1. State Fiscal Outlook 2012 NASACT Middle Management Conference 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 Economic and Fiscal Situation

3. NASBO New Normal Definition: No two recessions are alike…the more recent recessions of 1990-1 and 2001 were characterized as jobless recoveries with sluggish or nonexistent job growth even as the GDP recovered. The New Normal?, Region Focus, Richmond Federal Reserve Newsletter, First Quarter, 2010

4. NASBO 4 Or… the New Norm

5. NASBO Economy Though modest improvement is likely, it appears that growth will continue to be restrained through 2012… Federal Reserve, EconSouth, Fourth Quarter 2011 Deleveraging: The U.S. still has a few years to go and the EU could have a decade… Were not in the endgame, were in the middle game Kenneth Rogoff, co-author of This Time is Different, quoted in the Financial Times, February 4, 2012

6. NASBO 6 The Forecast

7. NASBO State Government Challenges Tighter Resources Demographic Changes Debt State Revenue Will future revenue reflect economy? Enough for infrastructure? Federal Spending Decline Direct - Decreased Federal Funds and Contracts Indirect – Defense Cuts 7

8. NASBO Whos best positioned? 8 Source: Federal Reserve Bank of Kansas City, Economic Review, Fourth Quarter 2009

9. NASBO State Debt Not the Problem 9 Debt-to-GDP: U.S. States Compared to Advanced G20 Nations – Moodys Investor Services & International Monetary Fund %

10. NASBO 10 Current Fiscal Situation: Indicators

11. NASBO Medicaid Continues to Drive General Fund Spending Growth 11 Data is based on comparative levels of enacted spending in FY 2011 and FY 2012 Source: NASBO Fall 2011 Fiscal Survey of States In Billions Changes in General Fund Spending by Category Between FY 2011 and FY 2012

12. NASBO Budget Growth *34-year historical average rate of growth is 5.6 percent *Fiscal 12 numbers are appropriated Source: NASBO Fall 2011 Fiscal Survey of States * Average

13. NASBO FY 2012 Spending Remains $20 Billion Below FY 2008 ($ in billions) * FY 2007 – 2010 are actual, FY 2011 is preliminary actual and FY 2012 is enacted.

14. NASBO 6 Quarters of Revenue Growth Following 5 Quarters of Declines Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau

15. NASBO * FY 2007- -2010 are actual. FY 2011 is preliminary actual and FY 2012 is enacted. ($ in billions) Revenue Remains Below Pre-Recession Levels

16. NASBO 16 State Balance Levels Recovering * Fiscal 2011 totals are preliminary actual nd fiscal 2012 are enacted **34-year historical average is 5.8% Source: NASBO Fall 2011 Fiscal Survey In Billions

17. NASBO Balances as a Percentage of Expenditures * FY 2006 – FY 2010 are actual, FY 2011 is preliminary actual and FY 2012 is enacted. (percentages) Total Balance Levels Remain Low for Most States

18. NASBO Budget Cuts Made After the Budget Passed ($ millions) *FY 2012 mid-year budget cuts are ongoing Source: NASBO Fall 2011 Fiscal Survey Mid-Year Budget Cuts

19. NASBO Taxes Source: NASBO Fall 2011 Fiscal Survey of States

20. NASBO 20 FY 11-12 Background on State Spending Trends

21. NASBO 21 Spending by Funding Source (High Percentage Federal) Source: NASBO 2010 State Expenditure Report

22. NASBO 22 Total State Expenditures: Medicaid Grows Again Source: NASBO 2010 State Expenditure Report

23. NASBO 23 General Fund: Growing Medicaid & Education 64% Source: NASBO 2010 State Expenditure Report

24. NASBO 24 Trend Continues: Focus on Outcomes Focus on results and outcomes Spend funds for effective programs Improve management

25. NASBO 25 Outlook

26. NASBO 26 State Fiscal Outlook Trends positive Back to pre-recession levels soon But… Spending pressures will continue Federal funds will decline

27. NASBO 27 www.nasbo.org Scott Pattison (202) 624-8804 spattison@nasbo.org