1. The Current State of the States: Is there Light at the End of the Tunnel? NASACT Economic Summit Charleston, WV August 11, 2010 Brian Sigritz Director of State Fiscal Studies 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

3. NASBO 3 Recent State Fiscal Situation The Great Recession has been an extremely difficult fiscal period for states $300 million in shortfalls Fiscal 2010 revenue projections: As of May, 46 states lower than projected, 2 on target, 2 higher Some improvement in fiscal 2011, although still below pre-recession levels

4. NASBO 4

5. National Recovery Impacted by States and Locals With economic conditions far from normal, state budgets will probably remain under substantial pressure for awhile, leaving governors and legislatures a difficult juggling act as they try to maintain essential services while meeting their budgetary obligations. - Federal Reserve Chairman Ben Bernanke, 8/2/10 5

6. NASBO 6 Source: Federal Reserve Bank of Philadelphia State Coincident Index (June 2010) 3-Month Index: Increases in 47 states, decreases in 3

7. NASBO 7 This downturn vs. Post 01 Last Time: Housing sector relatively strong in 01 Primarily income tax decline This Time: Broad economic decline; Longer recession Localities will be hit this downturn 17 states reduced local aid in 09; 20 in 10

8. NASBO Negative Spending Two Years in a Row, Slight Increase in 2011 *33-year historical average rate of growth is 5.6 percent *Fiscal 11 numbers are proposed Source: NASBO June 2010 Fiscal Survey of States * The New Normal?

9. NASBO Proposed FY 2011 Spending is $52 billion less than FY 2008 In Billions * FY 2007, 2008, and 2009 are actual. FY 2010 is estimated and FY 2011 is proposed.

10. NASBO 10 Balances Declining * Fiscal 2010 totals are estimates and fiscal 2011 is proposed **33-year historical average is 5.7% Source: NASBO June 2010 Fiscal Survey In Billions

11. NASBO Balances are Projected to be $22 billion less in FY 2011 than FY 2008 In Billions Source: NASBO June 2010 Fiscal Survey of States

12. NASBO Budget Cuts at Record Levels 12 Source: NASBO June 2010 Fiscal Survey of States:; fiscal 201 0 totals are estimates

13. NASBO State revenue up 2.5 % in 1st quarter, although 33 states saw declines Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau

14. NASBO Projected FY 2011 Revenue is $53 billion Less than FY 2008 In Billions * FY 2007, 2008, and 2009 are actual. FY 2010 is estimated and FY 2011 is proposed

15. NASBO States Have Closed Budget Gaps of $169 Billion – Still Face $127 Billion in Gaps In Billions Blue = closed gaps; Red = ongoing gaps

16. NASBO 16 American Recovery and Reinvestment Act (ARRA)

17. NASBO 17 American Recovery and Reinvestment Act – State $ Approximately $246 billion+ going to or through states State Fiscal Stabilization Fund - $53.6 billion: $39.5 billion to schools and higher ed $5 billion in incentive grants $8.8 billion in flexible funds Medicaid Funding: $87 billion $48 billion to transportation: highway and bridges $27.5B; transit $8.4B; passenger rail $8B Also safety net expansions, economic development, other appropriated programs

18. NASBO 18 The Cliff… Source: Statelin e.org

19. NASBO Significant Lag? 19

20. NASBO 20 Background on State Spending Trends

21. NASBO 21 Spending by Funding Source (Percentage) Source: NASBO 2008 State Expenditure Report

22. NASBO 22 General Fund: Medicaid & Education Over 62% Source: NASBO 2008 State Expenditure Report

23. NASBO 23 Total Expenditures Percentage Growth in Spending Categories Over 10 Years Sources: NASBO 1999 and 2008 State Expenditure Reports

24. NASBO 24 Total Medicaid Spending Growth, 1996-2010 Strong Economy, Welfare Reform, Enrollment Drops, Managed Care 1995-1998 Economic Downturn, Enrollment & Cost Growth, 2000-2003 NOTE: Data for State Fiscal Years, for total Medicaid spending, including state,,local and federal funds. SOURCE: Historic Medicaid Growth Rates from KCMU Analysis of CMS Form 64 Data, FY 8, 2009 and 2010 based on KCMU survey of Medicaid officials in 50 states and DC conducted by Health Management 200Associates, 2009. Low Enrollment Growth & Medicare Part D 2006-2007 Economic Downturn 2008-2010 Adopted

25. NASBO Medicaid Cost Containment About three-quarters of states are planning to contain Medicaid costs in proposed fiscal 2011 budgets The most common strategy for both fiscal 2010 and fiscal 2011 would be to reduce or freeze provider payments Other strategies include limiting benefits, limiting prescription drugs, eliminating benefits, and expanding managed care States are also raising provider taxes or fees to generate additional resources for Medicaid

26. NASBO 26 Outlook

27. NASBO 27 Long Term Spending Pressures Medicaid and Health Care K-12 and Higher Education Demographic Changes Corrections Transportation Infrastructure Pensions

28. NASBO The New Normal is Here 28

29. NASBO 29 State Fiscal Outlook Austere state budgets for at least the next several years Slow revenue growth; ARRA declines Health care reform will have an impact on state finances Tough competition for general funds Demand for performance, results, and transparency Opportunity for reform, restructuring

30. NASBO 30 www.nasbo.org Brian Sigritz Director of State Fiscal Studies (202) 624-8439 bsigritz@nasbo.org