The Impact of the Pandemic on State and Provincial Budgets Thursday, July 9, 2020 | 10:00 – 11:00 a.m. CDT MODERATOR Senator Carolyn McGinn| Kansas | Chair, Senate Ways & Means Committee PRESENTERS Ms. Shelby Kerns | Executive Director | National Association of State Budget Officers Mr. David West | Chief Economist and Deputy Officer | Financial Accountability Office of Ontario
• The Council of State Governments • Only national organization that works with all three branches of state government THE C E COUN UNCIL O L OF • CSG Midwest and the Midwestern Legislative STAT ATE Conference GOVERNME NMENT NTS o Serves legislators in 11 Midwestern states and 4 Canadian provinces MIDWE DWESTERN o Conducts policy research and publishes a monthly newsletter LEGISLA LATIVE E o Provides educational and networking CONFERENC CO NCE opportunities through in-person and virtual events o Offers annual leadership training for new legislators
Six live, web-based teleconferences that explore new institutional, organizational and policy challenges that state and provincial lawmakers are dealing with LOOK OOKING B BEYON OND as a result of the pandemic THE P E PANDEM EMIC 1. Elections WEB EBINAR S R SERI RIES 2. Remote Legislative Sessions 3. Legislative Oversight BACKGROU OUND ND & & 4. Fiscal Impact of the Pandemic TOPI PICS CS 5. Emergency Preparedness 6. Reopening the Economy In addition to the live webinars, each session will be recorded and made available on the CSG Midwest website.
TH THE I IMPACT OF F THE P E PANDEM EMIC ON STATE A AND D PROVIN INCIA IAL BUDGE GETS Sen. Carolyn McGinn MODERATOR OR Kansas Chair, Senate Ways & Means Committee 2 nd Vice Chair, Midwestern Legislative Conference
Today’s webinar will include: • A look at how Midwestern state budgets LOOK OOKING B BEYON OND and fiscal conditions have been, and will THE P E PANDEM EMIC be, affected by the COVID-19 pandemic WEB EBINAR S R SERI RIES • A look at how Canadian provincial budgets and fiscal conditions have been, TH THE I IMPACT OF F and will be, affected by the COVID-19 THE P E PANDEM EMIC ON pandemic STATE A AND D • A brief discussion on the Kansas PROVIN INCIA IAL Legislature and COVID-19 budget impacts BUDGE GETS • Question and answer
TH THE I IMPACT OF F Shelby Kerns THE P E PANDEM EMIC ON Executive Director STATE A AND D National Association of State Budget Officers (NASBO) PROVIN INCIA IAL skerns@nasbo.org BUDGE GETS David West PRESEN ENTER ERS Chief Economist and Deputy Officer Financial Accountability Office of Ontario dwest@fao-on.org
July 9, 2020 Fiscal Condition of the States Shelby Kerns Executive Director skerns@nasbo.org
All Other GF Revenue 17.5% Revenue Sources in Sales the General Fund 30.1% Percentage Gaming 1.0% Corporate Income 6.5% Estimated Fiscal 2019 Personal Income 44.9% Source: NASBO State Expenditure Report 11 11
Medicaid General Funds 19.7% K-12 35.6% Expenditures By Function Transportation 0.9% Corrections 6.6% Estimated Fiscal 2019 Higher Education All Other 9.6% 26.7% Public Assistance 0.9% Source: NASBO State Expenditure Report 12 12
General Federal Funds, Funds, Total State 30.7% 40.8% Expenditures By Fund Source FY19 $2,119 Billion Bonds, 1.9% Other State Funds, 26.6% Source: NASBO State Expenditure Report 13 13
K-12 Total State Medicaid 19.5% 28.9% Expenditures By Function Higher Education Estimated 10.1% Fiscal 2019 Public Transportation Assistance 8.1% 1.2% All Other Corrections 29.1% 3.0% Source: NASBO State Expenditure Report 14 14
Finished FY 2019 with revenue surpluses Rainy day funds at highest levels FY 2020 budgets include another year of modest spending growth K-12 and Higher Ed – usually big gainers in good times What was the state fiscal environment Cautionary tale: preparing for the next downturn for 2020 legislative sessions? Long term challenges: pensions and retiree health liabilities; infrastructure and transportation demands (FEBRUARY 2020) 15 15
46 States Had Fiscal 2019 General Fund Revenue Collections Compared to Budget Projections by Fiscal Year Revenue Collections Exceed Budget 50 Projections 45 12 18 40 20 NUMBER OF STATES 25 2 35 32 17 35 37 39 30 40 5 5 46 25 5 20 36 18 15 27 9 25 5 10 20 6 4 8 5 10 9 7 7 7 2 2 2 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 LOWER ON TARGET HIGHER Source: Fall 2019 Fiscal Survey of States 16
Most States Continued to Strengthen Rainy Day Median Rainy Day Fund Balance Over Time Funds % OF GENERAL FUND SPENDING 9.0% 8.0% 7.6% Median balance reached all- 8.0% time high 7.0% 6.0% 41 States Reported Increases 5.6% 5.0% 4.8% 4.6% in Fiscal 2019; 4.0% 3.0% 32 States Were Forecasting 2.0% Increases in Fiscal 2020 1.0% 1.6% 0.7% 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Fall 2019 Fiscal Survey of States 17
State General Fund Spending Was Expected Annual General Fund Expenditure Growth, Nominal (%) to See Moderate Increase 12 In Fiscal 2020, Following 10 8 Above-Average Growth 5.8 *Average 6 4.8 in Fiscal 2019 3.2 4 % 2 45 States Enacted 0 -2 Spending Increases in -4 Fiscal 2020 -6 -8 • 41-year historical average annual nominal growth rate in state general fund spending is 5.4 percent. • Source: Fall 2019 Fiscal Survey of States 18
No States Made Mid-Year Budget Reductions in Fiscal 2019 Due to a Shortfall Budget Cuts Made After The Budget Passed Recession ends Recession ends $35 50 Recession ends 41 45 $30 39 37 37 40 35 NUMBER OF STATES $25 35 28 IN BILLIONS 30 $20 22 22 25 20 19 19 $15 18 20 16 14 13 13 15 $10 11 9 8 8 8 7 7 10 5 $5 4 3 2 2 5 1 0 $0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Number of states Amount of reduction Note: Beginning in Fiscal 2018, NASBO asked states reporting net mid-year budget reductions as to whether the reductions were made due, at least in part, to a revenue shortfall. Effective in FY2018 going forward, only states reporting mid-year budget cuts due to a shortfall are included in the totals reported in this figure. Prior to FY2018, particularly in non-recessionary periods, states that reported mid-year cuts that were due to other reasons, such as a reduction in caseload, would have been included in the counts above. 19
Key Themes & Common Budget Items for Fiscal 2020 ( FEBRUARY 2020) Teacher pay increases Corrections employees – Full funding of pension • • • additional hiring and contributions plus some extra increased pay for unfunded liabilities Early Education – Pre-K • expansions Children’s service/child State employee pay increases • • welfare – many budgets have 2 to 3%. More states starting and • Most number states in many expanding last dollar two- years year college degrees Housing • One-time spending from one- • Medicaid expansion and • Workforce Development • time funds – many different some supplemental funds for initiatives FY 2019 Broadband/wireless • expansion 20
State Budgets Provide 2019 Enacted 2020 Enacted Significant New Resources $18.0 $16.3 for Education & Other Key $16.0 $14.8 $14.0 Priorities $10.9 $12.0 $10.8 In Billions $10.0 $8.4 $8.0 Enacted General Fund $6.0 $4.9 Budgets for Fiscal 2020 $4.4 $3.0 $4.0 $2.5 Provide for Net Appropriation $1.6 $1.0 $2.0 $0.4 $0.6 $0.6 Increases of $39.1 Billion $0.0 K-12 Higher Public Medicaid Corrections Transportation All Other Education Assistance Net increases for fiscal 2020 are compared to enacted appropriation levels for fiscal 2019. Net increases for fiscal 2019 are compared to enacted levels for fiscal 2018. 21
All sources of revenue (personal income, sales, corporate income, motor fuel, gaming) are being impacted by COVID-19 Impacting states in different ways and different magnitudes - e.g. oil producing states; tourism; manufacturing Different than other recessions – public health emergency and sharp economic declines What is the current States are facing both increased spending demands and fiscal environment significant revenue declines for states? States are revising revenue forecasts (JULY 2020) 22 22
Ways to address budget shortfalls Budget cuts • Can include targeted cuts, across the board, personnel, etc. • Rainy day funds and reserves • Size of shortfalls greater than amount in rainy day funds • Try not to drain immediately • Increased taxes • Typically not first option and amount less than budget cuts • Federal aid • Was very helpful during Great Recession • This time: question of how flexible and how much • 23
Strategies Used to Manage Budgets, Fiscal 2010 35 states 25 states 9 states 24 states 16 states TARGETED ACROSS THE SALARY LAYOFFS FURLOUGHS CUTS BOARD CUTS REDUCTIONS 13 states CUTS TO 19 states 14 states 13 states 19 states STATE REDUCE REORGANIZE RAINY DAY USER FEES EMPLOYEE LOCAL AID AGENCIES FUND BENEFITS 24
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