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GAO-17-213SP 1 (2016-12-08)

handle is hein.gao/gaobaaklg0001 and id is 1 raw text is: STATE AND LOCAL GOVERNMENTS' FISCAL OUTLOOK 2016 Update The state and local government sector continues to face fiscal challenges which contribute to the nation's overall fiscal challenges. As shown in figure 1, GAO's simulations suggest that the sector could continue to face a gap between revenue and spending during the next 44 years, as reflected by the simulated operating balance measure. 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's simulations also suggest that while the gap narrows and ultimately closes near the end of the model's simulation period, state and local governments would need to make policy changes to avoid fiscal imbalances before then. Figure 1: State and Local Operating Balance Measure as a Percentage of Gross Domestic Product (GDP) Percentage of GDP 6 ---Simuation begins 4 2 0 Positive balance Negative balance ,. ,.,a.-- -2 - -4 -6 2006 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 Year ..... Operating balance Sources: GAO calculations using Bureau of Economic Analysis data and GAO simulations, updated December 2016. I GAO-17-213SP Notes: Historical values from 2006 to 2015 are GAO calculations using data from the Bureau of Economic Analysis and the Board of Governors of the Federal Reserve System. GAO's simulations are from 2016 to 2065, using many Congressional Budget Office projections and assumptions, particularly for the next 10 years. The simulated operating balance is a measure of the sector's ability to cover its current expenditures out of current receipts. The simulated operating balance measure is all receipts, excluding funds used for long-term investments, minus current expenditures. To develop this measure, GAO subtracts funds used to finance longer-term projects-such as investments in buildings and roads-from receipts since these funds would not be available to cover current expenses. Similarly, GAO excludes capital-related expenditures from spending. While most states have requirements related to balancing their budgets, deficits can arise because of unanticipated events such as recessions. These deficits can occur because the planned annual revenues are not generated at the expected rate, demand for services exceeds planned expenditures, or both, resulting in a near-term operating deficit. States have tapped fiscal reserves to cope with revenue shortfalls during recessions, as indicated by their reported total balances, which are composed of general fund ending balances and amounts in state budget stabilization rainy day funds. Figure 1 depicts the state and local simulated operating balance only, and does not include fiscal reserves or other budget measures used to cope with revenue shortfalls. __ United States Government Accountability Office GAO-17-213SP

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