Fiscal Outlook: State and Local Fiscal Model
GAO's simulations show the size of the fiscal challenges that confront the state and local sector, and highlight the sector's key fiscal pressures.
State and Local Fiscal Outlook
Fiscal sustainability presents a national challenge shared by all levels of government. Since 2007, GAO has published long-term fiscal simulations for the state and local government sector. These simulations show that, like the federal government, the state and local sector faces persistent and long-term fiscal pressures. As shown in the figure below, under our simulation, expenditures rise considerably as a percentage of GDP over the simulation time frame. These pressures are primarily driven by rising health care costs and add to the nation's overall fiscal difficulties.
Figure: State and Local Government Action Required to Maintain Balance (Expenditure Reductions, as a Percentage of Gross Domestic Product (GDP))
Note: This figure is excerpted from GAO-15-224SP. See also: State and local governments’ fiscal outlook 2014 charts.
Using the Bureau of Economic Analysis's National Income and Product Accounts (NIPA) as the primary data source, GAO's model projects the level of receipts and expenditures for the sector until 2060 based on current and historical spending and revenue patterns. GAO assumes the current set of policies in place across federal, state, and local governments remains constant. The model simulates the long-term fiscal outlook for the state and local sector as a whole and, while the model incorporates the Congressional Budget Office's economic projections, adjustments are made to capture the budgetary effects of near-term cyclical swings in the economy. Because the model covers the sector in the aggregate, the fiscal outcomes for individual states and localities cannot be captured.
Related Work: Explore GAO's Key Issues pages on Government Operations
Most Recent State and Local Fiscal Outlook Report
This 2014 update to GAO's model shows that the state and local government sector continues to face long-term fiscal challenges. The fiscal situation of the state and local government sector has improved in the past year as the sector's tax receipts have slowly increased. Nonetheless, as a percentage of gross domestic product (GDP), our model suggests that at current rates total tax revenues for the sector would not return to the 2007 historical high until 2058, near the end of our simulation period. As we have reported in previous models, and as shown in the figure below, the sector faces long-term fiscal challenges that grow over time.
Figure: State and Local Operating Balance Measure, as a Percentage of Gross Domestic Product (GDP)
Notes: The operating balance is a measure of the sector's ability to cover its current expenditures out of current receipts. Historical data for 2005 to 2013 are from BEA’s National Income and Product Accounts. GAO’s simulations are from 2014 to 2063, using many CBO projections and assumptions, particularly for the next 10 years. This figure is excerpted from GAO-15-224SP. See also: State and local governments’ fiscal outlook 2014 charts
GAO's simulations show that the fiscal position of the sector will steadily decline through 2060 absent any policy changes. Because most state and local governments are required to balance their operating budgets, the declining fiscal conditions shown in GAO's simulations suggest the fiscal pressures the sector faces and foreshadow the extent to which these governments will need to make substantial policy changes to avoid growing fiscal imbalances. That is, absent any intervention or policy changes, state and local governments would face an increasing gap between receipts and expenditures in the coming years.
Data: Data from the Long-Term State and Local Model can be downloaded using the links below.
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Since 2007 GAO has published simulations for the state and local sector. This is a list of those publications.
Past State and Local Fiscal Outlook Reports and Related Products
State and Local Governments' Fiscal Outlook: April 2013 Update GAO-13-546SP (April 29, 2013)
State and Local Governments' Fiscal Outlook: April 2012 Update GAO-12-523SP (April 2, 2012)
State and Local Governments' Fiscal Outlook: April 2011 Update GAO-11-495SP (April 6, 2011)
State and Local Governments' Fiscal Outlook: March 2010 Update GAO-10-358 (March 2, 2010)
Economic Development: Update of State and Local Government Fiscal Pressures GAO-09-320R (January 26, 2009)
State and Local Fiscal Challenges: Rising Health Care Costs Drive Long-term and Immediate Pressures GAO-09-210T (November 19, 2008)
State and Local Governments: Growing Fiscal Challenges Will Emerge during the Next 10 Years GAO-08-317 (January 22, 2008)
State and Local Governments: Persistent Fiscal Challenges Will Likely Emerge within the Next Decade GAO-07-1080SP (July 18, 2007)