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GAO-13-546SP 1 (2013-04-29)

handle is hein.gao/gaobachds0001 and id is 1 raw text is: United States Government Accountability Office GAO STATE AND LOCAL GOVERNMENTS' FISCAL OUTLOOK April 2013 Update GAO's State and Local Fiscal The state and local government sector continues to face near-term and Simulations long-term fiscal challenges which add to the nation's overall fiscal Fiscal sustainability presents a challenges. As shown in figure 1, the state and local sector faces a gap national challenge shared by all gewe reeu n png an logtr ficlhlegstatrw levels of government. Since 2007, GAO has published long-term over time. The model's simulation shows that the fiscal position of the fiscal simulations for the state and sector will steadily decline through 2060 absent any policy changes.1 local government sector. These simulations have consistently shown that, like the federal Figure 1: State and Local Operating Balance Measure, as a Percentage of Gross government, the state and local Domestic Product (GDP) sector faces persistent and long- Percentage of GDP term fiscal pressures and, absent 6 any policy changes, would face an increasing gap between receipts 4 and expenditures in future years. Using the Bureau of Economic Analysis's (BEA) National Income 0__________ and Product Accounts (NIPA) as model shows the level of receipts -2 and expenditures for the sector until 2060 based on current and -4(~0 ~~e historical spending and revenue patterns. The model assumes that the current set of policies in place -62005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060O across state and local government Ya remains constant to show their impact on future fiscal outcomes:.~tngb~c The model simulates the long-term S~~GOsnj~~1 p~~nO fiscal outlook for the state and local sector and incorporates the Notes: Historical data are from BEA's National Income and Product Accounts. Data in 2012 are GAO Congressional Budget Office's estimates aligned with published data where available. GAO's simulations are from 2013 to 2060, (OBO) economic projections. using many CBO projections and assumptions, particularly for the next 10 years. These projections capture near- term cyclical swings in the The operating balance is a measure of the sector's ability to cover its current expenditures out of econmy.Becase he mdelcurrent receipts. The operating balance measure is all receipts, excluding funds used for long-term conomy. Bh ecausei the modreae investments, minus current expenditures. To develop this measure, GAO subtracts funds used to coves te setorin te agregte, finance longer-term projects-such as investments in buildings and roads-from receipts since these the fiscal outcomes for individual funds would not be available to cover current expenses. Similarly, GAO excludes capital-related states and localities cannot be expenditures from spending. While most states have requirements related to balancing their budgets, captured. This product is part of a deficits might arise because of unanticipated events such as recessions. These cyclical deficits can body of work on the nation's long- occur because the planned annual revenues are not generated at the expected rate, demand for term fiscal challenges. Related services exceeds planned expenditures, or both, resulting in a near-term or cyclical operating deficit. products can be found at States have tapped fiscal reserves to cope with revenue shortfalls during recent recessions, as w~gagov/peci~publlonter indicated by their reported total balances, which are comprised of general fund ending balances and ml. amounts in state budget stabilization rainy day funds. Figure 1 depicts the state and local operating For more information, contact balance only, and does not include fiscal reserves or other budget measures used to cope with - - . - -. -. -.. revenue shortfalls. 'The 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-13-546SP

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