Analyst Professional Development Seminar

NASBO Staff: Stacey Mazer Brian Sigritz Kathryn White 2 Leah Wavrunek Lauren Cummings Brukie Gashaw

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Current Economic and Fiscal Situation for States 4

State Fiscal Overview  Fiscal th consecutive annual increase in general fund spending and revenues  Most states: continued stability and slow growth ▫ Less midyear cuts and budget gaps ▫ Most states ended fiscal 2015 with revenues above projections or on target  Common theme in State of States of need to create jobs, grow the economy, and provide opportunity for all to succeed ▫ Many said need to prioritize transportation, education, and workforce training to achieve this goal  Some states are facing difficult budget environments due to various issues  Fiscal improvements over the last several years have not returned states to normal patterns of growth 5

Major Challenges to State Budgets:  Revenues and spending have yet to surpass pre-recession highs after accounting for inflation ▫ Revenue growth projected to be modest in fiscal 2016  Future economic growth  Health care costs  Pensions and retiree health care  Infrastructure  Certain states impacted by oil price declines, federal cuts, tax related issues, long-term liabilities, slow economic growth, etc.  Federal uncertainty  Debt service levels around 5%, very manageable 6

Current Fiscal Situation: Indicators 7

Slow Budget Growth Continues 8 * Average *38-year historical average annual rate of growth is 5.5 percent *Fiscal 2015 numbers are estimated; fiscal 2016 are recommended Source: NASBO Spring 2015 Fiscal Survey of States

States Direct Most New Spending to K-12 and Medicaid 9 ($ in Billions) Source: NASBO Spring 2015 Fiscal Survey

Fiscal 2015 GF Revenue Below Pre-Recession Peak After Inflation 10 Source: NASBO Spring 2015 Fiscal Survey of States; Fiscal 2016 numbers are recommended *Aggregate revenue levels would need to total $772 billon in fiscal 2015 to be equivalent with real 2008 revenue levels.

States’ Reserves Haven’t Reached Peak Levels 11

Midyear Budget Cuts Relatively Minimal in Fiscal 2015 at $2B 12 Source: NASBO Spring 2015 Fiscal Survey *Fiscal 2015 midyear cuts are ongoing

13 Critical Challenges

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Higher Education Funding  States to Colleges: Prove You’re Worth It ▫ - July 28, 2015 (Stateline)  More States Grade Public Colleges on Performance ▫ June 23, 2015 (CNBC) 16

State Severance Tax Revenue as a Percentage of Total State Tax Collections 17 % Source: U.S. Census Bureau

Federal Issues ▫ Highway Trust Fund ▫ ESEA (No Child Left Behind) ▫ Few or no appropriation bills by Oct 1 ▫ Sequestration ▫ Debt limit ▫ Taxes 18

Revenue Issues ▫ Revenues recovering slowly compared to past recession ▫ Greater volatility ▫ April windfall ▫ Gaming becoming limited 19

20 Background on State Spending Trends

21 Source: NASBO State Expenditure Report

Total State Expenditures by Function Estimated Fiscal Source: NASBO State Expenditure Report

General Fund Expenditures by Function Estimated Fiscal Source: NASBO State Expenditure Report

Federal Funds Expenditures by Function Estimated Fiscal Source: NASBO State Expenditure Report

Revenue Sources in the General Fund (Percentage) Source: NASBO State Expenditure Report 25

Outlook 26

State Fiscal Outlook  42 states recommended general fund spending increases in FY 2016, but growth still below average  Revenue growth projected to remain slow in fiscal 2016  Uncertainty remains concerning federal spending decisions and ACA implementation  Tough competition for general funds  Dealing with infrastructure, long-term liabilities  States will continue to make some painful choices 27

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Decision Making  You make important decisions in the public arena. Public policy decision making shapes our lives in many ways.  Analyze what processes are followed in public policy decision making by government officials at all levels, from elected officials to mainstream managers.  Analyze how the processes themselves impact the outcomes. How are important decisions made? 29

Relationships  Critical: your reputation, interaction, building of trust  While sunshine laws and rules governing open meetings are the norm, decisions are often made based on understandings and agreements forged between individuals in informal settings. 30

 Don’t let emotions get in the way…

Pitfalls of groupthink  In large scale public policy endeavors, the involvement of groups is absolutely essential.  However, as shown with the Challenger launch decision, groupthink can also adversely affect organizational success. 32

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34 Scott Pattison (202)