1. State Fiscal Conditions: Temporary Downturn or New Normal? MAGNY March 15, 2013 New York Scott Pattison Executive Director National Association of State Budget Officers 444 North Capitol Street, NW, Suite 642 Washington, DC 20001 (202) 624-5382 www.nasbo.org

2. NASBO 2 Current Fiscal Situation: Overview

3. NASBO Major Challenges to State Budgets - Spring 2013 Improved revenue growth, but not enough to go around… Federal government Health care changes, implementation Dealing with long term liabilities

4. NASBO 4 Federal Overhang… Sequester Debt ceiling Many program authorizations set to expire “Grand bargain” tax reform?

5. NASBO 5 National Economic Indicators 4th Quarter GDP grows a modest 0.1%  3 rd Quarter GDP increased 3.1%  14 th straight quarter of at least some growth Federal Reserve projects 2.3%-3.0% growth in 2013 Other economic figures:  Unemployment rate at 7.7% in February  Manufacturing grows for 3 rd consecutive month in February  New Home Sales rose 15.6% in January - “… the still-moderate underlying pace of economic growth…” - Federal Reserve Chairman Ben Bernanke, 2/26/13

6. NASBO 6 Current Fiscal Situation: Indicators

7. NASBO GF Growth *35-year historical average rate of growth is 5.6 percent *Fiscal ‘13 numbers are appropriated Source: NASBO Fall 2012 Fiscal Survey of States * Average

8. NASBO FY 2013 Appropriated Spending Still $5.9 Billion Below FY 2008 8 Source: NASBO Fall 2012 Fiscal Survey of States

9. NASBO FY 2013 General Fund Revenue is Expected to Surpass FY 2008 by $13B 9 Source: NASBO Fall 2012 Fiscal Survey of States

10. NASBO State Revenue Continues to Grow in 4th Quarter Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau

11. NASBO States Continue To Rebuild Budgetary Reserves After Recession 11

12. NASBO Budget Cuts Made After the Budget Passed ($ millions) Source: NASBO Fall 2012 Fiscal Survey Minimal Midyear Budget Cuts in FY 2012, 8 States Cut $1.7 Billion

13. NASBO Strategies Used to Reduce or Eliminate Budget Gaps, FY 2013 Reduce Local Aid: 8 states Layoffs: 9 states Furloughs: 3 states Cuts to Employee Benefits: 9 states Across-the-Board Cuts: 13 states Targeted Cuts: 21 states Rainy Day Fund: 4 states Reorganize Agencies: 10 states Source: NASBO Fall 2012 Fiscal Survey of States

14. NASBO 14 States and Locals Continue to Eliminate Positions State and local employment has declined 753,000 from the start of the recession through this February  State employment declined 195,000 from Aug. 2008-Feb. 2013  Local employment declined 558,000 from Aug. 2008-Feb. 2013 State governments eliminated 8,000 positions in February; local employment declined by 2,000 Source: Bureau of Labor Statistics

15. NASBO Personnel Strategies Used to Reduce or Eliminate Budget Gaps Fiscal 2010 Layoffs: 26 states Furloughs: 22 states Early Retirement: 6 states Salary Reductions: 12 states Cuts to Employee Benefits: 9 states Fiscal 2013 Layoffs: 9 states Furloughs: 3 states Early Retirement: 2 states Salary Reductions: 4 states Cuts to Employee Benefits: 9 states Source: NASBO Fiscal Survey of States

16. NASBO 16 Background on State Spending Trends

17. NASBO 17 Spending by Funding Source (Percentage) Source: NASBO State Expenditure Report

18. NASBO 18 Total State Expenditures Source: NASBO State Expenditure Report

19. NASBO 19 Total Expenditures Percentage Growth in Spending Categories Over 10 Years Sources: NASBO State Expenditure Reports

20. NASBO 20 General Fund: Medicaid & Education 64.3% Source: NASBO State Expenditure Report

21. NASBO 21 General Fund Percentage Growth in Spending Categories Over 10 Years Sources: NASBO State Expenditure Reports

22. NASBO 22 State Spending from Federal Funds Source: NASBO State Expenditure Report

23. NASBO 23 Outlook

24. NASBO 24 State Fiscal Outlook Below average state budgets for at least the next several years Health care reform implementation Tough competition for general funds and limited federal funds Dealing with infrastructure, long-term liabilities States will continue to make some painful choices

25. NASBO 25 www.nasbo.org Scott Pattison (202) 624-8804 spattison@nasbo.org