State Budget Issues Across the Nation: How does North Carolina Compare? North Carolina Office of State Budget and Management Annual Conference October 17, 2007 Scott Pattison Executive Director National Association of State Budget Officers 444 North Capitol Street, NW, Suite 642 Washington, DC (202)

NASBO 2 Current Fiscal Situation

NASBO 3 Recent Trends Slowing revenue FY 2008 Some states experiencing significant shortfalls Continued movement toward increased government accountability and transparency

NASBO 4 Recent Trends Increased attention towards infrastructure and transportation Focus on health care Calls for increasing early education

NASBO 5 Current Revenue and Budget Shortfalls Virginia -- use of rainy day fund, spending cuts, and layoffs -- $641million shortfall South Carolina -- $81 million shortfall at the end of FY declining revenue growth in FY Maryland -- $1.7 billion shortfall – looking at changes in tax structure and gambling Florida -- special session to deal with $1.5 billion shortfall

NASBO 6 Expenditure Growth * 29-year historical average rate of growth is 6.5 percent **Fiscal 07 numbers are estimated; fiscal 08 reflect recommended budgets Source: NASBO June 2007 Fiscal Survey of States *

NASBO 7 Expenditure Growth in NC and Selected States Source: NASBO June 2007 Fiscal Survey of States

NASBO 8 Balances Remain Healthy; Some Decline Likely for Fiscal 2008 *2007 figures are estimated; 2008 figures are recommendedSource: NASBO June 2007 Fiscal Survey of States

NASBO 9 Balances in NC and Selected States Source: NASBO June 2007 Fiscal Survey of States

NASBO 10 Budget Cuts have Declined Since Early 2000s Downturn Source: June 2007 Fiscal Survey of States

NASBO 11 State Tax Revenue Growth Source: Fiscal Studies Program, Rockefeller Institute of Government

NASBO 12 State Tax Revenue Growth in NC and Selected States Source: Fiscal Studies Program, Rockefeller Institute of Government

NASBO 13 Background on State Spending

NASBO 14 Spending by Funding Source: General Funds Decreasing Source: NASBO, 2000 and 2005 State Expenditure Reports

NASBO 15 Education and Health Care: Now 65% of General Fund Spending Source: NASBO 2005 State Expenditure Report

NASBO 16 NC Education and Health Care: 70% of General Fund Spending Source: NASBO 2005 State Expenditure Report

NASBO 17 Total Spending by Function in Selected States Source: NASBO FY 2005 State Expenditure Report

NASBO 18 Spending Pressures

NASBO 19 Competing Spending Pressures Medicaid and Health Care K-12 Increases Higher Education Demographic Changes Infrastructure Pensions

NASBO 20 Medicaid Spending *2010 percentage projected by Health Management Associates Source: NASBO State Expenditure Report

NASBO 21 68% of Medicaid Spending on Benefits in 2007 is for Elderly and Disabled Children = 19% Elderly = 22% Disabled = 46% Adults = 13% Children = 48% Elderly = 9% Disabled = 17% Adults = 26% 2007 U.S. Total = 62.2 million U.S. Total = $305 billion in % 68% Source: Vernon Smith, Health Management Associates

NASBO 22 Outlook

NASBO 23 State Fiscal Outlook Revenue and spending growth likely to slow Housing decline and a slowing economy could be problematic States will face fiscal challenges over next decade or more States will look for creative financing opportunities to meet spending demands

NASBO 24