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United States Government Accountability Office
GAO State and Local Governments:
Persistent Fiscal Challenges Will Likely
Emerge within the Next Decade
GAO's State anid Local Fiscal
Simualations
For ov-er a decade (GAO has runi lonig-
terml simuilationls showving thatt absenit
at changl~e inl policy, the cominiled
effects (of demlogratphic chaniges anld
grow11ing~ health care costs drivNe evNer-
inlcreatsing( federal deficits anld debt
lev-els. Th e Comlptroller Gener~al hats
repeatedly wvarned that the curlrenit
fiscal pa:th of the federal gov-ernmlenit
i's imlpruldenit and illnsusftinable.
State and local giovernmen wits provide
an1 atrrayv of serv\ices to their residenits,
anld the federal giovernmilent relies (on
these giovernmiients to assist inl the
realizationl of natiol~ goals. S)tate- and
local fov eiill ei it, also rely ()Il federal
g'ranits to vrngextenits. These
subn)] ationial goveillnmenits mayt atlso
face fiscal stress. To provide Congre(Is
anld the puiblic wvith a broader nat ional
conitext, GAO) has developed at fiscal
mlodel (of fte state anld local sector.
The( GAO) state aid localmoe
projects the levNel of receipts anld
expeniditulres of the sector inl fulture
years based onl curr.1ent anld historical
spenlding anid rev-enule patternls. Inl the
'Ibse case modl e assumne thatt the
currlenit set (of policie's inl place atcross
federal, statte, anld local gfovernmllen t's
relmins conistant. Thel( primarty data
sour-ce for the miodel is the Nationtal
icomie anid Produict Accounits. Thel(
tillmeframle for. the sil1ation s paralflels
that of our] federal fisca l model the
simuilationis extenid unitil 2050. The
state anld local m1odel examllines the
ageaefiscal ouitcomles for. the
sector anld does nlot examlline the
coniditionl of anly inldividul stalte or.
local gfov ernmll ent.
Fornmore iniforimationi, conitact Stainleyv
,1. Czerwinlski at (202 ) 512-6520 or
c~'wnkg o! gov or Thomlas ..
McCool att (202) 512-86378 or
Figure 1: State and Local Receipts Net of Expenditures
Percentage of GDP
2.00
0.00
-2.00
-400 N
-6.00 -
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Year
-Receipts available to fund current expenditures
-.. Total receipts minus total expenditures
Source: GAO analysis.
Note: GDP is Gross Domestic Product.
Our simulations for the state and local government sector indicate that in
the absence of policy changes, large and growing fiscal challenges for the
sector will begin to emerge within the next few years. Figure 1 shows the
gap between receipts and expenditures of the sector. Historical data from
1980 to 2006 are graphed along with our model simulations beginning in
2007 and running through 2050. We measure this gap in two ways. In one
case we examine, for a given year, all receipts-including grants from the
federal government for infrastructure projects-and all expenditures-
including not only operating expenditures but also expenditures on such
items as investments in buildings and roads. This provides a balance
measure similar to the federal unified budget. While historically, total
expenditures have usually exceeded total receipts-and the sector
therefore issues debt to cover part of the cost of its capital projects-the
simulations suggest that the size of the gap will exceed the historical range
starting within the next decade.
GAO-07-1O8OSP July 18, 2007
GAO-07-1080SP
July 18, 2007](ViewImageLocal?handle=hein.gao/gaocrptaumm0001&div=1&collection=&method=preview&ext=.png&size=3)