FISCAL OUTLOOK FOR THE STATES - SLC · States with Projected FY 2010 Budget Shortfalls State Shortfall as a Percent of FY 2009 General Fund Arizona 29.8% California 25.6% Connecticut

FISCAL OUTLOOK FOR THE STATESPRESENTATION AT THE

2009 SLC LEGISLATIVE SERVICE AGENCY (LSA) SPRING MEETING

MIAMI, FLORIDAMAY 9, 2009

Sujit M. CanagaRetna

Senior Fiscal Analyst

The Council of State Governments’ Southern Office

Southern Legislative Conference (SLC)

Fiscal Outlook for the States









Consumer Confidence IndexJanuary 2008 through February 2009 (1985 = 100)

0

10

20

30

40

50

60

70

80

90

Jan-08 Feb-08 Mar-08 Apr-08May-08 Jun-08

Jul-08Aug-08

Sep-08Oct-08

Nov-08Dec-08

Jan-09Feb-09

Mar-09




Fiscal Outlook for the States States with Projected FY 2010 Budget Shortfalls

State Shortfall as a

Percent of FY

2009 General

Fund

Arizona 29.8%

California 25.6%

Connecticut 23.1%

Delaware 15.3%

Florida 22.6%

Hawaii 11.9%

Idaho 13.9%

Iowa 12.2%

Kansas 16.7%

Louisiana 21.7%

Georgia 14.5%

Massachusetts 11.0%

State Shortfall as a

Percent of FY 2009

General Fund

Minnesota 14.7%

Nevada 30.0%

New Jersey 12.3%

New York 24.3%

North Carolina 15.3%

Rhode Island 13.7%

Utah 12.1%

Vermont 20.8%

Virginia 10.4%

Washington 18.2%

Wisconsin 20.3%

U.S. Average 15.9%



State Strategies to Deal with Looming Shortfalls:

1. Slashing Spending

2. Tapping ‘Rainy Day’ Funds

3. Expanding Gaming

4. Raising Taxes and Fees



1. Slashing Spending Health programs (28 states)

K-12 education (26 states)

Elderly and disabled programs (22 states)

Colleges and universities (32 states)

State workforce (38 states) including mandatory state employee furloughs (GA, MD, NC, IO, MN, OH, AZ, CA, CO, WA, MA, NH, NJ, NY)



2. Tapping ‘Rainy Day’ Funds

- At end of FY 2009, state Rainy Day funds will total $35.3 billion

3. Expanding Gaming (Hawaii, Maryland, Florida, Ohio, Wyoming, Nebraska, Maine, Kentucky, Pennsylvania)


State Strategies to Deal with Looming Shortfalls (Cont):

4. Raising Taxes and Fees

Major Increases in Sales and/or Income Taxes -Arizona, California, Connecticut, Delaware, Illinois, Massachusetts, Minnesota, New Jersey, New York, Oregon, Washington and Wisconsin

Higher Income Taxes for Top Earners - California, Maryland (in 2008), New York, New Jersey and Oregon

Corporate Taxes - Delaware, Florida, Illinois, New Jersey, Oregon and Wisconsin

Tax Reforms - North Carolina, Kentucky


State Strategies to Deal with Looming Shortfalls (Cont):

4. Raising Taxes and FeesSales Tax Covering More Services - Rhode

Island, KentuckyRemoving Sales Tax Exemptions - Illinois, FloridaBlizzard of Fees - Florida, New

York, Maine, California, Utah, Connecticut, Idaho, New Jersey and Oregon, Colorado, Florida, Idaho, Illinois, Massachusetts, Michigan, Oregon and Texas

Taxing Internet transactions - 22 StatesHiking Cigarette Taxes -

MS, FL, SC, KY, WI, AR, IL, RI, NC


States still have to contend with surging expenditures in a number of major categories:

Healthcare

Education

Public Pensions

Emergency Management

Unemployment Insurance

Transportation

Infrastructure

2009 Survey on SLC Fiscal Outlook

The Results

1) FY 2009 Budget Shortfalls

AL General Fund - $200 million (10%)Education Trust Fund - $800 million (12.5)

AR N/A (explanation by Mr. Richard Wilson)GA $2.2 billion (11%)KY General Fund - $456.1 million (5.1%) (estimate)

Road Fund - $104.7 (8%) (estimate)MD $550 million (3.7%)MS $300 million (5.9%)NC $2.7 billion (12.6%)OK $290 million surplus as of April 2009SC $1.1 billion (16.3%); Consists of $983 million shortfall in General Fund, $55 million in

Homestead Exemption Funding, and $55 million in agency deficits at the Department of Corrections and Juvenile Justice

TX NoneVA General Fund revenue forecasts have been revised four times for a total reduction of

$2.4 billion, or 13.9% of the original budget proposed by Governor Kaine in December 2007

WV $44 million (1.12%) as of March 31, 2009

2) Steps to Address Shortfalls in FY 2009

AL General Fund – 10% (Governor); 5% (Actual)

Education Fund – 3% (Transfer from Rainy Day)

AR $122 million (2.5%), including Higher Ed (4.7%); Social Services (3.7%); Corrections (5.7%); State Police (10.5%)

GA Between 8% and 10% (most agencies); Education (3%); $200 million (Transfer from Rainy Day)

KY 4% (most agencies); Higher Ed (2%)

MD $414 million (Governor’s withdrawal);

$955 million (various fund transfers, including $170 million from Rainy Day)

MS 5% (small agencies); 1% (public education)

NC K-12 (2%); Higher Ed (6%); Corrections (5%); Medicaid (2.5%)

OK None

SC $1.11 billion or 16.7%; 2% capital reserve ($133 million) eliminated; $488 million in targeted cuts by General

Assembly; 9% across-the-board cuts by Budget and Control Board totaling $485 million. In percentage terms, the

reductions amounted to Healthcare (17.5%), K-12 Education (12.2%), Higher Ed (20.2%), Social Services (18.8%),

Public Safety & Corrections (14.2%), Natural Resources (20.7%), Judicial (21.7%), Legislative (21.3%) and General

Government (19.3%)

TX None

VA Elimination of state employees salary increases effective November 2008 and November 2009, 569 state

employee layoffs and elimination of 800 unfilled positions, hiring freeze, "savings" of $406 million for both years

by substituting debt for cash for capital outlay projects and varying reductions for all departments and agencies.

WV None as of April 29, 2009; hiring freeze as of March 2009

3) FY 2010-2111 Budget Shortfalls

AL Counting on ARRA funding to cover any shortfalls

AR FY 2010 - $156 million (3.4%); FY 2011 – Not yet determined

GA FY 2010 - $2.6 billion (12.3%)

KY Yes, but not yet determined

MD FY 2010 - $716 million (5%)FY 2011 - $1.2 billion (8%)

MS Not yet determined

NC FY 2010 - $2.4-3.6 billion (estimate)FY 2011 - $2.4-3.6 billion (estimate)

OK FY 2010 - $600 million (9%)

SC FY 2010 - $500+ million (8.7%+)FY 2011 - $500+ million (8.7%+)

TX FY 2010 - $3.1 billion (7.2%)

VA Revenue forecasts will be revised as necessary

WV Yes, but not yet determined

4) Steps to Address Shortfalls in FY 2010

AL Governor has requested 10% cuts of state agencies, including travel restrictions, merit

prohibitions, hiring freezes; no cuts in education but some school boards may have made cuts

AR $110 million in surplus funds transferred from FY 2009; probable cuts in social services

GA 8% and 10% for most agencies; 3% education cuts; $259 million transferred from Rainy Day

Fund

KY Not addressed

MD $526 million in reductions; fund transfers of $216 million

MS Estimates not certain

NC No budget yet

OK All agencies except education looking at 3% to 10% reductions; transportation less than 5%

SC Base appropriation reduced by $973 million; 13.8% reductions for all state agencies except

K-12, Higher Education, Public Safety

TX Limited funding for new/expanded programs

VA Similar to reductions in FY 2009; No “across-the-board” reductions

WV Governor suggested across-the-board reduction of 2%, then increased to 4%; actual action

when budget is enacted in May

5) Budget Shrinkage Between FY 2009

and FY 2010

AL Expecting ARRA funding to boost general revenue funds available

AR Budget will increase by $70 million between FY 2009 and FY 2010

GA None

KY Not counting ARRA funding, it is possible state budget will shrink

MD General Funds – down $516 million (-3.5%)Total State Budget (including federal funding) – up $1.1 billion (3.4%)

MS No response

NC Decline is possible, numbers not yet determined

OK $600 million decrease (-8.3%)

SC $47 million decrease (-.8%)

TX Not yet determined

VA General Revenue forecasts show an increase in funds

WV Decline in funds is certain, numbers not yet determined

6) Revenue Generating Measures

AL Possible expansion of electronic bingo with a portion of the funds going to education and Medicaid

AR Cigarette and tobacco taxes raised to generate $75 million to $85 million for a trauma system and other health-

related programs; Arkansas will soon begin a state lottery estimated to generate between $55 million to $100

million devoted to higher education scholarships

GA None

KY Cigarette tax increased by 30 cents; tax on other tobacco product doubled; 6% sales tax imposed to store sales of

beer, wine and liquor. Annual revenue for FY 2010 estimated at $150 million

MD Electronic bingo games extended for 2 years, estimated to generate $7 million, per year in FY 2010 and 2011; tax

amnesty period in September 2009

MS None

NC None

OK Cigarette taxes raised a year ago and flows to General Fund; attempt to renegotiate tribal gaming compacts;

various agency fees increased and will remain with agency

SC Fee increases possible

TX Proposal to authorize poker gaming, estimated to generate $150 million in net state revenues between FY 2010

and 2014 for low-income and homeless housing programs; proposal to authorize casino and slot gaming,

estimated to generate $2.2 billion in net state revenues for higher education

VA $490 million withdrawal from Rainy Day Fund; $45 million from tax amnesty program; $98 million (one time gain)

from sales tax acceleration; $50 million in land preservation income tax credit.

WV No new taxes; gaming expanded with table games at the race tracks; lottery revenue declined by 1 percent over

prior year

7) Strategies to Deal with Major

Expenditure CategoriesAL Legislation was enacted to stir economic development in transportation, housing, and infrastructure.AR Raised severance taxes to fund transportation. Retirement system and unemployment insurance funds

negatively affected.GA Continued funding of education, healthcare, and pension plans. ARRA funds have assisted with

unemployment.KY Considering tolls as a source of funding transportation projects.MD Most major spending categories saw reductions. However, higher education and college/workforce

training remained a priority and saw funding increases.MS Insufficient response.NC Priority given to education, health care and economic development. Exact funding not yet determined.OK The sizable, one-time appropriations to transportation of the past few years will see a reduction, though

general funding will likely see a minimal cut. Education funding will not see the rapid increase in appropriations experienced during the boom years. Agencies not associated with transportation or education will carry the greatest burden of the expected budget shortfalls.

SC Healthcare will be fully funded with ARRA distributions. FY 2010 appropriations focus on restoring previous reductions. Other post employment benefits (OPEB) receive a recurring line item appropriation.

TX Efforts to enhance or increase existing programs may not see progress (e.g., health, human services and transportation).

VA All major expenditure categories have experienced reductions and delayed initiatives.WV Public pensions have been affected by losses in investment marketing; the actuarial predictions will be

revised. Unemployment Trust Fund is facing a deficit; excess money in a Worker’s Compensation Fund will address the shortage and the base salary on which unemployment premium is calculated was raised.

8) Deploying American Recovery

and Reinvestment Act (ARRA) Funds

AL Closed shortfalls in Education Budget; Closed Medicaid shortfalls

AR $2.1 billion in total ARRA funds, which will be allocated in FY 2009 and 2010 to:

GA $1.8 billion in ARRA, Title IV and FMAP in FY 2009 and FY 2010

KY $205.9 million in ARRA funds used so far in FY 2009 to address Medicaid shortfall; an

additional $180 million in ARRA funds will be used for Medicaid this year

MD Total ARRA federal funds amounts to $4.1 billion for FY 2009 and FY 2010, including

Supporting State General Fund Commitment ($2.3 billion)

Education ($396 million)

Infrastructure ($765.2 million)

Other relief ($546.2 million)

Federal grants not appropriate in state budget ($101.8 million)

MS Insufficient response

State Fiscal Stabilization Fund (Education): $363 million

State Fiscal Stabilization Fund (General Purpose):

$80 million

Education: $280 million

Higher Education: $84 million

Workforce Improvement: $28.3 million

Human services: $172.3 million

Healthcare: $624.6 million

Law Enforcement: $41.4 million

Highway and Transportation:

$380 million

Energy: $108 million

8) Deploying American Recovery

and Reinvestment Act (ARRA) Funds (Cont.)

NC State will use ARRA funds to offset and eliminate potential reductions in education, Medicaid

and public safety and to fund “shovel ready” transportation projects

OK $250 million allocated to transportation; task force appointed by governor to oversee

spending ARRA funds

SC When and how ARRA funds will be spent is a source of great controversy and debate

between the governor and the legislature. Since state is still in session, the breakdown for

spending ARRA funds:

SC House Budget: K-12 Education ($219 million), Higher Education ($120 million),

Law Enforcement ($11 million)

SC Senate Budget: K-12 Education ($187 million), Higher Education ($100.5 million),

Law Enforcement ($50 million), Other Areas ($10.5 million)

TX ARRA funds used to fill budget gaps with $3.3 billion in proposed FY 2009 supplemental

budget and $11 billion in proposed FY 2010 budget

VA General Assembly appropriated $4.8 billion in ARRA funds for use in either FY 2009 and/or FY

2010, including $1.3 billion (Medicaid), $983 million (Education), $694 million (Highways and

Bridges) and $355 million (Food Stamps)

WV Will be completed when FY 2010 budget is finalized

9) Bright Spots on Economic Landscape

AL None

AR Recession has not adversely impacted AR as much as other states

Wal-Mart ($400 billion in annual sales) seeing their business grow as consumers turn towards low price

retailers

Discovery, Development and Exploitation of Fayetteville Natural Gas Shale in northern AR (estimated

4,500 jobs and $2.3 billion economic impact)

Renewable energy plant in Camden, AR and Caterpillar expansion in central AR

GA None

KY Employment in mining increased; higher oil prices contributed to greater demand for coal, which resulted

in increased employment and higher coal severance tax receipts

MD None

MS None

NC None

OK If oil and gas prices rise, state outlook improves

SC Two minor projects recently (American LaFrance consolidating all corporate manufacturing in Berkeley

County and Universal Nolin decided to locate in Spartanburg County)

TX None

VA None

WV None

Fiscal Outlook for the States:

“Green Shoots of Growth”



Federal Reserve Bank statement on April 30, 2009 that “the pace of economic contraction was somewhat slower.”

Positive nuggets from the housing sector indicating that the rate of decline in this sector may be slowing.

U.S. Commerce Department report that construction spending rose unexpectedly in March after five straight declines.

Drop in orders for durable goods, big-ticket manufactured goods, smaller than expected.





Rise in consumer spending in first quarter of 2009, after two consecutive quarters of declines.

U.S. manufacturing activity ticked up in April for the third straight month, although the overall industry still remains in contraction.

Consumer confidence index rose in April 2009 to highest level in 2009.

April 2009 was Wall Street’s best month in 9 years. U.S. stocks gained nearly $1 trillion in value, on paper, at least.


Thank You

For Additional Information or Questions,

Please Contact:

Sujit CanagaRetna

The Council of State Governments’

Southern Office

404/633-1866

[email protected]

Documents

FISCAL OUTLOOK FOR THE STATES - SLC · States with Projected FY 2010 Budget Shortfalls State Shortfall as a Percent of FY 2009 General Fund Arizona 29.8% California 25.6% Connecticut