive Director

National Association of State Budget Officers

444 North Capitol Street, NW, Suite 642 • Washington, DC 20001 • (202) 624-5382 • www.nasbo.org

NASBO 2

Current Fiscal Situation:

Overview

NASBO

State Budget Gaps(in millions)

NASBO 4

Recent State Fiscal Situation

The “Great Recession” - Extremely difficult fiscal period for states States experiencing significant shortfalls and large revenue

declines – many states still have not had revenues meet lowered projections

Widespread budget cuts, layoffs/furloughs continue across the nation

ARRA helping, but does not fully solve shortfalls

NASBO 5

State of the State Speeches

Common themes include the need for a smaller and more efficient government, and prioritizing job creation

At least 5 governors have called for tax hikes (AZ,

IL, KS, NM, & WA), while others are looking at tax reform

Several governors have called for increased federal aid

Source: Stateline, January 22, 2010

NASBO 6


Economic Overview

NASBO

The “New Normal” is Here

7

NASBO

National Recession is Likely Over

8

Chicago Fed National Activity Index (standard deviation from trend, 3-month average)

Nov. 2009

Source: Federal Reserve Bank of Chicago

NASBO 9

Unemployment Ratein MN and Selected States

Source: U. S. Department of Labor, Bureau of Labor Statistics

NASBO

Who gets out first? Historical Boost to State Earnings and Employment due to Oil & Natural Gas

10

Source: Federal Reserve Bank of Kansas City, Economic Review, Fourth Quarter 2009

NASBO 11


Indicators

NASBO

Negative Spending in Both FY 2009 and FY 2010

*32-year historical average rate of growth is 5.6 percent **Fiscal 10 numbers are appropriated Source: NASBO Fall 2009 Fiscal Survey of States

*

The New Normal?

NASBO

37 States with Negative Growth Budgets in FY 2010

13

Source: December 2009 Fiscal Survey of States

NASBO 14

Balances inMN and Selected States

Source: NASBO Dec. 2009 Fiscal Survey of States

NASBO

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

NASBO 16

State Tax Revenue Growth in MN and Selected States

Source: Fiscal Studies Program, Rockefeller Institute of Government

NASBO 17

Job Growth – “The Lag”

Source: Washington Post; Bureau of Labor Statistics

NASBO

Other States:CALIFORNIA

18

Source: December 2009 Fiscal Survey of States

NASBO 19

Other States:MICHIGAN

Source: Michigan Office of Revenue and Tax Analysis, Dept. of Treasury, 7/31/09

May 2009 estimates

NASBO 20

Minnesota GF Revenue:1997-2009

Source: NASBO State Expenditure Report

$9,836$10,258 $9,867

$11,258$11,682$12,177$12,575

$13,295$14,250

$15,510$15,908$16,236

$14,954

1997 1998 1999 2000 20012002 2003 20042005 20062007 20082009(estimated)

NASBO 21

American Recovery and Reinvestment Act (ARRA)

NASBO 22

American Recovery and Reinvestment Act – State $

Approximately $246 billion+ going to or through states

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

NASBO 23

MN Recovery Act Spending through 12/31/09

Source: Recovery.gov

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

NASBO 24

The Cliff…

Source: Stateline.org

NASBO 25

Background on State Spending Trends

NASBO 26

Spending by Funding Source(Percentage)

General Funds41.7%

Federal Funds30.0%

Other State Funds25.5% Bonds

2.7%

Total State Expenditures By Funding Source, Estimated Fiscal 2009

Source: NASBO 2008 State Expenditure Report

NASBO 27

MN Spending by Funding Source (Percentage)

General Funds55.6%

Federal Funds28.2%

Other State Funds14.4%

Bonds1.9%

MN Total State Expenditures By Funding Source, Estimated Fiscal 2009


NASBO 28

Total Expenditures Percentage Growth in Spending Categories Over 10 Years

Sources: NASBO 1999 and 2008 State Expenditure Reports

NASBO 29

General Fund Spending Growth over 10 years


NASBO 30

MN General Fund Spending Growth over 10 years

MN Percentage Growth in Spending Categories Between Fiscal 1998 and Fiscal 2008 (General Fund)

-29.3

20.4

42.9

68.6 71.3

100 102.4116

-40

-20

0

20

40

60

80

100

120

140

%

Public Assist. All Other Corrections Total Higher Ed Transport. K-12 Medicaid


NASBO 31

General Fund: Medicaid & Education Over 62%

Elementary & Secondary Education

35.1%

Higher Education11.1%

Medicaid16.2%

Public Assistance1.9%

Corrections7.2%

Transportation0.7%

All Other27.8%

General Fund Expenditures by Function, Estimated Fiscal 2009


NASBO 32

MN General Fund: Medicaid & Education Over 72%

K-1239.6%


Medicaid17.1%


Corrections2.7%

Transportation0.6% All Other

23.2%

General Fund Expenditures by Function, Estimated Fiscal 2009


NASBO

Increases in Medicaid Spending and Enrollment

33

NASBO 34

State Spending from Federal Funds

Elementary & Secondary Education

11.9%


Medicaid41.7%


Corrections0.2%

Transportation8.5%

All Other31.4%

Federal Funds Spending, Estimated Fiscal 2009


NASBO 35

MN State Spending from Federal Funds

K-1210.0%

Higher Education

0.4%

Medicaid41.0%


Corrections0.1%

Transportation9.5%

All Other35.9%

Federal Funds Spending, Estimated Fiscal 2009


NASBO 36

Outlook

NASBO 37

Promising Financial Management Practices

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

NASBO 38

Long Term Spending Pressures

Medicaid and Health Care

K-12 and Higher Education

Demographic Changes

Corrections Transportation Infrastructure Pensions

NASBO 39

State Fiscal Outlook

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

NASBO

Rethinking State Government

“How much a state spends often matters less than how it spends.”

The Economist, January 23, 2010

Strategic thinking: should certain parts of government continue to get general funds - what’s the role?

Peter Drucker, 1995

40

NASBO 41

www.nasbo.org

Scott Pattison

(202) 624-8804

[email protected]

The Economy and Budget: Minnesota and the Nation Legislative Conference February 10, 2010 Scott...

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