Key Issues > Fiscal Outlook > State and Local Fiscal Model

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.

 

View the Spring 2013 Update

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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 (Expenditures, as a Percentage of Gross Domestic Product-GDP)

chart/graph image

Source: GAO simulations, updated April 2013
Note: This figure is excerpted from GAO-13-546SP. See also: State and local governments’ fiscal outlook April 2013 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.

Most Recent State and Local Fiscal Outlook Report

This April 2013 update to GAO's model shows that the state and local government sector continues to face near- and long-term fiscal challenges that grow over time. 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 in conjunction with the economic recovery. Nonetheless, total tax receipts have only recently returned to the prerecession levels of 2007 and the sector still faces a gap between revenue and spending. 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)

Source: GAO simulations, updated April 2013

Notes: The operating balance is a measure of the sector's ability to cover its current expenditures out of current receipts. Historical data are from BEA's National Income and Product Accounts. Data in 2012 are GAO estimates aligned with published data where available. GAO's simulations are from 2013 to 2060, using many CBO projections and assumptions, particularly for the next 10 years. This figure is excerpted from GAO-13-546SP. See also: State and local governments’ fiscal outlook April 2013 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.

File Name
Operating Balance Measures TXT PDF
Taxes TXT PDF
Current Receipts by Category TXT PDF
Grants TXT PDF
Action Required to Maintain Balance TXT PDF
Health and Non-Health Expenditures TXT PDF
Surpluses and Deficits TXT PDF

 

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 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)

Looking for our recommendations? Click on any report to find each associated recommendation and its current implementation status.

State and Local Government Pension Plans:

Economic Downturn Spur Efforts to Address Costs and Sustainability
GAO-12-322: Published: Mar 2, 2012. Publicly Released: Mar 2, 2012.

State and Local Governments:

Knowledge of Past Recessions Can Inform Future Federal Fiscal Assistance
GAO-11-401: Published: Mar 31, 2011. Publicly Released: Mar 31, 2011.

Medicaid:

Improving Responsiveness of Federal Assistance to States during Economic Downturns
GAO-11-395: Published: Mar 31, 2011. Publicly Released: Mar 31, 2011.

Federal Data Transparency:

Opportunities Remain to Incorporate Lessons Learned as Availability of Spending Data Increases
GAO-13-758: Published: Sep 12, 2013. Publicly Released: Sep 12, 2013.

Grants to State and Local Governments:

An Overview of Federal Funding Levels and Selected Challenges
GAO-12-1016: Published: Sep 25, 2012. Publicly Released: Sep 25, 2012.

State and Local Government Pension Plans:

State and Local Governments:

Fiscal Pressures Could Have Implications for Future Delivery of Intergovernmental Programs
GAO-10-899: Published: Jul 30, 2010. Publicly Released: Aug 13, 2010.

State and Local Government Pension Plans:

Current Structure and Funded Status
GAO-08-983T: Published: Jul 10, 2008. Publicly Released: Jul 10, 2008.

State and Local Government Pension Plans:

Current Funded Status of Pension and Health Benefits
GAO-08-223: Published: Jan 29, 2008. Publicly Released: Feb 28, 2008.

Medicaid:

Strategies to Help States Address Increased Expenditures during Economic Downturns
GAO-07-97: Published: Oct 18, 2006. Publicly Released: Nov 15, 2006.

Federal Assistance:

Temporary State Fiscal Relief
GAO-04-736R: Published: May 7, 2004. Publicly Released: Jun 7, 2004.
Portrait of Stan Czerwinski

Stan Czerwinski
Director, Strategic Issues
CzerwinskiS@gao.gov
202-512-6806