Federal Impact on

State Expenditures

NASBO

Jan. 08 GAO Report:

Growing Fiscal Challenges will
in the absence of policy changes, large and
recurring fiscal challenges for the state and local
sector will begin to emerge within a decade.
Continuing on this unsustainable path will gradually
erode, and ultimately damage, our economy, our
standard of living
-David Walker, Comptroller General, January 2008

NASBO

Tax receipts would need to rise considerably

faster than historical experience to enable the
operating balance to remain in the historical
range.
Substantial policy changes would be needed
to prevent the fiscal decline in the state and
local government sector.

NASBO

Long Term Fiscal Gap

The GAO simulation shows that by the

mid-2020s states will be in strong fiscal
distress

Fiscal gap requires a 15.2% tax increase or a

12.9% spending reduction

Tough choices on spending and tax policy

NASBO

Balanced budget requirements

Bond ratings
4

Federal Impact on States

New Medicaid regulations could reduce federal share

to states by $50 billion over five years (House
Oversight and Government Relations Committee)

OMB estimates $4 billion shortfall in Highway Trust

Fund for FY 09

Proposed higher education maintenance of effort

(MOE) mandate could limit state funding

Bonus depreciation in stimulus package could cost

states $1.7 billion (CBPP)

NASBO

Federal Impact on States

REAL ID cost to states at $3.9 billion (DHS)

Presidents proposed budget would reduce nonMedicaid grants to states by $18.9 billion (CBPP)

No Child Left Behind (NCLB) has been under

funded by up to $40 billion (Stateline)

State Childrens Health Insurance Program

(SCHIP) funding not keeping pace with growth

NASBO

Long-Term Federal Outlook

Long-term federal fiscal imbalance could reduce federal

funds to states

Concord Coalition foresees a $400 billion deficit in 2010,

and an $800 billion deficit in 2016

Increase in mandatory spending results in less available

discretionary funds

NASBO

Mandatory spending represented 27% of federal spending

in 1965, 42% in 1985, and 54% in 2006 (source: CBO)

www.nasbo.org

NASBO