NASBO 1 Federal Impact on State Expenditures

NASBO 2 Jan. ’08 GAO Report: Growing Fiscal Challenges will Emerge during the Next 10 Years “…in the absence of policy changes, large and recurring fiscal challenges for the state and local sector will begin to emerge within a decade.” “Continuing on this unsustainable path will gradually erode, and ultimately damage, our economy, our standard of living…” -David Walker, Comptroller General, January 2008

NASBO 3 GAO Report (Jan. 2008) “Tax receipts would need to rise considerably faster than historical experience to enable the operating balance to remain in the historical range.” “Substantial policy changes would be needed to prevent the fiscal decline in the state and local government sector.”

NASBO 4 Long Term Fiscal Gap The GAO simulation shows that by the mid- 2020’s states will be in strong fiscal distress Fiscal gap requires a 15.2% tax increase or a 12.9% spending reduction Tough choices on spending and tax policy  Balanced budget requirements  Bond ratings

NASBO 5 Federal Impact on States New Medicaid regulations could reduce federal share to states by $50 billion over five years (House Oversight and Government Relations Committee) OMB estimates $4 billion shortfall in Highway Trust Fund for FY ‘09 Proposed higher education maintenance of effort (MOE) mandate could limit state funding Bonus depreciation in stimulus package could cost states $1.7 billion (CBPP)

NASBO 6 Federal Impact on States REAL ID cost to states at $3.9 billion (DHS) President’s proposed budget would reduce non- Medicaid grants to states by $18.9 billion (CBPP) No Child Left Behind (NCLB) has been under funded by up to $40 billion (Stateline) State Children’s Health Insurance Program (SCHIP) funding not keeping pace with growth

NASBO 7 Long-Term Federal Outlook Long-term federal fiscal imbalance could reduce federal funds to states Concord Coalition foresees a $400 billion deficit in 2010, and an $800 billion deficit in 2016 Increase in mandatory spending results in less available discretionary funds  Mandatory spending represented 27% of federal spending in 1965, 42% in 1985, and 54% in 2006 (source: CBO)

NASBO 8