1. The State Fiscal Situation NLC March 15, 2011 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 MAJOR CHALLENGES TO STATE BUDGETS: Fiscal 2011 and 2012 Spending Demands and Some Revenue Growth Unlikely to return to 2008 Federal Government Health Care Cost Pressures Medicaid 6.1 percent growth estimate for FY2011 Wind Down of Recovery Funds $151 billion in flexible funding ends in June FY2011 Dealing with Long Term Liabilities Tough choices, not defaults Health Care Reform Implementation

3. NASBO Health Care Costs Key “Containing growth in our health care costs… is something we absolutely need to do, because it is unsustainable at the rate that it’s been growing,’’ said Jay Gonzalez, Patrick’s budget chief. “There are going to be some hard decisions.’’ Boston Globe 1/3/11 3

4. NASBO Negative Spending Two Years in a Row, Increase in 2011 *33-year historical average rate of growth is 5.7 percent *Fiscal ‘11 numbers are enacted Source: NASBO Fall 2010 Fiscal Survey of States * Average The New Long- Term 10 year Normal?

5. NASBO Revenue Not Yet Pre-Recession In Billions * FY 2007, 2008, and 2009 are actual. FY 2010 is estimated and FY 2011 is proposed

6. NASBO Budget Cuts Made After the Budget Passed ($ millions) *FY 2011 mid-year budget cuts are ongoing Mid-Year Budget Cuts Continue

7. NASBO 7 The Cliff: Temporary Federal Aid to States (FY ’11 totals include both ARRA & Education Jobs Funds) Source: Recovery Act data come from GAO Report to Congress, September 2010 In Billions Fiscal Year

8. NASBO 8 Additional Aid from Federal Government? “We have no expectation or intention to get involved in state and local finance.”  Federal Reserve Chairman Ben Bernanke, January 7, 2011 “I think most of the solutions for state government will have to come from state government.”  Senate Majority Leader Harry Reid, January 17, 2011 “We are not interested in a bailout.”  House Budget Committee Chairman Paul Ryan, January 6, 2011

9. NASBO 9 Proposal: Federal Budget Cuts HR 1 would reduce major discretionary program funding to states by $20.2 billion, or 10.7%  Cuts to major programs would be widespread with double digit declines from a number of agencies HUD – 10.4% HHS – 12.0% DHS – 14.3% DOL – 42.9%  DOT (5.0%) and Dept. of Ed (8.0%) would see cuts, but below 10%  Clean Water State Revolving Fund and CDBG are cut more than 60% Analysis of HR 1 performed by Federal Funds Information for States

10. NASBO 10 Spending by Funding Source (Percentage) Source: NASBO 2009 State Expenditure Report

11. NASBO 11 General Fund: Medicaid & Education Over 63% Source: NASBO 2009 State Expenditure Report

12. NASBO State Budget Cycle 12

13. NASBO Tough Decisions! Revenue $1 billion Requests Medicaid $550 million K-12 $450 million Higher ed $250 million Prisons $50 million Court cases $20 million Other $100 million $420 million Decisions Medicaid $500 million K-12 $400 million Already $900 million spent +++ Go back, cut Medicaid to $480, K-12 to $390 $100 million available becomes $130 million 13

14. NASBO 14 State Fiscal Outlook Austere state budgets for at least the next several years  Spending pressures; Revenue growth Health care reform will have an impact on state finances Limited federal funds Tough competition for general funds

15. NASBO 15 Impact MOE, Flexibility Managing the Declines Show Effectiveness Yes, everything is still political… Shared Sacrifice?

16. NASBO 16 www.nasbo.org Scott Pattison (202) 624-8804 spattison@nasbo.org