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GAO-12-523SP 1 (2012-04-05)

handle is hein.gao/gaobacfxw0001 and id is 1 raw text is: United States Government Accountability Office GAO STATE AND LOCAL GOVERNMENTS' FISCAL OUTLOOK April 2012 Update GAO's State and Local Fiscal The state and local government sector continues to face near-term and Simulations long-term fiscal challenges that grow over time. The fiscal challenges Fiscal sustainability presents a confronting the state and local sector add to the nation's overall fiscal national challenge shared by all challenges. The fiscal situation of the state and local government sector levels of government. Since 2007, has improved in the past year as the sector's tax receipts have slowly GAO has published long-term increased in conjunction with the economic recovery. Nonetheless, total fiscal simulations for the state and tax receipts have only recently returned to the prerecession levels of 2007 local government sector. These and the sector still faces a gap between revenue and spending. As shown in figure 1, the sector faces long-term fiscal challenges that grow over federal government, the state and time. The model's base case simulations show that the fiscal position of local government sector faces persistent and long-term fiscal the sector will steadily decline through 2060 absent any policy changes.1 pressures.______________________________________ Using the Bureau of Economic Figure 1: State and Local Operating Balance Measure, as a Percentage of Gross Analysis's (BEA) National Income Domestic Product (GDP) and Product Accounts (NIPA) as Percentage of GDP the primary data source, our model shows the level of receipts and expenditures for the sector until4 2060 based on current and historical spending and revenue upu patterns. A basic assumption of 2 (PoSitive b ance) our model is that the current set of policies in place across state and b local government remains constant. The model simulates the 2--------------------------------- long-term fiscal outlook for the - -------------- state and local sector as a whole, and while the model incorporates -e4sre ...... e) the Congressional Budget Office's (iBO) economic projections, -6 adjustments are made to capture 2 pro 2010 2015 2020 2025 2030 2035 20e0 2045 2U50 205 2060 the budgetary effects of near-term Year cyclical swings in the economy. Because the model covers the sector in the aggregate, the fiscal So O ~uIorupaCdp 21 outcomes for individual states and localities cannot be captured. This Notes: Historical data are from BEA's National Income and Product Accounts. Data in 2011 are GAO prodct s prt f a odyof ork estimates aligned with published data where available. GAO simulations are from 2012 to 2060, podcth isnartof alodyer ofiwork using many CBO projections and assumptions, particularly for the next 10 years. challenges. Related products can The operating balance is a measure of the sector's ability to cover its current expenditures out of be found at current receipts. The operating balance measure is all receipts, excluding funds used for long-term w'gao o r/speipb/oge investments, minus current expenditures. To develop this measure, we subtract funds used to finance in!. longer-term projects-such as investments in buildings and roads-from receipts since these funds would not be available to cover current expenses. Similarly, we exclude capital-related expenditures from spending. 'The base case simulation assumes that the tax structure is unchanged in the future and that the provision of real government services per capita remains relatively constant. GAO-12-523SP

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