Update on State Fiscal Conditions 2015-2016
Scott PattisonExecutive DirectorNASBO
NSAAJune 10, 2015
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Avg. state tax growth since 1986
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Structural Imbalances Will Persist
CMS state Medicaid spending forecast
Moody’s Analytics state tax revenue forecast
Sources: Moody’s Analytics, CMS, Census Bureau
%
Year ago % change, calendar year
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Current Economic and Fiscal Situation
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Economy
GDP: 1st Q 0.2% - Flat Federal Reserve projects 2.5% GDP growth in 2015, 2.5% in 2016
Other economic figures: Unemployment rate remains at 5.4% Consumer spending rose 0.4% Consumer price index rose 0.2%
Nearly 650,000 less state and local employees since ‘08
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State Fiscal Overview
Fiscal 2015 marks the 5th year increase in general fund spending and revenues
Signs of fiscal distress have subsided and the fiscal environment for most states is good
Some states are facing difficult budget environments due to various issues
Not post-WWII normal patterns of growth
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@iStock.com/Rawpixel @iStock.com/EduardoLuzzatti
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Overall
▫Modest Growth (Mirror Economy)
▫ Most States: Good/Decent
▫Tough Decisions
▫Some States Very Difficult (Oil prices, etc.)
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Long Term:
Medicaid and Health Care Pensions Demographic Changes
Not Corrections
Yes, Infrastructure
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Different Reasons for Tight Budgets
▫Energy States (AK, NM)▫Tax Related Issues (CO, IL)▫Federal Cuts (VA, MD)▫Modest Growth (Northeast)▫Limitations (NY, CO)
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Top Issues
▫Infrastructure▫Education ▫Tax Cuts (Ark., ME)▫Liabilities (Pensions)▫Shortfalls (Some States)▫Other Revenue Issues (Tolls, Sin Taxes)▫Health Care (Medicaid Issues)
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MA Aa1/AA+/AA+
MinnesotaAa1/AA+/AA+
Iowa(Aaa)/(AAA)/(AAA)
IllinoisA3/A-/A-
Indiana(Aaa)/(AAA)/(AAA)Missouri
Aaa/AAA/AAA
ArkansasAa1/AA/NR
LouisianaAa2/AA/AA
AlabamaAa1/AA/AA+
GeorgiaAaa/AAA/AAA
South CarolinaAaa/AA+/AAA
North CarolinaAaa/AAA/AAA
TennesseeAaa/AA+/AAA
Kentucky(Aa2)/(AA-)/NR Virginia
Aaa/AAA/AAA
OhioAa1/AA+/AA+
MichiganAa2/AA-/AA
New YorkAa1/AA/AA+
VermontAaa/AA+/AAA
NH Aa1/AA/AA+
CT Aa3/AA/AA/AA
NJ A1/A+/A+
WashingtonAa1/AA+/AA+
OregonAa1/AA+/AA+
NevadaAa2/AA/AA+ Utah
Aaa/AAA/AAA
CaliforniaAa3/A/A
Idaho(Aa1)/(AA+)/(AA+)
MontanaAa1/AA/AA+
WyomingNR/(AAA)/NR
Arizona(Aa3)/(AA-)/NR
Colorado(Aa1)/(AA)/NR
New MexicoAaa/AA+/NR
TexasAaa/AAA/AAA
OklahomaAa2/(AA+)/AA+
Kansas(Aa2)/(AA+)/NR
NebraskaAa2*/(AAA)/NR
South DakotaAa2*/(AA+)/(AA+)
North Dakota(Aa1)/(AAA)/NR
WisconsinAa2/AA/AA/AA
MaineAa2/AA/AA
PennsylvaniaAa2/AA/AA
MD Aaa/AAA/AAA
FloridaAa1/AAA/AAA
RI Aa2/AA/AA
Puerto RicoB2/BB+/BB-
AlaskaAaa/AAA/AAA
HawaiiAa2/AA/AA
DE Aaa/AAA/AAA
West VirginiaAa1/AA/AA+
Aaa/AAA
Aa/AA
One Less than Aa3/AA-
Order of Ratings: Moody’s/S&P/Fitch/Kroll as of July 10, 2014.*Lease revenue and/or Certificate of Participation (“COP”) ratingNR: General Obligation Debt is Not Rated( ) Indicates issuer credit rating which is equivalent to a General Obligation rating
MississippiAa2/AA/AA+
DC Aa2/AA-/AA-
One Aaa/AAA
State General Obligation Ratings – July 2014 (from Citi)
GuamNR/BB-/NR
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Strategies Used to Reduce or Eliminate Budget Gaps,FY 2015 (Enacted)
Targeted Cuts: 16 states
Across the Board Cuts: 6 states
Reorganize Agencies: 3 states
Cuts to Employee Benefits: 3 states
Reduce Local Aid: 2 states
User Fees: 3 states
Higher Education Related Fees: 5 states
Source: NASBO Fall 2014 Fiscal Survey of States
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Changes to Budgeting and Finance Practices in Fiscal 2015
Budgeting and financial management practices (19)
Increase performance budgeting efforts (3)
Rainy day fund (2)
Tax expenditure studies (2)
Capital budgeting and planning processes (3)
New IT budgeting systems (5)
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Current Fiscal Situation:Indicators
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GF Spending Expected to Grow for 5th Straight Year, Although Below Average
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
*-8-6-4-202468
1012
8.7 9.4
4.9
-3.8-5.7
3.8 3.4 4.2 4.93.1
Annual Percent Change in General Fund Expenditures
(Per
cen
tage
Ch
ange
)
37-year historical average rate of growth is 5.5 percent *Fiscal 2015 numbers are enacted Source: NASBO Fall 2014 Fiscal Survey of States
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States Enact $2.3B in Net Tax and Fee Cuts for FY15
19791981
19831985
19871989
19911993
19951997
19992001
20032005
20072009
20112013
2015
-$10
-$5
$0
$5
$10
$15
$20
$25
$30
Enacted State Revenue Changes, Fiscal 1979 to Fiscal 2015
($ In
Bill
ions
)
Fiscal Year
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States Reserves Haven’t Reached Peak Levels
FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 150.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
11.5%
10.1%
8.6%
5.7%5.2%
7.1%
8.4%
10.5%
8.9%
7.3%
Balances as a Percent of Expenditures
Balances as a Percent of Expenditures
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Minimal Midyear Budget Cuts So Far in Fiscal 2015
Source: NASBO Fall 2014 Fiscal Survey *Fiscal 2015 midyear cuts are ongoing
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
$0
$5
$10
$15
$20
$25
$30
$35
$40
0
10
20
30
40
50
20
28
35
22
9 813
72 3 1
16
37 37
18
5 2 4
13
41 39
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811
8 7
Enacted Budget Cuts Made After the Budget Passed ($ In Millions)
Number of states Amount of reduction
$ In
Mill
ions
Num
ber o
f Sta
tes
Recession ends
Recession ends
Recession ends
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State Revenue Grows in 3rd Quarter of 2014 after Declining in 2nd Quarter
Series1
-20
-15
-10
-5
0
5
10
15
Year-Over-Year Real Change inQuarterly State Tax Revenue
%
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Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau
*3rd quarter of 2014 is based on 45 early reporting states
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Fiscal 2015 Enacted Revenue Changes by Major Tax
Sales Taxes (-$248M): 5 states enacted increases,
13 enacted decreases
Personal Income (-$747M): 1 increase, 14 decreases
Corporate Income ($207M): 2 increases, 9 decreases
Cigarettes/Tobacco ($8M): 2 increases
Motor Fuels ($33M): 1 increase
Alcohol (-$0.2M): 1 increase, 1 decrease
Other Taxes (-$698M): 4 increases, 9 decreases
Source: NASBO Fall 2014 Fiscal Survey of States
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Background on State Spending Trends
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Spending by Funding Source(Percentage)
General Funds40.5%
Federal Funds30.3%
Other State Funds27.1%
Bonds2.1%
Total State Expenditures by Funding Source, Estimated Fiscal 2014
Source: NASBO State Expenditure Report
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Total State Expenditures by FunctionEstimated Fiscal 2014
Elementary & Secondary Edu-
cation19.5%
Higher Education10.1%
Public Assistance1.4%
All Other32.4%
Corrections3.1%
Transportation7.7%
Medicaid25.8%
Source: NASBO State Expenditure Report
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General Fund Expenditures by FunctionEstimated Fiscal 2014
Elementary & Secondary Ed-
ucation35.0%
Higher Education9.4%
Public Assistance1.4%
All Other27.4%
Corrections6.8%
Transportation0.9%
Medicaid19.1%
Source: NASBO State Expenditure Report
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Federal Funds Expenditures by FunctionEstimated Fiscal 2014
K-129.9%
Higher Education3.7%
Public Assistance2.6%
All Other25.0%
Corrections0.1%
Transportation7.7%
Medicaid51.0%
Source: NASBO State Expenditure Report
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Revenue Sources in the General Fund (Percentage)
Sales 31%
Personal Income 42%
Corporate Income 6%
Gaming 1%
Other Taxes & Fees 20%
Estimated Fiscal 2014
Source: NASBO State Expenditure Report
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Revenue Sources in GF Relatively Consistent
1998 2014
Sales 34%
Personal Income 39%
Corporate Income
8%
Gaming 1%
Other Taxes &
Fees 18%
Estimated Fiscal 2014
Sales 31%
Personal Income 42%
Corporate Income
6%
Gaming 1%
Other Taxes &
Fees 20%
Estimated Fiscal 2014
Pension Policy Matters
Spanish American War 1898
$16.5 million
World War I 1919
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Outlook
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Trend Continues:Focus on Outcomes
Focus on results
Spend funds for effective programs
Improve management
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State Fiscal Outlook
Growth
Revenue stable in FY 2015
Federal govt uncertainty
Tough competition for general funds
Dealing with infrastructure, long-term liabilities
Painful choices
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PhotosNM car window for ny