State Government Fiscal Stress and Federal Assistance

This report examines the current status of state fiscal conditions and the role of federal assistance in state budgets. It begins with an overview of state budgeting procedures and then provides budgetary data comparing state fiscal conditions in FY2008 to FY2013. This report concludes with an assessment of the consequences current levels of state fiscal stress may have for the 113th Congress.

State Government Fiscal Stress and Federal Assistance Robert Jay Dilger Senior Specialist in American National Government February 4, 2014 Congressional Research Service 7-5700 www.crs.gov R41773 State Government Fiscal Stress and Federal Assistance Summary No two state budgets are alike. States have different budget cycles, different ways of preparing revenue estimates and forecasts, different requirements concerning their operating and capital budgets, different roles for their governors in the budget process, and different policies concerning the carrying over of operating budget deficits into the next fiscal year. Although no two state budgets are alike, all 50 states experienced heightened levels of fiscal stress during and immediately following the national economic recession, which officially lasted from December 2007 to June 2009. For example, state tax revenues from all sources, including sales, personal, and corporate income taxes, fell 10.3% (from $680.2 billion to $609.8 billion) from FY2008 to FY2010. The decline in state tax revenue, coupled with increased demand for social services and state-balanced operating budget requirements, created what the National Association of State Budget Officers (NASBO) characterized as “one of the worst time periods in state fiscal conditions since the Great Depression.” States closed nearly $230 billion in state budget shortfalls in FY2009 and FY2010; and $146.3 billion in state shortfalls in FY2011 and FY2012. Since then, state fiscal conditions have generally improved. In FY2013, state general fund spending surpassed pre-recession levels for the first time, reaching $693.7 billion, and 45 states increased their general fund spending in FY2013 compared with FY2012. Although state fiscal conditions have improved, state budgetary officials predict continuing budgetary challenges in virtually all states in FY2014, in part due to relatively slow state revenue growth, the need to replenish reserves, and increased costs for health care and other social services. Congressional interest in state budgetary finances has increased in recent years, primarily because state action to address budget shortfalls, such as increasing taxes, laying off or furloughing state employees, and postponing or eliminating state infrastructure projects, could have an adverse effect on the national economic recovery. Also, if states reduce their service levels there could be additional pressure for the federal government to either provide those services or to provide additional federal assistance to states. This report examines the current status of state fiscal conditions and the role of federal assistance in state budgets. It begins with an overview of state budgeting procedures and then provides budgetary data comparing state fiscal conditions in FY2008 to FY2013. The data indicate that (1) recent improvements in the national economy have enabled many states to increase their general fund spending, but states still face several fiscal challenges in part due to relatively slow state revenue growth, the need to replenish reserves, and increased costs for health care and other social services; (2) states are more reliant on federal assistance today than in FY2008; and (3) state officials anticipate an increase in federal assistance for Medicaid over the next several years, but they are concerned that federal budget constraints could lead to declines in federal assistance in other program areas. This report concludes with an assessment of the consequences current levels of state fiscal stress may have for the 113th Congress. Congressional Research Service State Government Fiscal Stress and Federal Assistance Contents State Budgets ................................................................................................................................... 1 State Budgetary Procedures ............................................................................................................. 3 Current State Operating Expenditures ....................................................................................... 4 The State Capital Budget ........................................................................................................... 5 Trends in State Expenditures ........................................................................................................... 5 Total State Expenditures ............................................................................................................ 6 State General Fund Expenditures ............................................................................................ 10 State Federal Funds Expenditures ........................................................................................... 12 Other State Funds Expenditures .............................................................................................. 15 State Bonds Expenditures ........................................................................................................ 18 State Capital Expenditures....................................................................................................... 21 Federal Assistance and State Fiscal Stress ..................................................................................... 23 Consequences for State Policy Makers.................................................................................... 23 Variations in State Fiscal Stress ..................................................................................................... 24 Consequences for Congress ..................................................................................................... 25 Benchmarks for Measuring Variation in State Fiscal Stress .................................................... 26 Issues with Using State General Fund Expenditures as a Benchmark .............................. 26 Measuring the Relative Size of State Governments .......................................................... 26 Concluding Observations............................................................................................................... 29 Figures Figure 1. Total State Expenditures for FY2000-FY2013, by Funding Source ................................ 9 Tables Table 1. Total State Expenditures (Capital Inclusive), FY2000-FY2013 ........................................ 6 Table 2. Change in Total State Expenditures, FY2008-FY2013 ...................................................... 7 Table 3. State General Fund Expenditures, FY2000-FY2013 ....................................................... 10 Table 4. Change in State General Fund Expenditures, FY2008-FY2013 ...................................... 11 Table 5. State Federal Funds Expenditures, FY2000-FY2013 ...................................................... 13 Table 6. Change in State Federal Funds Expenditures, FY2008-FY2013 ..................................... 13 Table 7. State Other Funds Expenditures, FY2000-FY2013 ......................................................... 15 Table 8. Change in Other State Funds Expenditures, FY2008-FY2013 ........................................ 16 Table 9. State Bonds Expenditures, FY2000-FY2013 ................................................................... 18 Table 10. Change in State Bonds Fund Expenditures, FY2008-FY2013 ...................................... 19 Table 11. Change in State Capital Fund Expenditures, FY2008-FY2013 ..................................... 21 Table 12. State Federal Funds Expenditures: Total Amount and as a Share of Total State Expenditures (Capital Inclusive), FY2000-FY2013 ................................................................... 23 Congressional Research Service State Government Fiscal Stress and Federal Assistance Table 13. Total State Expenditures, Per Capita FY2013 and as a Percentage of State GDP FY2012 ....................................................................................................................................... 27 Contacts Author Contact Information........................................................................................................... 30 Congressional Research Service State Government Fiscal Stress and Federal Assistance State Budgets No two state budgets are alike.1 For example, 29 states have an annual budget cycle, 19 states have a biennial budget cycle, and 2 states have an annual budget cycle for some agencies or purposes and a biennial budget cycle for others.2 Most states (46) begin their fiscal year on July 1, 2 states begin their fiscal year on October 1 (Alabama and Michigan), 1 state begins its fiscal year on September 1 (Texas), and 1 state begins its fiscal year on April 1 (New York).3 States also have different ways of preparing their revenue estimates and forecasts that project the amount of revenue that will be available based on current law to support operating costs and capital outlays in the current and future fiscal years. These revenue estimates are important because they establish the general parameters for the state’s budget at the outset of the budget process.4 The state budget office is solely responsible for revenue forecasting in 13 states, a board or commission is solely responsible in 11 states, and the state revenue office is solely responsible in 3 states. The remaining states use a combination of agencies or boards to develop their revenue forecasts.5 All but one state (Vermont) has some form of a balanced operating budget requirement, either in statute or in their state constitution, but the stringency of these requirements varies, ranging from having only a requirement that the governor submit a balanced operating budget for the legislature’s consideration (2 states) to having a prohibition against carrying a deficit forward and requirements that the governor propose, the legislature pass, and the governor sign a balanced operating budget (26 states).6 Overall, governors in 44 states must submit a balanced operating 1 The state expenditure data presented in this report are drawn from the National Association of State Budget Officers’ (NASBO) annual State Expenditure Reports. The data are self-reported by the states. In 2010, the Government Accountability Office (GAO) assessed the reliability of NASBO expenditure data for a report on state and local government use of funding provided by P.L. 111-5, the American Recovery and Reinvestment Act of 2009. GAO reviewed existing documentation related to the NASBO data sources and interviewed knowledgeable agency officials about the data. GAO determined that “the data are sufficiently reliable for the purposes of this report.” See U.S. Government Accountability Office, Recovery Act: Opportunities to Improve Management and Strengthen Accountability over States’ and Localities’ Use of Funds, GAO-10-999, September 20, 2010, p. 205, at http://www.gao.gov/new.items/d10999.pdf. GAO has also examined the reliability of NASBO’s semi-annual Fiscal Survey of States reports and found them to be reliable. See U.S. Government Accountability Office, State and Local Governments: Knowledge of Past Recessions Can Inform Future Federal Assistance, GAO-11-401, March 31, 2011, pp. 2, 52, at http://www.gao.gov/new.items/d11401.pdf. The Bureau of the Census also surveys state and local governments concerning their revenues and expenditures. NASBO data was used in this report because it includes more recent estimates. 2 National Association of State Budget Officers, Budget Processes in the States, Washington, DC, Summer 2008, p. 5, at http://www.nasbo.org/sites/default/files/BP_2008.pdf; and Ron Snell, “State Experiences With Annual and Biennial Budgeting,” National Conference of State Legislatures, April 2011, p. 1-3, at http://www.ncsl.org/research/fiscalpolicy/state-experiences-with-annual-and-biennial-budgeti.aspx. 3 National Association of State Budget Officers, Budget Processes in the States, Washington, DC, Summer 2008, p. 5, at http://www.nasbo.org/sites/default/files/BP_2008.pdf. 4 Ibid., pp. 3, 20. For further information and analysis of state revenue estimates see Susan K. Urahn and Thomas Gais, “States’ Revenue Estimating: Cracks in the Crystal Ball,” The Nelson Rockefeller Institute of Government and the Pew Center on the States, Washington, DC, at http://www.pewstates.org/uploadedFiles/PCS_Assets/2011/ States_Revenue_Estimating_final.pdf. 5 National Association of State Budget Officers, Budget Processes in the States, Washington, DC, Summer 2008, pp. 3, 20, at http://www.nasbo.org/sites/default/files/BP_2008.pdf. 6 Ibid., p. 40; and National Conference of State Legislatures, “NCSL Fiscal Brief: State Balanced Budget Provisions,” Washington, DC, October 2010, pp. 4, 5, at http://www.ncsl.org/documents/fiscal/ (continued...) Congressional Research Service 1 State Government Fiscal Stress and Federal Assistance budget for legislative consideration, state legislatures in 41 states must pass a balanced operating budget, the governor must sign a balanced operating budget in 37 states, and 43 states have a prohibition against carrying an operating budget deficit forward.7 Also, the extent of the governor’s authority in the budget process varies among the states. The governor can spend unanticipated federal funds in 30 states, reduce enacted budgets in 38 states, veto an item within the appropriations bill in 41 states, veto selected words in 15 states, and use the veto to change the meaning of words in 4 states.8 Although 43 states have a prohibition against carrying an operating budget deficit forward, all states incur debt to finance capital projects, typically subject to limits on debt service (31 states), levels of authorized debt (44 states), or both (29 states).9 State government debt was $1.148 trillion at the end of FY2012 (39.2% of total state and local government debt).10 Although no two state budgets are alike, all 50 states experienced heightened levels of fiscal stress during FY2009 and FY2010.11 The national economic recession, which officially lasted from December 2007 to June 2009, led to lower levels of economic activity throughout the nation and reduced state tax revenues. State tax revenues from all sources, including sales, personal, and corporate income taxes, fell from $680.2 billion in FY2008 to $609.8 billion in FY2010, a decline of 10.3%.12 The decline in state tax revenue, coupled with state balanced operating budget requirements, created what the National Association of State Budget Officers (NASBO) characterized as “one of the worst time periods in state fiscal conditions since the Great Depression.”13 For example, even with an additional $120.3 billion in temporary federal assistance provided through P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA) in FY2010, states reduced their general fund expenditures by 5.7% from FY2009 ($660.9 billion) to FY2010 ($623.4 billion), enacted $23.9 billion in increased taxes and fees, and raised an additional $7.5 billion through other revenue measures.14 (...continued) statebalancedbudgetprovisions2010.pdf. 7 National Association of State Budget Officers, Budget Processes in the States, Washington, DC, Summer 2008, pp. 29, 40, at http://www.nasbo.org/sites/default/files/BP_2008.pdf. 8 Ibid., pp. 29, 38. 9 Ibid., p. 43. 10 U.S. Census Bureau, State Government Finances Summary: 2012, Government Division Briefs, January 2014, p. 2, at http://www2.census.gov/govs/state/12statesummaryreport.pdf. For further analysis of state debt issues see CRS Report R41735, State and Local Government Debt: An Analysis, by Steven Maguire. 11 National Association of State Budget Officers, The Fiscal Survey of States, Washington, DC, Fall 2010, pp. vii, viii, at http://www.nasbo.org/sites/default/files/Fall%202010%20Fiscal%20Survey%20of%20States%20-%20Final.pdf. 12 National Association of State Budget Officers, The Fiscal Survey of States, Washington, DC, Fall 2011, pp. 4-6, at http://www.nasbo.org/sites/default/files/Fall%202010%20Fiscal%20Survey%20of%20States%20-%20Final.pdf. 13 National Association of State Budget Officers, The Fiscal Survey of States, Washington, DC, Fall 2010, p. vii, at http://www.nasbo.org/sites/default/files/Fall%202010%20Fiscal%20Survey%20of%20States%20-%20Final.pdf. 14 Ibid., pp. vii, viii; National Association of State Budget Officers, The Fiscal Survey of States, Washington, DC, Fall 2011, p. 4, at http://www.nasbo.org/sites/default/files/Fall%202010%20Fiscal%20Survey%20of%20States%20%20Final.pdf; and National Association of State Budget Officers, State Expenditure Report: Fiscal Year 2010, Washington, DC, December 2011, p. 2, at http://www.nasbo.org/sites/default/files/ 2010%20State%20Expenditure%20Report_0.pdf. Congressional Research Service 2 State Government Fiscal Stress and Federal Assistance States closed nearly $230 billion in state budget shortfalls in FY2009 and FY2010; and $146.3 billion in FY2011 and FY2012.15 Since then, state fiscal conditions have generally improved. In FY2013, state general fund spending surpassed pre-recession levels for the first time, reaching $693.7 billion, and 45 states increased their general fund spending in FY2013 compared with FY2012. Although state fiscal conditions have improved, state budgetary officials predict continuing budgetary challenges in virtually all states in FY2014, in part due to relatively slow state revenue growth, the need to replenish reserves, and increased costs for health care and other social services.16 Congressional interest in state budgetary finances has increased in recent years, primarily because state action to address budget shortfalls, such as increasing taxes, laying off or furloughing state employees, and postponing or eliminating state infrastructure projects, could have an adverse effect on the national economic recovery. This report examines the current status of state fiscal conditions and the role of federal assistance in state budgets. It begins with an overview of state budgeting procedures and then provides budgetary data comparing state fiscal conditions in FY2008 to FY2013. The data indicate that (1) recent improvements in the national economy have enabled many states to increase their general fund spending, but states still face several fiscal challenges in part due to relatively slow state revenue growth, the need to replenish reserves, and increased costs for health care and other social services; (2) states are more reliant on federal assistance today than in FY2008; and (3) state officials anticipate an increase in federal assistance for Medicaid over the next several years, but they are concerned that federal budget constraints could lead to declines in federal assistance in other program areas. This report concludes with an assessment of the consequences current levels of state fiscal stress may have for the 113th Congress. State Budgetary Procedures Unlike the federal government, states budget separately for current operating expenditures and for capital expenditures. As mentioned previously, virtually all states (except Vermont) have some form of a balanced operating budget requirement, and most states have restrictions on the amount of debt that they issue to finance capital projects.17 15 National Association of State Budget Officers, The Fiscal Survey of States, Washington, DC, Spring 2011, p. i, http://www.nasbo.org/sites/default/files/Fall%202010%20Fiscal%20Survey%20of%20States%20-%20Final.pdf; and National Association of State Budget Officers, The Fiscal Survey of States, Washington, DC, Spring 2012, p. vii, at http://www.nasbo.org/sites/default/files/Spring%202012%20Fiscal%20Survey_1.pdf. 16 National Association of State Budget Officers, “Facts You Should Know: State and Local Bankruptcy, Municipal Bonds, State and Local Pensions,” Washington, DC, 2010, at http://www.nasact.org/downloads/downloads/02_11state_local_fact_sheet.pdf; Dean Baker, “The Origins and Severity of the Public Pension Crisis,” Center for Economic and Policy Research, Washington, DC, February 2011, at http://www.cepr.net/documents/publications/pensions-201102.pdf; The Pew Center on the States, “The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road Ahead,” Washington, DC, February 2010, at http://www.pewstates.org/uploadedFiles/PCS_Assets/2010/ Trillion_Dollar_Gap_Underfunded_State_Retirement_Systems_and_the_Roads_to_Reform.pdf; The Pew Center on the States, “The Widening Gap Update,” Washington, DC, June 18, 2012, at http://www.pewstates.org/uploadedFiles/ PCS_Assets/2012/Pew_Pensions_Update.pdf; and CRS Report R41736, State and Local Pension Plans and Fiscal Distress: A Legal Overview, by Jennifer A. Staman. 17 National Association of State Budget Officers, Budget Processes in the States, Washington, DC, Summer 2008, pp. (continued...) Congressional Research Service 3 State Government Fiscal Stress and Federal Assistance Current State Operating Expenditures Most states account for their current operating expenditures through four budgets: • the state general fund budget refers to expenditures from revenues accruing to the state from taxes, fees, interest earnings, and other sources which can be used for the general operation of state government. • the state federal funds budget refers to expenditures from funds received directly from the federal government. • the other state funds budget refers to expenditures from revenue sources that are restricted by law for particular governmental functions or activities; for example, a gasoline tax dedicated to a state highway trust fund would appear in other state funds. • the state bonds budget refers to expenditures from the sale of bonds, generally for capital projects.18 In addition, 48 states (Kansas and Montana are the exceptions) have a state budget stabilization fund, budget reserve account, or “rainy day” fund to cover unanticipated revenue shortfalls.19 The amount of revenue set aside in these funds varies from state-to-state, generally ranging from 2% to 8% of state general fund expenditures.20 State end-of-year balances, which include ending balances and budget stabilization, budget reserve account, and “rainy day” funds, declined from 8.6% of total state general fund expenditures in FY2008 ($59.1 billion) to 5.2% in FY2010 ($32.5 billion). Since then, states have increased their budget reserves, with state end-of-year balances projected to be 8.2% of total state general fund expenditures in FY2014 ($56.7 billion).21 However, state budget officials note that the combined balances for Texas and Alaska ($8.3 billion and $16.5 billion, respectively) account for 43.8% of total state end-of-year balances. The remaining 48 states have average projected end-of-year balances of 4.9% of total state general fund expenditures. Most budget analysts suggest as an informal rule-of-thumb that states set aside at least 5% of state general fund expenditures for unanticipated budget shortfalls.22 In FY2014, 4 states are projecting end-of-year balances below 1% of total state general fund expenditures and 18 states are projecting end-of- (...continued) 40, 43, at http://www.nasbo.org/sites/default/files/BP_2008.pdf. 18 Ibid., p. 107; and National Association of State Budget Officers, State Expenditure Report: Fiscal Year 2009, Washington, DC, December 2010, p. 4, at http://www.nasbo.org/sites/default/files/2009-State-Expenditure-Report.pdf. 19 National Association of State Budget Officers, Budget Processes in the States, Washington, DC, Summer 2008, pp. 67-69, at http://www.nasbo.org/sites/default/files/BP_2008.pdf . 20 National Association of State Budget Officers, The Fiscal Survey of States, Washington, DC, Fall 2013, p. 57, at http://www.nasbo.org/publications-data/fiscal-survey-of-the-states. The procedures used to expend these funds vary from state-to-state, with some states requiring a majority vote of the state legislature and others requiring a super majority vote to access the funds. See National Association of State Budget Officers, Budget Processes in the States, Washington, DC, Summer 2008, p. 50, at http://www.nasbo.org/sites/default/files/BP_2008.pdf . 21 National Association of State Budget Officers, The Fiscal Survey of States, Washington, DC, Fall 2013, pp. 51, 57, at http://www.nasbo.org/publications-data/fiscal-survey-of-the-states. 22 Ibid., p. 51. Congressional Research Service 4 State Government Fiscal Stress and Federal Assistance year balances greater than 1% of total state general fund expenditures, but less than the recommended 5% level.23 The State Capital Budget The state capital budget is associated with the acquisition or construction of major capital projects, including land, buildings, structures, and major equipment. Minor repairs and routine maintenance are typically reported as operating expenses. Funds for capital projects traditionally have come primarily from non-general fund sources. In FY2012, funds for capital projects came from bonds (33.7%), dedicated fees and surpluses (30.5%), federal funds (30.4%), and state general funds (5.3%).24 State capital spending totaled $80.3 billion in FY2008, $84.2 billion in FY2009, $86.1 billion in FY2010, $86.4 billion in FY2011, $88.5 billion in FY2012, and an estimated $93.4 billion in FY2013.25 According to NASBO, the increase in state capital spending in FY2009 and FY2010 was at least partly due to increased federal funding provided by P.L. 111-5 (ARRA) and several ARRA bond provisions, such as Build America Bonds, Recovery Zone Economic Development Bonds, and School Construction Bonds.26 In FY2012, transportation projects accounted for 59.0% of all state capital expenditures, followed by higher education projects at 12.5%, environmental projects at 5.7%, housing projects at 1.9%, corrections projects at 1.3%, and other capital projects, such as public school facilities, zoo improvements, health care infrastructure, and sports facilities, at 19.6%.27 Trends in State Expenditures This section examines state expenditures, in nominal dollars, from FY2000 through FY2013, starting with total state expenditures (including the states’ capital budgets) and followed by the states’ four operating expenditures budgets (state general fund, federal funds, other state funds, and bonds). Changes in overall spending by all states combined and changes in spending by each state are examined. A comparison of state expenditures in FY2008 to FY2013 is also provided. FY2008 is used as a baseline for comparative purposes because FY2008 is used by many in Congress as the baseline for comparisons in federal budget debates.28 23 Ibid., p. 56. National Association of State Budget Officers, State Expenditure Report: Examining Fiscal Year 2011-2013 State Spending, Washington, DC, November 2013, p. 78, at http://www.nasbo.org/publications-data/state-expenditure-report. 25 National Association of State Budget Officers, State Expenditure Report: Fiscal Year 2009, Washington, DC, December 2010, p. 80, at http://www.nasbo.org/sites/default/files/2009-State-Expenditure-Report.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal Year 2011-2013 State Spending, Washington, DC, November 2013, p. 78, at http://www.nasbo.org/publications-data/state-expenditure-report. 26 For further analysis of Build America Bonds, Recovery Zone Economic Development Bonds, and School Construction Bonds, see CRS Report R40523, Tax Credit Bonds: Overview and Analysis, by Steven Maguire. 27 National Association of State Budget Officers, State Expenditure Report: Examining Fiscal Year 2011-2013 State Spending, Washington, DC, November 2013, pp. 81-86, at http://www.nasbo.org/publications-data/state-expenditurereport. 28 For example, H.Res. 38, Reducing non-security spending to fiscal year 2008 levels or less (112th Congress), was passed by the House of Representatives, by a vote of 256-165, on January 25, 2011. 24 Congressional Research Service 5 State Government Fiscal Stress and Federal Assistance Total State Expenditures As shown in Table 1, total state expenditures (capital inclusive) increased every fiscal year from FY2000 through FY2011, declined slightly in FY2012, and increased in FY2013. The decline in FY2012 was primarily due to a combination of relatively slow state revenue growth, state balanced operating budget requirements, and the expiration of ARRA-funded state federal assistance. Table 1. Total State Expenditures (Capital Inclusive), FY2000-FY2013 ($ in millions) FY Total Amount of State Expenditures Change in Total Amount of State Expenditures from Previous FY % Change in Total Amount of State Expenditures from Previous FY 2000 $946,086 $65,834 7.48% 2001 $1,015,813 $69,727 7.37% 2002 $1,088,207 $72,394 7.13% 2003 $1,127,261 $39,054 3.59% 2004 $1,181,330 $54,069 4.80% 2005 $1,266,396 $85,066 7.20% 2006 $1,343,118 $76,722 6.06% 2007 $1,425,028 $81,910 6.10% 2008 $1,478,782 $53,754 3.77% 2009 $1,558,416 $79,634 5.38% 2010 $1,617,118 $58,702 3.77% 2011 $1,663,097 $45,979 2.84% 2012 $1,634,192 ($28,905) (1.74%) 2013 est. $1,719,780 $85,588 5.24 % Source: National Association of State Budget Officers, State Expenditure Report [FYs 2000-2009], Washington, DC, all p. 2, at http://www.nasbo.org/publications-data/state-expenditure-report/archives; National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2010-2012 State Spending, Washington, DC, December 2012, p. 7, at http://www.nasbo.org/sites/default/files/State%20Expenditure%20Report_1.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. As shown in Table 2, in FY2013, total estimated state expenditures (capital inclusive) are projected to be about $241.0 billion higher than in FY2008 ($1,719,780 million compared with $1,478,782 million). In FY2013, 2 states (Nevada, and Vermont) had a lower level of total state expenditures than in FY2008, and 48 states had a higher level of total state expenditures. Congressional Research Service 6 State Government Fiscal Stress and Federal Assistance Table 2. Change in Total State Expenditures, FY2008-FY2013 ($ in millions) State Total State Expenditures, FY2008 Total State Expenditures, FY2013 est. Change in Total State Expenditures, FY2008 Compared with FY2013 Alabama $19,840 $24,117 $4,277 Alaska $11,656 $12,142 $486 Arizona $25,247 $29,293 $4,046 Arkansas $16,899 $21,585 $4,686 California $194,276 $227,881 $33,605 Colorado $25,129 $28,479 $3,350 Connecticut $24,270 $28,138 $3,868 $8,621 $9,162 $541 Florida $64,379 $69,975 $5,596 Georgia $38,494 $41,074 $2,580 Hawaii $11,160 $11,584 $424 Idaho $5,932 $7,242 $1,310 Illinois $44,566 $66,447 $21,881 Indiana $24,239 $27,766 $3,527 Iowa $16,129 $19,609 $3,480 Kansas $12,689 $14,405 $1,716 Kentucky $22,995 $25,673 $2,678 Louisiana $28,888 $29,662 $774 $7,427 $7,798 $371 Maryland $30,408 $36,974 $6,566 Massachusetts $43,807 $60,298 $16,491 Michigan $43,982 $48,748 $4,766 Minnesota $28,446 $35,766 $7,320 Mississippi $15,539 $19,417 $3,878 Missouri $21,432 $22,943 $1,511 Montana $5,357 $6,040 $683 Nebraska $8,711 $10,163 $1,452 Nevada $9,240 $8,893 ($347) New Hampshire $4,807 $5,024 $217 New Jersey $48,704 $52,085 $3,381 New Mexico $14,207 $14,543 $336 $116,056 $133,097 $17,041 $41,588 $51,389 $9,801 Delaware Maine New York North Carolina Congressional Research Service 7 State Government Fiscal Stress and Federal Assistance State North Dakota Total State Expenditures, FY2008 Total State Expenditures, FY2013 est. Change in Total State Expenditures, FY2008 Compared with FY2013 $3,597 $5,939 $2,342 Ohio $56,763 $58,268 $1,505 Oklahoma $20,730 $21,430 $700 Oregon $22,174 $25,806 $3,632 Pennsylvania $58,696 $67,880 $9,184 Rhode Island $7,118 $8,133 $1,015 South Carolina $20,787 $22,300 $1,513 South Dakota $3,217 $4,131 $914 Tennessee $26,033 $31,453 $5,420 Texas $81,097 $96,925 $15,828 Utah $11,323 $12,603 $1,280 $5,308 $4,960 Virginia $35,330 $44,595 $9,265 Washington $31,732 $33,202 $1,470 West Virginia $18,710 $23,363 $4,653 Wisconsin $36,089 $42,769 $6,680 Wyoming $4,958 $8,611 $3,653 $1,478,782 $1,719,780 $240,998 Vermont Total ($348) Source: CRS computations from National Association of State Budget Officers, State Expenditure Report: FY2009, Washington, DC, p. 6, at http://www.nasbo.org/sites/default/files/2009-State-Expenditure-Report.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: Total state expenditures include expenditures from the state’s general fund account, federal funds account, other state funds, and bonds. FY2013 total state expenditures are estimated from state budget documents. As shown in Figure 1, the share of total state expenditures held by the states’ four operating expenditures budgets were relatively stable from FY2000 to FY2008, and then shifted from FY2008 to FY2013, with an increased reliance on federal funds, especially in FY2010 and FY2011. For example, in FY2008, the states’ general fund expenditures accounted for 45.9% of total state expenditures, federal funds expenditures accounted for 26.3%, other state funds expenditures accounted for 25.5%, and state bonds expenditures accounted for 2.3%. State budget officials anticipate that in FY2013 the states’ general fund expenditures will account for 40.3% of total state expenditures, followed by federal funds expenditures (30.7%), other state funds expenditures (26.5%), and state bonds expenditures (2.5%).29 29 National Association of State Budget Officers, State Expenditure Report: Examining Fiscal Year 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Congressional Research Service 8 State Government Fiscal Stress and Federal Assistance The states’ increased reliance on federal funds in FY2009, FY2010, and FY2011 was primarily attributed to temporary increases in federal funding to states under ARRA. More recently, the state’s increased reliance on federal funds has been primarily attributed to increases in federal funding to states for health care (primarily Medicaid). In FY2008, Medicaid accounted for 20.5% of total state expenditures. In FY2013, Medicaid is anticipated to account for 24.5% of total state expenditures.30 Figure 1.Total State Expenditures for FY2000-FY2013, by Funding Source (% of total state expenditures) 50% 45% State general fund 40% 35% Federal funds 30% 25% Other state funds 20% 15% 10% 5% State bonds 0% Source: National Association of State Budget Officers, State Expenditure Report [FYs 2000-2009], Washington, DC, all p. 2, at http://www.nasbo.org/publications-data/state-expenditure-report/archives; National Association of State Budget Officers, FY2010 State Expenditure Report, Washington, DC, December 2011, p. 7, at http://www.nasbo.org/sites/default/files/2010%20State%20Expenditure%20Report_0.pdf; National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2010-2012 State Spending, Washington, DC, December 2012, p. 2, at http://www.nasbo.org/sites/default/files/State%20Expenditure%20Report_1.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: FY2013 total state expenditures and share from the state general fund, federal funds, other state funds, and state bonds are estimated from state budget documents. 30 Ibid., p. 2. Congressional Research Service 9 State Government Fiscal Stress and Federal Assistance State General Fund Expenditures As shown in Table 3, state general fund expenditures declined in FY2003 (following the recession of March 2001 through November 2001), and in FY2009 and FY2010 (following the recession of December 2007 through June 2009). Since then, state general fund expenditures have increased, and are expected to exceed pre-recession levels in FY2013. Table 3. State General Fund Expenditures, FY2000-FY2013 ($ in millions) FY State General Fund Expenditures Change in State General Fund Expenditures from Previous FY % Change in State General Fund Expenditures from Previous FY 2000 $454,198 $32,728 7.77% 2001 $488,458 $34,260 7.54% 2002 $499,051 $10,593 2.17% 2003 $492,994 ($6,057) -1.21% 2004 $509,696 $16,702 3.39% 2005 $553,186 $43,490 8.53% 2006 $600,072 $46,886 8.48% 2007 $651,280 $51,208 8.53% 2008 $678,911 $27,631 4.24% 2009 $659,449 ($19,462) -2.87% 2010 $616,527 ($42,922) -6.51% 2011 $640,761 $24,234 3.93% 2012 $664,729 $23,968 3.74% 2013 est. $693,688 $28,959 4.35% Source: National Association of State Budget Officers, State Expenditure Report [FYs 2000-2009], Washington, DC, all p. 2, at http://www.nasbo.org/publications-data/state-expenditure-report/archives; National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2010-2012 State Spending, Washington, DC, December 2012, p. 7, at http://www.nasbo.org/sites/default/files/State%20Expenditure%20Report_1.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: FY2013 total state general fund expenditures are estimated from state budget documents. As shown in Table 4, in FY2013, 20 states had a lower level of state general fund expenditures than in FY2008, and 30 states had a higher level of state general fund expenditures. Congressional Research Service 10 State Government Fiscal Stress and Federal Assistance Table 4. Change in State General Fund Expenditures, FY2008-FY2013 ($ in millions) State State General Fund Expenditures, FY2008 State General Fund Expenditures, FY2013 est. Change in State General Fund Expenditures, FY2008 Compared to FY2013 Alabama $8,460 $6,897 ($1,563) Alaska $5,090 $7,301 $2,211 Arizona $10,368 $8,567 ($1,801) Arkansas $4,274 $4,746 California $102,986 $95,665 Colorado $7,908 $7,942 $34 $16,627 $19,030 $2,403 $3,422 $3,659 $237 Florida $27,513 $24,717 Georgia $17,934 $18,303 $369 Hawaii $5,407 $5,666 $259 Idaho $2,799 $2,699 ($100) Illinois $22,140 $29,260 $7,120 Indiana $12,880 $14,189 $1,309 Iowa $5,867 $6,231 $364 Kansas $6,102 $6,198 $96 Kentucky $9,334 $9,426 $92 Louisiana $10,372 $8,156 ($2,216) $3,084 $3,042 ($42) Maryland $14,488 $15,119 $631 Massachusetts $28,934 $25,509 ($3,425) $9,822 $9,164 ($658) Minnesota $17,600 $20,056 Mississippi $4,842 $4,699 ($143) Missouri $8,084 $8,022 ($62) Montana $1,901 $1,947 $46 Nebraska $3,247 $3,590 $343 Nevada $4,031 $3,179 ($852) New Hampshire $1,515 $1,262 ($253) New Jersey $33,112 $31,618 ($1,494) New Mexico $6,027 $5,656 ($371) New York $53,385 $58,960 $5,575 North Carolina $20,376 $20,602 $226 Connecticut Delaware Maine Michigan Congressional Research Service $472 ($7,321) ($2,796) $2,456 11 State Government Fiscal Stress and Federal Assistance State North Dakota State General Fund Expenditures, FY2008 State General Fund Expenditures, FY2013 est. Change in State General Fund Expenditures, FY2008 Compared to FY2013 $1,204 $2,220 $1,016 $25,722 $31,514 $5,792 Oklahoma $6,793 $6,892 $99 Oregon $6,601 $5,960 ($641) Pennsylvania $26,969 $27,761 $792 Rhode Island $3,405 $3,268 ($137) South Carolina $7,149 $6,350 ($799) South Dakota $1,176 $1,302 $126 Tennessee $11,570 $12,622 $1,052 Texas $41,184 $43,521 $2,337 Utah $5,784 $4,990 ($794) Vermont $1,225 $977 ($248) Virginia $15,099 $17,691 $2,592 Washington $14,616 $15,633 $1,017 $3,824 $4,159 $335 Wisconsin $13,527 $14,042 $515 Wyoming $3,132 $3,709 $577 $678,911 $693,688 $14,777 Ohio West Virginia Total Source: CRS computations from National Association of State Budget Officers, State Expenditure Report: FY2009, Washington, DC, p. 6, at http://www.nasbo.org/sites/default/files/2009-State-Expenditure-Report.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: FY2013 state general fund expenditures are estimated from state budget documents. State Federal Funds Expenditures As shown in Table 5, state federal funds expenditures increased in every fiscal year from FY2000 through FY2011, with relatively large increases in FY2009 and FY2010. State federal funds expenditures declined in FY2012, primarily due to the expiration of temporary ARRA-related federal funding to states. State federal funds expenditures are expected to increase somewhat in FY2013, primarily due to anticipated increased federal funding for Medicaid. Congressional Research Service 12 State Government Fiscal Stress and Federal Assistance Table 5. State Federal Funds Expenditures, FY2000-FY2013 ($ in millions) FY State Federal Funds Expenditures Change in State Federal Funds Expenditures from Previous FY % Change in State Federal Funds Expenditures from Previous FY 2000 $241,317 $15,359 6.80% 2001 $260,567 $19,250 7.98% 2002 $295,752 $35,185 13.50% 2003 $325,102 $29,350 9.92% 2004 $343,561 $18,459 5.68% 2005 $365,787 $22,226 6.47% 2006 $368,668 $2,881 0.79% 2007 $379,271 $10,603 2.88% 2008 $388,184 $8,913 2.35% 2009 $462,980 $74,796 19.27% 2010 $562,255 $99,275 21.44% 2011 $567,694 $5,439 0.97% 2012 $516,211 ($51,483) -9.07% 2013 est. $528,071 $11,860 2.25% Source: National Association of State Budget Officers, State Expenditure Report [FYs 2000-2009], Washington, DC, all p. 2, at http://www.nasbo.org/publications-data/state-expenditure-report/archives; National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2010-2012 State Spending, Washington, DC, December 2012, p. 7, at http://www.nasbo.org/sites/default/files/State%20Expenditure%20Report_1.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: FY2013 total state federal funds expenditures are estimated from state budget documents. As shown in Table 6, state federal funds expenditures are anticipated to be nearly $139.9 billion higher in FY2013 than in FY2008. In FY2013, 2 states (Louisiana and Oklahoma) had a lower level of federal funds expenditures than in FY2008, and 48 states had a higher level of federal funds expenditures. Table 6. Change in State Federal Funds Expenditures, FY2008-FY2013 ($ in millions) State State Federal Funds Expenditures, FY2008 State Federal Fund Expenditures, FY2013 est. Change in State Federal Fund Expenditures, FY2008 Compared to FY2013 Alabama $6,291 $9,541 $3,250 Alaska $2,314 $2,902 $588 Arizona $7,820 $12,332 $4,512 Arkansas $4,806 $6,189 $1,383 Congressional Research Service 13 State Government Fiscal Stress and Federal Assistance State State Federal Funds Expenditures, FY2008 State Federal Fund Expenditures, FY2013 est. Change in State Federal Fund Expenditures, FY2008 Compared to FY2013 California $56,211 $81,299 $25,088 Colorado $4,739 $7,334 $2,595 Connecticut $2,117 $2,555 $438 Delaware $1,113 $1,783 $670 Florida $18,754 $24,737 $5,983 Georgia $10,268 $11,752 $1,484 Hawaii $1,760 $1,912 $152 Idaho $2,005 $2,792 $787 Illinois $11,073 $15,407 $4,334 Indiana $7,818 $10,357 $2,539 Iowa $4,565 $5,682 $1,117 Kansas $3,522 $3,599 $77 Kentucky $6,720 $8,001 $1,281 Louisiana $12,883 $12,311 ($572) Maine $2,182 $2,564 $382 Maryland $6,561 $11,811 $5,250 Massachusetts $2,525 $15,548 $13,023 $12,660 $19,295 $6,635 Minnesota $6,264 $8,637 $2,373 Mississippi $6,434 $8,274 $1,840 Missouri $5,632 $7,209 $1,577 Montana $1,646 $2,115 $469 Nebraska $2,411 $3,014 $603 Nevada $1,780 $2,918 $1,138 New Hampshire $1,498 $1,601 $103 New Jersey $8,851 $12,485 $3,634 New Mexico $4,506 $5,660 $1,154 New York $34,680 $38,574 $3,894 North Carolina $10,914 $17,459 $6,545 North Dakota $1,241 $1,621 $380 Ohio $9,655 $12,630 $2,975 Oklahoma $9,030 $6,516 ($2,514) Oregon $4,625 $7,452 $2,827 Pennsylvania $18,037 $24,144 $6,107 Rhode Island $1,939 $2,659 $720 Michigan Congressional Research Service 14 State Government Fiscal Stress and Federal Assistance State State Federal Funds Expenditures, FY2008 State Federal Fund Expenditures, FY2013 est. Change in State Federal Fund Expenditures, FY2008 Compared to FY2013 South Carolina $6,654 $7,792 $1,138 South Dakota $1,182 $1,487 $305 Tennessee $9,343 $13,055 $3,712 Texas $25,023 $33,147 $8,124 Utah $2,503 $3,405 $902 Vermont $1,312 $1,662 $350 Virginia $6,342 $9,546 $3,204 Washington $6,678 $7,744 $1,066 West Virginia $3,287 $4,394 $1,107 Wisconsin $7,534 $10,815 $3,281 Wyoming $476 $2,353 $1,877 $388,184 $528,071 $139,887 Total Source: CRS computations from National Association of State Budget Officers, State Expenditure Report: FY2009, Washington, DC, p. 6, at http://www.nasbo.org/sites/default/files/2009-State-Expenditure-Report.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: FY2013 state federal fund expenditures are estimated from state budget documents. Other State Funds Expenditures As shown in Table 7, total state other funds expenditures increased in each fiscal year from FY2000 to FY2011, declined somewhat in FY2012, and increased in FY2013. Table 7. State Other Funds Expenditures, FY2000-FY2013 ($ in millions) FY State Other Funds Expenditures Change in State Other Funds Expenditures from Previous FY 2000 $230,684 $17,067 7.99% 2001 $243,918 $13,234 5.74% 2002 $265,918 $22,000 9.02% 2003 $275,361 $9,443 3.55% 2004 $297,685 $22,324 8.11% 2005 $319,517 $21,832 7.33% 2006 $344,550 $25,033 7.83% 2007 $358,688 $14,138 4.10% Congressional Research Service % Change in State Other Funds Expenditures from Previous FY 15 State Government Fiscal Stress and Federal Assistance FY State Other Funds Expenditures Change in State Other Funds Expenditures from Previous FY 2008 $376,894 $18,206 5.08% 2009 $400,059 $23,165 6.15% 2010 $402,527 $2,468 0.62% 2011 $416,443 $13,916 3.46% 2012 $416,226 2013 est. $455,137 ($217) $38,911 % Change in State Other Funds Expenditures from Previous FY (0.05%) 9.35% Source: National Association of State Budget Officers, State Expenditure Report [FYs 2000-2009], Washington, DC, all p. 2, at http://www.nasbo.org/publications-data/state-expenditure-report/archives; National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2010-2012 State Spending, Washington, DC, December 2012, p. 7, at http://www.nasbo.org/sites/default/files/State%20Expenditure%20Report_1.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: FY2013 total state other funds expenditures are estimated from state budget documents. As shown in Table 8, other state funds expenditures increased about $78.2 billion from FY2008 to FY2013, with 9 states having a lower level of other state funds expenditures in FY2013 than in FY2008, and 41 states having a higher level of other state funds expenditures. Table 8. Change in Other State Funds Expenditures, FY2008-FY2013 ($ in millions) State Other State Funds Expenditures, FY2008 Other State Funds Expenditures, FY2013 est. Change in Other State Funds Expenditures, FY2008 Compared to FY2013 Alabama $4,537 $7,490 $2,953 Alaska $4,226 $1,389 ($2,837) Arizona $6,405 $7,624 $1,219 Arkansas $7,756 $10,447 $2,691 California $26,674 $38,656 $11,982 Colorado $12,482 $13,203 $721 Connecticut $3,494 $3,618 $124 Delaware $3,811 $3,281 ($530) Florida $14,916 $18,437 $3,521 Georgia $8,773 $10,211 $1,438 Hawaii $3,376 $3,271 ($105) Idaho $1,097 $1,718 $621 Illinois $11,047 $19,825 $8,778 Indiana $3,380 $3,220 Congressional Research Service ($160) 16 State Government Fiscal Stress and Federal Assistance State Other State Funds Expenditures, FY2008 Other State Funds Expenditures, FY2013 est. Change in Other State Funds Expenditures, FY2008 Compared to FY2013 Iowa $5,668 $7,539 $1,871 Kansas $2,787 $4,193 $1,406 Kentucky $6,941 $8,246 $1,305 Louisiana $5,342 $8,791 $3,449 Maine $2,053 $2,176 $123 Maryland $8,520 $8,909 $389 Massachusetts $10,928 $17,135 $6,207 Michigan $21,081 $20,107 ($974) Minnesota $3,891 $6,263 $2,372 Mississippi $4,029 $5,660 $1,631 Missouri $7,165 $7,712 $547 Montana $1,810 $1,978 $168 Nebraska $3,053 $3,559 $506 3,028 $2,769 ($259) New Hampshire $1,680 $2,080 $400 New Jersey $5,233 $6,735 $1,502 New Mexico $3,091 $3,227 $136 New York $26,122 $32,305 $6,183 North Carolina $10,098 $12,543 $2,445 North Dakota $1,125 $2,072 $947 $20,633 $12,950 ($7,683) $4,803 $7,878 $3,075 Oregon $10,763 $12,262 $1,499 Pennsylvania $12,952 $15,175 $2,223 Rhode Island $1,589 $2,122 $533 South Carolina $6,866 $8,158 $1,292 $842 $1,307 $465 $4,969 $5,394 $425 Texas $12,634 $18,318 $5,684 Utah $3,033 $3,739 $706 Vermont $2,734 $2,248 ($486) $13,040 $16,191 $8,617 $7,809 West Virginia $11,422 $14,736 $3,314 Wisconsin $15,028 $17,912 $2,884 Nevada Ohio Oklahoma South Dakota Tennessee Virginia Washington Congressional Research Service $3,151 ($808) 17 State Government Fiscal Stress and Federal Assistance State Wyoming Total Other State Funds Expenditures, FY2013 est. Change in Other State Funds Expenditures, FY2008 Compared to FY2013 $1,350 $2,549 $1,199 $376,894 $455,137 $78,243 Other State Funds Expenditures, FY2008 Source: CRS computations from National Association of State Budget Officers, State Expenditure Report: FY2009, Washington, DC, p. 6, at http://www.nasbo.org/sites/default/files/2009-State-Expenditure-Report.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: FY2013 state other state fund expenditures are estimated from state budget documents. State Bonds Expenditures As shown in Table 9, state bonds expenditures have been relatively volatile from FY2000 through FY2013. Over this time period, state bond expenditures increased nine times from the previous fiscal year and decreased five times. Overall, state bond expenditures have more than doubled since FY2000, increasing from nearly $19.9 billion in FY2000 to a projected $42.9 billion in FY2013. Table 9. State Bonds Expenditures, FY2000-FY2013 ($ in millions) FY State Bonds Expenditures Change in State Bonds Expenditures from Previous FY % Change in State Bonds Expenditures from Previous FY 2000 $19,887 $680 3.54% 2001 $22,870 $2,983 15.00% 2002 $27,486 $4,616 20.18% 2003 $33,804 $6,318 22.99% 2004 $30,388 ($3,416) -10.11% 2005 $27,906 ($2,482) -8.17% 2006 $29,828 $1,922 6.89% 2007 $35,789 $5,961 19.98% 2008 $34,793 2009 $35,928 2010 $35,809 2011 $38,199 $2,310 6.45% 2012 $37,026 ($-1,173) -3.07% 2013 est. $42,884 $5,858 15.82% ($996) $1,135 ($119) -2.78% 3.26% -0.33% Source: National Association of State Budget Officers, State Expenditure Report [FYs 2000-2009], Washington, DC, all p. 2, at http://www.nasbo.org/publications-data/state-expenditure-report/archives; National Association of State Budget Officers, State Expenditure Report: Examining Fiscal Year 2010-2012 State Spending, Washington, DC, December 2012, p. 7, at http://www.nasbo.org/sites/default/files/State%20Expenditure%20Report_1.pdf; and Congressional Research Service 18 State Government Fiscal Stress and Federal Assistance National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: FY2013 total state bonds expenditures are estimated from state budget documents. As shown in Table 10, state bonds expenditures increased about $8.1 billion from FY2008 to FY2013, with 10 states (Colorado, Indiana, Kentucky, Missouri, Montana, Nebraska, New Mexico, South Carolina, Wisconsin, and Wyoming) having no state bonds fund expenditures in FY2013. Overall, 17 states anticipate having a lower level of state bonds fund expenditures in FY2013 than in FY2008, 6 states anticipate having the same amount, and 27 states anticipate having a higher level of state bonds fund expenditures. Table 10. Change in State Bonds Fund Expenditures, FY2008-FY2013 ($ in millions) State Alabama State Bonds Fund Expenditures, FY2008 State Bonds Fund Expenditures, FY2013 est. Change in State Bonds Fund Expenditures, FY2008 Compared to FY2013 $552 $189 ($363) Alaska $26 $550 $524 Arizona $654 $770 $116 Arkansas $63 $203 $140 California $8,405 $12,261 $3,856 Colorado $0 $0 $0 $2,032 $2,935 $903 $275 $439 $164 Florida $3,196 $2,084 ($1,112) Georgia $1,519 $808 ($711) Hawaii $617 $735 $118 Idaho $31 $33 $2 Illinois $306 $1,955 $1,649 Indiana $161 $0 $29 $157 $128 $278 $415 $137 Kentucky $0 $0 $0 Louisiana $291 $404 $113 Maine $108 $16 ($92) Maryland $839 $1,135 $296 $1,420 $2,106 $686 Michigan $419 $182 ($237) Minnesota $691 $810 $119 Mississippi $234 $784 $550 Connecticut Delaware Iowa Kansas Massachusetts Congressional Research Service ($161) 19 State Government Fiscal Stress and Federal Assistance State State Bonds Fund Expenditures, FY2008 State Bonds Fund Expenditures, FY2013 est. Change in State Bonds Fund Expenditures, FY2008 Compared to FY2013 Missouri $551 $0 Montana $0 $0 $0 Nebraska $0 $0 $0 401 $27 ($374) $114 $81 ($33) $1,508 $1,247 ($261) $583 $0 ($583) $1,869 $3,258 $1,389 North Carolina $200 $785 $585 North Dakota $27 $26 Ohio $753 $1,174 $421 Oklahoma $104 $144 $40 Oregon $185 $132 ($53) Pennsylvania $738 $800 $62 Rhode Island $185 $84 ($101) South Carolina $118 $0 ($118) South Dakota $17 $35 $18 $151 $382 $231 $2,256 $1,939 $3 $469 $466 $37 $73 $36 $849 $1,167 $318 $1,821 $2,016 $195 $177 $74 Wisconsin $0 $0 $0 Wyoming $0 $0 $0 $34,793 $42,884 $8,091 Nevada New Hampshire New Jersey New Mexico New York Tennessee Texas Utah Vermont Virginia Washington West Virginia Total ($551) ($1) ($317) ($103) Source: CRS computations from National Association of State Budget Officers, State Expenditure Report: FY2009, Washington, DC, p. 6, at http://www.nasbo.org/sites/default/files/2009-State-Expenditure-Report.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: FY2013 state bonds fund expenditures are estimated from state budget documents. Congressional Research Service 20 State Government Fiscal Stress and Federal Assistance State Capital Expenditures The total state expenditures amounts presented in Table 2 included state capital expenditures. State capital spending totaled $80.3 billion in FY2008, $84.2 billion in FY2009, $85.9 billion in FY2010, $86.4 billion in FY2011, $88.5 billion in FY2012, and an estimated $93.4 billion in FY2013.31 As shown in Table 11, three states (Montana, South Carolina, and Wisconsin) reported that they did not anticipate making any state capital expenditures in FY2013. Overall, 18 states anticipate having a lower level of state capital expenditures in FY2013 than in FY2008, 3 states anticipate having the same amount, and 29 states anticipate having a higher level of state capital expenditures. Table 11. Change in State Capital Fund Expenditures, FY2008-FY2013 ($ in millions) State State Capital Fund Expenditures, FY2008 State Capital Fund Expenditures, FY2013 est. Change in State Capital Fund Expenditures, FY2008 Compared to FY2013 Alabama $1,256 $860 Alaska $2,606 $3,683 $1,077 Arizona $1,234 $1,474 $240 Arkansas $107 $101 California $5,210 $9,754 Colorado $1,798 $282 Connecticut $2,032 $3,063 $1,031 $652 $652 $0 Florida $12,671 $10,264 ($2,407) Georgia $3,229 $2,158 ($1,071) Hawaii $1,047 $1,175 $128 Idaho $479 $558 $79 Illinois $2,378 $4,482 $2,104 Indiana $477 $201 Iowa $598 $1,036 $438 Kansas $782 $1,040 $258 Kentucky $875 $697 Louisiana $1,710 $1,884 $174 $235 $315 $80 $2,980 $3,685 $705 Delaware Maine Maryland ($396) ($6) $4,544 ($1,516) ($276) ($178) 31 National Association of State Budget Officers, State Expenditure Report: Fiscal Year 2009, Washington, DC, December 2010, p. 80, at http://www.nasbo.org/sites/default/files/2009-State-Expenditure-Report.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 80, at http://www.nasbo.org/publications-data/state-expenditure-report. Congressional Research Service 21 State Government Fiscal Stress and Federal Assistance State State Capital Fund Expenditures, FY2008 State Capital Fund Expenditures, FY2013 est. Change in State Capital Fund Expenditures, FY2008 Compared to FY2013 Massachusetts $1,985 $2,754 $769 Michigan $1,832 $2,492 $660 Minnesota $1,503 $1,843 $340 Mississippi $1,384 $1,468 $84 Missouri $223 $108 Montana $0 $0 $0 Nebraska $851 $1,010 $159 Nevada 1,240 $526 ($714) New Hampshire $300 $244 ($56) $4,896 $4,250 ($646) $866 $220 ($646) $6,131 $7,540 $1,409 $0 $3,491 $3,491 $403 $838 $435 Ohio $3,004 $3,007 $3 Oklahoma $1,572 $1,626 $54 Oregon $310 $147 ($163) Pennsylvania $738 $800 $62 Rhode Island $429 $363 ($66) South Carolina $436 $0 ($436) South Dakota $74 $86 $12 $1,609 $1,758 $149 $148 $3,213 $3,065 $1,735 $1,551 $225 $332 Virginia $1,192 $1,034 ($158) Washington $3,576 $3,434 ($142) West Virginia $1,091 $1,633 $542 Wisconsin $0 $0 $0 Wyoming $239 $245 $6 $80,348 $93,377 $13,029 New Jersey New Mexico New York North Carolina North Dakota Tennessee Texas Utah Vermont Total ($115) ($184) $107 Source: CRS computations from National Association of State Budget Officers, State Expenditure Report: FY2009, Washington, DC, p. 82, at http://www.nasbo.org/sites/default/files/2009-State-Expenditure-Report.pdf; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 80, at http://www.nasbo.org/publications-data/state-expenditure-report. Notes: FY2013 state capital fund expenditures are estimated from state budget documents. Congressional Research Service 22 State Government Fiscal Stress and Federal Assistance Federal Assistance and State Fiscal Stress As the data in the preceding tables indicate, states were more reliant on federal assistance in FY2013 than they were in FY2008. Over this time period, state federal funds expenditures increased $139.9 billion, compared to an increase of $14.8 billion in state general funds expenditures, an increase of $78.2 billion in state other state funds expenditures, and an increase of $8.1 billion in state bonds expenditures. As shown in Table 12, state federal funds expenditures, as a share of total state expenditures, peaked at 34.8% in FY2010, and is anticipated to be about 30.7% in FY2013. Table 12. State Federal Funds Expenditures: Total Amount and as a Share of Total State Expenditures (Capital Inclusive), FY2000-FY2013 ($ in millions) FY Total Amount of State Federal Assistance % Share of Total State Expenditures 2000 $241,317 26.0% 2001 $260,567 25.8% 2002 $295,752 26.9% 2003 $325,102 28.7% 2004 $343,561 29.5% 2005 $365,787 28.9% 2006 $368,668 27.8% 2007 $379,271 26.5% 2008 $388,184 26.3% 2009 $462,980 29.7% 2010 $562,255 34.8% 2011 $567,694 34.1% 2012 $516,211 31.6% 2013 est. $528,071 30.7% Source: National Association of State Budget Officers, State Expenditure Report [FYs 2000-2009], Washington, DC, all pp. 4, 8, at http://www.nasbo.org/publications-data/state-expenditure-report/archives; and National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/publications-data/state-expenditure-report. Consequences for State Policy Makers The states’ increased reliance on federal assistance during and immediately following the December 2007-June 2009 recession raised concerns that states were approaching a level of dependence on federal assistance that threatened their ability to design programs in a way that they believe best meets their needs. For example, some worried that federal conditions attached to the increased level of federal funds was increasing the federal government’s ability to substitute its policy preferences for the state’s policy preferences. There was also a concern that the states’ Congressional Research Service 23 State Government Fiscal Stress and Federal Assistance increased reliance on federal assistance was also limiting the states’ ability to finance non-federal programs because many federal grants, including Medicaid, have mandatory state matching requirements.32 These concerns have been lessened somewhat in recent years as most of the ARRA-funded state federal assistance has expired and improvement in economic conditions in many states has led to somewhat higher levels of optimism concerning state revenue growth. State budget officials now worry that, with the exception of Medicaid funding which is projected to increase as a result of the passage of P.L. 111-148, the Patient Protection and Affordable Care Act, federal budget concerns could lead to quick and deep reductions in other state federal assistance programs. If that were to occur, given the relatively slow rate of state revenue growth, state budget officials worry that they may have to take actions, such as laying off public employees, cutting back on state service levels, or increasing state taxes and fees, that could have an adverse effect on the national economic recovery, and, as a consequence, on the higher rates of revenue growth which they are currently experiencing. For example, Daniel Crippen, Executive Director of the National Governors Association (NGA), indicated on December 14, 2012, that The uncertainty surrounding federal efforts to cut its debt and the implications this has on states leaves governors with their hands tied. Another recession would be devastating for states, especially when many states have barely recovered from the last recession. Governors recognize that there will be reductions in federal funding for state programs, but they should be done equitably and in consultation with governors.33 The counter-argument is that reducing state federal assistance may force some state governments to make difficult policy choices, but, given the federal government’s budget deficit and debt, federal policy makers face similar difficult choices. In addition, it could be argued that the states’ increased reliance on federal assistance has created conditions in which state service and benefits levels have become artificially “elevated” to levels that, in the absence of additional federal assistance, would not have been enacted in the first place. As will be discussed in the next section, this last argument involves value judgments concerning the appropriate size and scope of state government. Variations in State Fiscal Stress Although state economic downturns generally occur around the same time as national recessions, the states’ responses to national recessions “vary in magnitude, duration, and timing and do not necessarily coincide with dates identified for national recessions.”34 The variation in the states’ 32 Others argued that the states’ increased reliance on federal assistance could induce a moral hazard issue by encouraging states to expect similar increases in federal assistance during future economic slowdowns. The concern was that by providing states additional federal assistance the states’ “incentives to properly manage risks,” by taking such actions as fully funding their “rainy day” reserve funds or making other policy choices to restrain state budget growth during good economic times, could be weakened. See U.S. Government Accountability Office, State and Local Governments: Knowledge of Past Recessions Can Inform Future Federal Fiscal Assistance, GAO-11-401, March 31, 2011, p. 30, at http://www.gao.gov/assets/320/317223.pdf. 33 National Governors Association, “NGA, NASBO Say States Concerned About Uncertainty As They Slowly Emerge From Recession,” December 14, 2012, Washington, DC, at http://www.nga.org/cms/home/news-room/news-releases/ page_2012/col2-content/nga-nasbo-say-states-concerned-a.html. 34 U.S. Government Accountability Office, State and Local Governments: Knowledge of Past Recessions Can Inform (continued...) Congressional Research Service 24 State Government Fiscal Stress and Federal Assistance economic responses to the most recent recession helps to explain the variation found in the states’ change in state general fund expenditures from FY2008 to FY2013, with some states increasing their state general fund expenditures and others reducing them. Consequences for Congress GAO has recommended that Congress take variations in state fiscal stress into consideration when deciding whether, when, and how to provide federal assistance to state and local governments during and immediately after national economic downturns.35 Specifically, GAO found that the federal government has provided fiscal assistance to state and local governments in response to three of the six national recessions since 1974, and, after examining the efficacy of those efforts in ameliorating state fiscal stress and enhancing national economic growth, recommended that Congress consider the following when developing a policy strategy to address state and local government fiscal stress during and following national recessions: • Timing/triggering mechanisms—federal policy strategies specifically intended to stabilize state and local governments’ budgets may have to be timed differently than those designed to stimulate the national economy, because state budget difficulties often persist beyond the end of a recession. • Targeting—if federal fiscal assistance to state and local governments is targeted based on the magnitude of the recession’s effect on each state’s economy, this approach can facilitate economic recovery and moderate fiscal distress at the state and local level. • Temporary—while a federal fiscal stimulus strategy can increase economic growth in the short run, such efforts can contribute to the federal budget deficit if allowed to run too long after entering a period of strong recovery. • Consistency—the design of federal fiscal assistance occurs in tandem with consideration of the impact these strategies can have on other federal policy objectives. For example, a standby federal fiscal assistance policy could induce moral hazard by encouraging state or local governments to expect similar federal action in future crises, thereby weakening their incentives to properly manage risks. Another consideration is the policy objective of maintaining accountability while promoting flexibility in state spending. Past studies have shown that unrestricted federal funds are fungible and can be substituted for state funds, and the uses of such funds can be difficult or impossible to track.36 GAO provided Congress a list of recommended economic indicators that could be used to serve as triggering mechanisms to either time or target state federal assistance to respond to the effects of a particular recession, including, among others, employment and unemployment data, hourly earnings, personal income, wages and salaries, and weekly hours worked.37 GAO excluded indicators of state fiscal stress, such as declines in state tax receipts or state budget gaps, “because (...continued) Future Federal Fiscal Assistance, GAO-11-401, March 31, 2011, p. 3, at http://www.gao.gov/assets/320/317223.pdf. 35 Ibid., p. 28. 36 Ibid., p. 30. 37 Ibid., p. 32. Congressional Research Service 25 State Government Fiscal Stress and Federal Assistance they are dependent on state government’s policy choices and because state definitions and measurement techniques vary for calculations such as budget gaps.”38 Benchmarks for Measuring Variation in State Fiscal Stress Although GAO chose not to measure variations in state fiscal assistance, one measure of state fiscal stress that is often used is the difference between the state’s current and previous year’s general fund budget expenditures. It could be argued that if the state is facing a need to reduce its general fund expenditures from the previous year’s level, either in real (inflation adjusted) dollars or in current (nominal) dollars, it is experiencing fiscal stress. Generally speaking, after taking into account factors such as state population differences or differences in the size of the states’ general fund budgets, as the amount needed to reduce the state’s general fund expenditures increases (typically referred to as the state’s budget gap), the state’s fiscal stress also increases. Issues with Using State General Fund Expenditures as a Benchmark The difference between each state’s current and previous year general fund budget expenditures is relatively easy to compute and is often used as an indication of state fiscal stress by various organizations. However, as GAO has noted, there is little guidance available to determine if the state’s general fund expenditures for the current, or for the previous year, are “appropriate” baselines to use for measuring state fiscal stress. For example, depending on one’s personal values concerning the appropriate size and scope of state government, it could be argued that state expenditures are too high or too low. Also, as mentioned previously, in the absence of an agreement concerning which baselines to use in measuring state fiscal stress, it could be argued that the states’ current fiscal stress has as much to do with their previous budgetary decisions (or non-decisions) as with the national economic slowdown’s adverse effect on state revenue growth. This is an important issue for federal policy makers because if state fiscal stress is viewed as being largely a result of state policy decisions, it is likely that there will be less support for federal action to ease that fiscal stress than would be the case otherwise. Measuring the Relative Size of State Governments The data presented in Table 13 are provided to help inform congressional debate concerning the extent to which the states’ varying levels of fiscal stress are due to changing economic conditions or to state policy choices. The data provide a framework for measuring differences in the size of state governments relative to each other, rather than to a preconceived “ideal” state budget that would, by necessity, be based largely on personal value judgments concerning the appropriate size and scope of state government. This information may prove useful as a reference when debating the role of state policy choice in state fiscal stress. As shown in the table, total state expenditures, both on a per capita basis and as a percentage of state gross domestic product (GDP), vary.39 38 Ibid. Another factor that could be used to compare total state expenditures is the extent to which the state relies on local governments to provide services. It could be argued that some states look “bigger” than others because they carry greater responsibility for providing services than their local governments when compared to other states. Unfortunately, data on local government finance are typically delayed for at least two years. For example, at the time of this writing, (continued...) 39 Congressional Research Service 26 State Government Fiscal Stress and Federal Assistance Table 13. Total State Expenditures, Per Capita FY2013 and as a Percentage of State GDP FY2012 Total State Expenditures FY2013 ($ in millions) Total State Expenditures FY2013, Per Capita State GDP FY2012 ($ in millions) Total State Expenditures FY2013 as a % of State GDP FY2012 Alabama $24,117 $4,989 $183,547 13.14% Alaska $12,142 $16,517 $51,859 23.41% Arizona $29,293 $4,421 $266,891 10.98% Arkansas $21,585 $7,294 $109,557 19.70% California $227,881 $5,945 $2,003,479 11.37% Colorado $28,479 $5,406 $274,048 10.39% Connecticut $28,138 $7,825 $229,317 12.27% $9,162 $9,897 $65,984 13.89% Florida $69,975 $3,579 $777,164 9.00% Georgia $41,074 $4,111 $433,569 9.47% Hawaii $11,584 $8,250 $72,424 15.99% Idaho $7,242 $4,492 $58,243 12.43% Illinois $66,447 $5,158 $695,238 9.56% Indiana $27,766 $4,226 $298,625 9.30% Iowa $19,609 $6,345 $152,436 12.86% Kansas $14,405 $4,978 $138,953 10.37% Kentucky $25,673 $5,841 $173,466 14.80% Louisiana $29,662 $6,413 $243,264 12.19% $7,798 $5,871 $53,656 14.53% Maryland $36,974 $6,236 $317,678 11.64% Massachusetts $60,298 $9,009 $403,823 14.93% Michigan $48,748 $4,926 $400,504 12.17% Minnesota $35,766 $6,598 $294,729 12.14% Mississippi $19,417 $6,491 $101,490 19.13% Missouri $22,943 $3,796 $258,832 8.86% State Delaware Maine (...continued) the latest available data at the Bureau of the Census for both state and local government expenditures are for FY2011. Those data indicate that in FY2011 the state share of total state and local government expenditures varied among the states, ranging from 49.1% in Nebraska to 85.2% in Vermont. The states’ average share of state and local government expenditures was 63.4%, with 15 states below the national average and 35 states above the national average. States more than 10 percentage points below the average were: Florida and Nebraska; states more than 10 percentage points above the average were: Alaska, Arkansas, Delaware, Hawaii, Kentucky, Mississippi, Montana, New Mexico, North Dakota, Vermont, and West Virginia. CRS calculations from U.S. Bureau of the Census, “State and Local Government Finances: 2011 State and Local Government,” at http://www.census.gov/govs/local/. Congressional Research Service 27 State Government Fiscal Stress and Federal Assistance Total State Expenditures FY2013 as a % of State GDP FY2012 Total State Expenditures FY2013 ($ in millions) Total State Expenditures FY2013, Per Capita Montana $6,040 $5,950 $40,422 14.94% Nebraska $10,163 $5,439 $99,557 10.21% Nevada $8,893 $3,187 $133,584 6.66% New Hampshire $5,024 $3,796 $64,697 7.77% New Jersey $52,085 $5,853 $508,003 10.25% New Mexico $14,543 $6,974 $80,600 18.04% $133,097 $6,773 $1,205,930 11.04% North Carolina $51,389 $5,218 $455,973 11.27% North Dakota $5,939 $8,210 $46,016 12.91% Ohio $58,268 $5,036 $509,393 11.44% Oklahoma $21,430 $5,565 $160,953 13.31% Oregon $25,806 $6,566 $198,702 12.99% Pennsylvania $67,880 $5,314 $600,897 11.30% Rhode Island $8,133 $7,735 $50,956 15.96% South Carolina $22,300 $4,670 $176,217 12.65% South Dakota $4,131 $4,889 $42,464 9.73% Tennessee $31,453 $4,842 $277,036 11.35% Texas $96,925 $3,665 $1,397,369 6.94% Utah $12,603 $4,345 $130,486 9.66% $4,960 $7,915 $27,296 18.17% Virginia $44,595 $5,399 $445,876 10.00% Washington $33,202 $4,763 $375,730 8.84% West Virginia $23,363 $12,599 $69,380 33.67% Wisconsin $42,769 $7,448 $261,548 16.35% Wyoming $8,611 $14,779 $38,422 22.41% $1,719,780 NA $15,456,284 $34,396 $5,451 $309,126 State New York Vermont Total National Average State GDP FY2012 ($ in millions) NA 11.13% Source: CRS computations from National Association of State Budget Officers, State Expenditure Report: Examining Fiscal 2011-2013 State Spending, Washington, DC, November 2013, p. 7, at http://www.nasbo.org/ publications-data/state-expenditure-report; U.S. Bureau of the Census, “Population Estimates, July 1, 2013,” at http://www.census.gov/popest/data/state/totals/2013/index.html; and U.S. Department of Commerce, Bureau of Economic Analysis, ”Gross Domestic Product By State,” at http://www.bea.gov/newsreleases/regional/gdp_state/ gsp_newsrelease.htm. Notes: FY2013 total state expenditures are estimated from state budget documents. The national median for total state expenditures in FY2013, per capita, was $5,703. The national median for total state expenditures in FY2013 as a percentage of state GDP in FY2012 was 12.15%. Because state GDP for FY2013 was not available, the figures presented for total state expenditures as a percentage of state GDP should be viewed as an estimate. Congressional Research Service 28 State Government Fiscal Stress and Federal Assistance As shown in Table 13, in FY2013, total state expenditures ranged from $4,131 million in South Dakota to $227,881 million in California. The national average for total state expenditures was $34,396 million, with 34 states below the national average and 16 states above the national average. In FY2013, total state expenditures on a per capita basis varied from $3,187 in Nevada to $16,517 in Alaska. The national average for total state expenditures on a per capita basis was $5,451, with 24 states below the national average and 26 states above the national average. State GDP in 2012 (the latest available data) ranged from $27,296 million in Vermont to $2,003,479 million in California. The national average for state GDP was $309,126 million, with 35 states below the national average and 15 states above the national average. Total state expenditures in FY2013 as a percentage of state GDP in FY2012 ranged from 6.66% in Nevada to 33.67% in West Virginia. The national average for total state expenditures in FY2013 as a percentage of state GDP in FY2012 was 11.13%, with 18 states below the national average and 32 states above the national average. Concluding Observations State fiscal conditions have improved in recent years. As the NGA has noted, “signs of [state] budget volatility have subsided compared to the years immediately following the recession when states had to make substantial cuts and take other actions to balance their budgets.”40 However, although state revenues are expected to grow over the next several years, many states continue to face fiscal challenges as they replenish their reserves, address infrastructure projects that were postponed due to the recession, and face rising health care and education costs.41 Also, state federal assistance is included in federal domestic discretionary spending, an area of the federal budget expected to receive much attention over the next several years by federal policy makers as they seek ways to address the federal deficit and debt. Given these fiscal challenges, it is likely that states will continue to look to the federal government for financial assistance. Federal assistance could be provided in several ways, for example (1) granting of waivers of federal grant program requirements, (2) temporary or permanent relief from federal grant matching requirements, (3) relaxation or elimination of state program-related maintenance of effort requirements that are often attached to federal grant programs, and (4) providing additional direct federal assistance. GAO has recommended that Congress consider variations in state fiscal stress when deciding whether, when, and how to provide federal assistance to state and local governments during and immediately after national economic downturns. As mentioned previously, GAO also provided a list of economic indicators, such as employment and unemployment data, hourly earnings, 40 National Governors Association, “NGA, NASBO Say States Concerned About Uncertainty As They Slowly Emerge From Recession,” December 14, 2012, Washington, DC, at http://www.nga.org/cms/home/news-room/news-releases/ page_2012/col2-content/nga-nasbo-say-states-concerned-a.html. 41 Ibid. For further information and analysis of state revenue estimates see Susan K. Urahn and Thomas Gais, “States’ Revenue Estimating: Cracks in the Crystal Ball,” The Nelson Rockefeller Institute of Government and the Pew Center on the States, Washington, DC, at http://www.pewcenteronthestates.org/uploadedFiles/ States_Revenue_Estimating_final.pdf. Congressional Research Service 29 State Government Fiscal Stress and Federal Assistance personal income, wages and salaries, and weekly hours worked, that could be used as triggers for providing states federal assistance.42 GAO excluded indicators of state fiscal stress, such as declines in state tax receipts or state budget gaps, “because they are dependent on state government’s policy choices and because state definitions and measurement techniques vary for calculations such as budget gaps.”43 Disagreement over the appropriate size of state government has always been an issue in discussions of the role of federal assistance in state budgeting. The data presented in Table 13 suggest that state governments, both in terms of total state expenditures on a per capita basis and as a percentage of state GDP, vary in size. Some argue against providing additional federal assistance to states because, in their view, the states’ current level of fiscal stress, especially in states with a relatively high level of state expenditures, could have been ameliorated if the states had been more prudent with their fiscal choices prior to the recent recession. Others suggest that the federal government’s fiscal challenges have reached a point at which providing additional federal assistance to states is out of the question. Still others assert that if the federal government does not continue to provide the states additional assistance, then the states will take actions that will have an adverse effect on the national economic recovery. Some also contend that the states’ increased reliance on federal assistance to provide services could displace state priorities with federal priorities. The data and analysis in this report provide a framework for assisting Congress as it considers these various viewpoints concerning whether, when, and how to provide federal assistance to state and local governments during times of state fiscal stress. Author Contact Information Robert Jay Dilger Senior Specialist in American National Government rdilger@crs.loc.gov, 7-3110 42 U.S. Government Accountability Office, State and Local Governments: Knowledge of Past Recessions Can Inform Future Federal Fiscal Assistance, GAO-11-401, March 31, 2011, p. 32, at http://www.gao.gov/assets/320/317223.pdf. 43 Ibid. Congressional Research Service 30