middle management scott pattison executive director nasbo april 15, 2015

Middle Management

Scott PattisonExecutive DirectorNASBO

April 15, 2015

Budgeting tips

Contingencies

Make your case

12 month process

Relationships

2

3

State Budget Cycle

▫Income Volatility▫Sales▫Gaming becoming limited

Revenue Issues

www.nasbo.org

5

Current Economic and Fiscal Situation

www.nasbo.org

6

State Fiscal Overview

Fiscal 2015 marks the 5th 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

7

Trends

▫State Employee Pay▫Transportation▫Levels of Taxation▫Limiting Growth (Prisons)▫Higher Education

www.nasbo.org

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

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

10

Current Fiscal Situation:Indicators

www.nasbo.org

11

Slow Budget Growth Continues

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

-8

-6

-4

-2

0

2

4

6

8

10

12

General Fund Expenditure Growth (%)

%

*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

www.nasbo.org

12

GF Spending Still Below Pre-Recession Peak Adjusted for Inflation

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015$500

$550

$600

$650

$700

$750

$800

$655

$687

$661

$623$645

$667

$695

$729$752

$771

General Fund Spending: FY 2007-FY 2015

*

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.

www.nasbo.org

13

States Restoring Some Cuts Made During Recession

K-12

Higher Ed

Public Ass

ist.

Medica

id

Correcti

ons

Transp

ortatio

n

All Other

-2

0

2

4

6

8

10

12 $11.1

$4.4

-$0.6

$8.5

$1.0 $1.3

$5.8

Fiscal 2015 Enacted General Fund Spending Changes by Category ($ in Bil -lions)

($ in

Bill

ions

)

Source: NASBO Fall 2014 Fiscal Survey

www.nasbo.org

State Revenue Grows in 3rd Quarter of 2014 after Declining in 2nd Quarter

Series1

-20

-15

-10

-5

0

5

10

15

Year-Over-Year Real Change inQuarterly State Tax Revenue

%

14

Source: Fiscal Studies Program, Rockefeller Institute of Government; U.S. Census Bureau

*3rd quarter of 2014 is based on 45 early reporting states

www.nasbo.org

15

GF Revenue Also Below Pre-Recession Peak Adjusted for Inflation

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015$500

$550

$600

$650

$700

$750

$800

$655$680

$626$610

$650

$669

$716$726

$748$763

General Fund Revenue: FY 2007-FY 2015

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.

www.nasbo.org

16

States Enact $2.3B in Net Tax and Fee Cuts for FY15

19791981

19831985

19871989

19911993

19951997

19992001

20032005

20072009

20112013

2015

-$10

-$5

$0

$5

$10

$15

$20

$25

$30

Enacted State Revenue Changes, Fiscal 1979 to Fiscal 2015

($ In

Bill

ions

)

Fiscal Year

www.nasbo.org

17

States Reserves Haven’t Reached Peak Levels

FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 150.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

11.5%

10.1%

8.6%

5.7%5.2%

7.1%

8.4%

10.5%

8.9%

7.3%

Balances as a Percent of Expenditures

Balances as a Percent of Expenditures

www.nasbo.org

18

Minimal Midyear Budget Cuts So Far in Fiscal 2015

Source: NASBO Fall 2014 Fiscal Survey *Fiscal 2015 midyear cuts are ongoing

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

$0

$5

$10

$15

$20

$25

$30

$35

$40

0

10

20

30

40

50

20

28

35

22

9 813

72 3 1

16

37 37

18

5 2 4

13

41 39

23

811

8 7

Enacted Budget Cuts Made After the Budget Passed ($ In Millions)

Number of states Amount of reduction

$ In

Mill

ions

Num

ber o

f Sta

tes

Recession ends

Recession ends

Recession ends

Spanish American War 1898

$16.5 million

World War I 1919

▫Infrastructure funding burden: 3.5% of

GDP

▫We spend: 1%

▫New money muni debt: 42% below

peak

Debt

www.nasbo.org

21

Management Points from Budget Folks

Forces Affecting State Budgets

22

Economics

Politics

State Laws (constitutional and statutory) Balanced Budget Requirements

Federal Policy

23

Trend Continues:Focus on Outcomes

Focus on results and outcomes

Spend funds for effective programs

Improve management

13 14 15 16 17 18 19 202

3

4

5

6

7

8

9

Avg. state tax growth since 1986

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

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

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?

Cybersecurity Open government Systems need replacing Cloud Good things can come from IT – better

customer service, increased efficiencies

27

IT issues

www.nasbo.org

28

Background on State Spending Trends

www.nasbo.org

29

Spending by Funding Source(Percentage)

General Funds40.5%

Federal Funds30.3%

Other State Funds27.1%

Bonds2.1%

Total State Expenditures by Funding Source, Estimated Fiscal 2014

Source: NASBO State Expenditure Report

www.nasbo.org

30

Total State Expenditures by FunctionEstimated Fiscal 2014

Elementary & Secondary Edu-

cation19.5%

Higher Education10.1%

Public Assistance1.4%

All Other32.4%

Corrections3.1%

Transportation7.7%

Medicaid25.8%

Source: NASBO State Expenditure Report

www.nasbo.org

31

General Fund Expenditures by FunctionEstimated Fiscal 2014

Elementary & Secondary Ed-

ucation35.0%

Higher Education9.4%

Public Assistance1.4%

All Other27.4%

Corrections6.8%

Transportation0.9%

Medicaid19.1%

Source: NASBO State Expenditure Report

www.nasbo.org

32

Federal Funds Expenditures by FunctionEstimated Fiscal 2014

K-129.9%

Higher Education3.7%

Public Assistance2.6%

All Other25.0%

Corrections0.1%

Transportation7.7%

Medicaid51.0%

Source: NASBO State Expenditure Report

www.nasbo.org

33

Revenue Sources in the General Fund (Percentage)

Sales 31%

Personal Income 42%

Corporate Income 6%

Gaming 1%

Other Taxes & Fees 20%

Estimated Fiscal 2014

Source: NASBO State Expenditure Report

34

www.nasbo.org

www.nasbo.org

Scott D. PattisonExecutive DirectorNASBO202-624-8804spattison@nasbo.org