1. Middle Management Scott Pattison Executive Director NASBO April 15, 2015

2. Budgeting tips  Contingencies  Make your case  12 month process  Relationships 2

3. 3 State Budget Cycle

4. ▫ Income Volatility ▫ Sales ▫ Gaming becoming limited Revenue Issues

5. Current Economic and Fiscal Situation www.nasbo.org 5

6. State Fiscal Overview  Fiscal 2015 marks the 5 th consecutive annual increase in general fund spending and revenues  Signs of fiscal distress have subsided and the fiscal environment for most states indicates continued stability and slow growth  Some states are facing difficult budget environments due to various issues (oil)  Fiscal improvements over the last several years have not returned states to normal patterns of growth www.nasbo.org 6

7. Trends ▫ State Employee Pay ▫ Transportation ▫ Levels of Taxation ▫ Limiting Growth (Prisons) ▫ Higher Education www.nasbo.org 7

8. Oil Prices Falling ▫ $50ish a barrel ▫ Lower gas prices = increased revenue (sales) ▫ Hard to predict ▫ Most states benefit, but not all www.nasbo.org 8

9. Governors’ Proposed Budgets for Fiscal 2016  Moderate increases in spending, modest revenue growth, and healthy reserves  Emphasis on being sustainable and structurally balanced  Much of additional spending directed towards core services such as education and healthcare  Various tax proposals either increasing or decreasing revenue ▫ Middle class tax cuts, lower CIT, property tax relief, expanding sales tax base, closing loopholes, examining incentives, higher cigarette taxes www.nasbo.org 9

10. Current Fiscal Situation: Indicators www.nasbo.org 10

11. Slow Budget Growth Continues www.nasbo.org 11 * Average *37-year historical average annual rate of growth is 5.5 percent *Fiscal 2015 numbers are enacted Source: NASBO Fall 2014 Fiscal Survey of States

12. GF Spending Still Below Pre-Recession Peak Adjusted for Inflation www.nasbo.org 12 Source: NASBO Fall 2014 Fiscal Survey of States; Fiscal 2015 numbers are enacted *Aggregate spending levels would need to be at $771 billion to remain equivalent with real 2008 spending levels.

13. States Restoring Some Cuts Made During Recession www.nasbo.org 13 ($ in Billions) Source: NASBO Fall 2014 Fiscal Survey

14. State Revenue Grows in 3 rd Quarter of 2014 after Declining in 2 nd Quarter www.nasbo.org 14 Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau *3 rd quarter of 2014 is based on 45 early reporting states

15. GF Revenue Also Below Pre-Recession Peak Adjusted for Inflation www.nasbo.org 15 Source: NASBO Fall 2014 Fiscal Survey of States; Fiscal 2015 numbers are enacted *Aggregate revenue levels would need to be $763 billon to remain equivalent with real 2008 revenue levels.

16. States Enact $2.3B in Net Tax and Fee Cuts for FY15 www.nasbo.org 16 ($ In Billions) Fiscal Year

17. States Reserves Haven’t Reached Peak Levels www.nasbo.org 17

18. Minimal Midyear Budget Cuts So Far in Fiscal 2015 www.nasbo.org 18 Source: NASBO Fall 2014 Fiscal Survey *Fiscal 2015 midyear cuts are ongoing

19. Spanish American War 1898 $16.5 million World War I 1919

20. ▫ Infrastructure funding burden: 3.5% of GDP ▫ We spend: 1% ▫ New money muni debt: 42% below peak Debt

21. Management Points from Budget Folks www.nasbo.org 21

22. Forces Affecting State Budgets 22 Economics Politics State Laws (constitutional and statutory)  Balanced Budget Requirements Federal Policy

23. 23 Trend Continues: Focus on Outcomes  Focus on results and outcomes  Spend funds for effective programs  Improve management

24. 24 Structural Imbalances Will Persist CMS state Medicaid spending forecast Moody’s Analytics state tax revenue forecast Sources: Moody’s Analytics, CMS, Census Bureau % Year ago % change, calendar year

25.  Contingencies  Prudent use of debt  Rainy day funds  One time only  Use of performance information  Avoiding bad practices in good times 25 Financial Management Practices

26.  Ask performance questions  Ask for outcome data  Use performance information to justify changes to programs: Make your case!  Encourage your employees to think about goals and outcomes 26 What Can Be Done?

27.  Cybersecurity  Open government  Systems need replacing  Cloud  Good things can come from IT – better customer service, increased efficiencies 27 IT issues

28. Background on State Spending Trends www.nasbo.org 28

29. Spending by Funding Source (Percentage) www.nasbo.org 29 Source: NASBO State Expenditure Report

30. Total State Expenditures by Function Estimated Fiscal 2014 www.nasbo.org 30 Source: NASBO State Expenditure Report

31. General Fund Expenditures by Function Estimated Fiscal 2014 www.nasbo.org 31 Source: NASBO State Expenditure Report

32. Federal Funds Expenditures by Function Estimated Fiscal 2014 www.nasbo.org 32 Source: NASBO State Expenditure Report

33. Revenue Sources in the General Fund (Percentage) www.nasbo.org Source: NASBO State Expenditure Report 33

34. www.nasbo.org Scott D. Pattison Executive Director NASBO 202-624-8804 spattison@nasbo.org 34 www.nasbo.org