2011

State and Local Fiscal Outlook

2

State and Local Governments in the U.S. Economy

• Major employer (about 14 percent of total U.S. employment in 2009)

• Key contributor to GDP (about 16 percent of GDP through more than $2 trillion in operating and capital expenditures in 2009)

• Recipients of about $530 billion in federal grant funds in 2010

3

State and Local Governments Face Increasing Fiscal Challenges

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Year

Percentage of GDP

Operating BalanceDef

icit

(N

egat

ive

Bal

ance

)S

urp

lus

(P

ositi

ve B

alan

ce)

Source: GAO simulations, updated April 2011. Note: Historical data are from the Bureau of Economic Analysis’s National Income and Product Accounts from 1980 to 2009. Data in 2010 are GAO estimates aligned with published data where available. GAO simulations are from 2011 to 2060, using many Congressional Budget Office projections and assumptions, particularly for the next 10 years. Simulations are based on current policy.

4

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Year

Percentage of GDP

Source: GAO simulations, updated April 2011. Note: Historical data are from the Bureau of Economic Analysis’s National Income and Product Accounts from 1980 to 2009. Data in 2010 are GAO estimates aligned with published data where available. GAO simulations are from 2011 to 2060, using many Congressional Budget Office projections and assumptions, particularly for the next 10 years. Simulations are based on current policy.

Nonhealth care expenditures

Health care expenditures

Estimated Growth in Health Care Costs Exceeds Nonhealth Costs

5

Aggregate Shifts in State and Local Intergovernmental Grants

Source: GAO analysis of historical data from the Bureau of Economic Analysis’s National Income and Product Accounts.Note: Medicaid grants comprised 92 percent of health grants in 2009. ‘Other’ includes national defense, public order and safety, and recreation and culture.

6

Aggregate Shifts in State and Local Government Expenditures

Source: GAO analysis of historical data from the Bureau of Economic Analysis’s National Income and Product Accounts.Note: The Other category includes Housing and Community Services and Recreation and Culture. Economic affairs includes transportation, space, agriculture, and natural resources. Health includes Medicaid. General public service includes interest payments and tax collection and financial management services. Income security, includes disability, welfare, and social services. State and local government pension contributions are considered part of employee compensation and accounted for within the categories.

7

Aggregate Shifts in State and Local Government Revenues

Source: GAO analysis of historical data from the Bureau of Economic Analysis’s National Income and Product Accounts. Note: Federal grants as a percentage of state and local revenues increased from 22 percent in 1979 to 24 percent in 2009.

8

Long-term Challenge Exacerbated by Short-term Economic Conditions

Year-over-year percentage change in state and local government tax receipts

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Years

Source: GAO analysis of data from the Bureau of Economic Analysis’s National Income and Product Accounts.

9

American Recovery & Reinvestment Act

• Signed February 17, 2009

• Purposes:

• preserve and create jobs and promote recovery

• assist those most impacted by the recession

• invest in science and health care technology

• invest in infrastructure

• stabilize state and local government budgets

10

Projected and Actual Federal Outlays to States and Localities under the Recovery Act

Source: GAO analysis of data from CBO, Recovery.gov and Federal Funds Information for States.

0

20

40

60

80

100

120

2009 2010 2011 2012 2013 2014 2015 2016

Fiscal year

Estimated

$217.5 billion in Actual Total FederalOutlays as of June 3, 2011

Outlays in billions of dollars

11

Composition of State and Local Recovery Act Funding:

2009 Actual and 2012 Estimated

Source: GAO analysis of CBO and FFIS data. Data reflect estimated and actual federal outlays for a select set of Recovery Act-funded programs administered by states and localities. The Supplemental Nutrition Assistance Program (Food Stamps) and Unemployment Compensation

payments are not included.

Fiscal Year 2009 Fiscal Year 2012

12

Recovery Act Challenges for Officials at All Levels of Government

• Expectations for an unprecedented level of transparency and accountability

• Qualified personnel need to implement proper controls and accountability at all levels of government

• Close and ongoing coordination needed among federal, state, and local governments

• Accountability community: special responsibility to ensure collective efforts are well-coordinated

13

Lessons from the Recovery Act May Help Address Intergovernmental Challenges Moving Forward

• The Recovery Act and other countercyclical efforts helped cushion near term revenue shortfalls, but will not resolve the long-term structural deficits impacting state and local governments

• Looking forward, actions to address the nation’s long-term fiscal challenges may require a reexamination of intergovernmental roles and relationships

• GAO’s review of the Recovery Act provides insight into some of the innovative practices used by government and others to implement the Act

• Lessons from implementing the Recovery Act may provide insights as well as concrete tools to help address current and future challenges facing federal, state, and local governments and their nongovernmental partners

14

GAO on the WebGeneral Web site: http://www.gao.gov/ARRA Oversight: http://www.gao.gov/recovery/Long Term Federal and State/Local Fiscal Outlook: http://www.gao.gov/special.pubs/longterm/

ContactStanley J. Czerwinski, Director, Strategic Issues, czerwinskis@gao.gov, (202) 512-6806Chuck Young, Managing Director, Public Affairs, youngc1@gao.gov, (202) 512-4800U.S. Government Accountability Office441 G Street NW, Room 7149, Washington, D.C. 20548

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