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.

 

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State and Local Fiscal Outlook

Fiscal sustainability presents a national challenge shared by all levels of government. GAO simulations of long-term fiscal trends in the state and local government sector—published since 2007—have consistently shown that state and local governments face persistent and long-term fiscal pressures. As shown in the figure below, under GAO’s simulation, state and local expenditures remain near current levels as a percentage of GDP during the simulation time frame. Our simulations show that the primary driver of long-term fiscal challenges for the state and local government sector continues to be the growth in health-related costs.

Figure: State and Local Government Action Required to Maintain Balance (Expenditure Reductions, as a Percentage of Gross Domestic Product (GDP)

chart/graph image

Note: This figure is excerpted from GAO-16-260SP

Action Required to Maintain Balance: TXT | PDF

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 2064 based on current and historical spending and revenue patterns. GAO’s model assumes the current set of policies in place across federal, state, and local governments remains constant. GAO’s model incorporates Congressional Budget Office (CBO) economic projections, which capture 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

The 2015 update to GAO's model shows that the state and local government sector continues to face 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. In the long-term, GAO’s model suggests that at current rates, total tax revenues for the sector—as a percentage of gross domestic product (GDP)—will not return to the 2007 historical high until 2047. As we have reported in previous models, and as shown in the figure below, the sector could continue to face a gap between revenue and spending during the next 50 years absent any policy changes.

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 2014 are from BEA’s National Income and Product Accounts. GAO’s simulations are from 2015 to 2064, using many CBO projections and assumptions, particularly for the next 10 years. This figure is excerpted from GAO-16-260SP.

Operating Balance Measures: TXT | PDF

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 policy changes to avoid growing fiscal imbalances.  Absent any intervention or policy changes, state and local governments would face a gap between receipts and expenditures in the coming years.

Data: Data and Figures 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
Action Required to Maintain Balance TXT PDF
Health and Nonhealth Expenditures 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: December 2014 Update

GAO-15-224SP: Published: Dec 17, 2014. Publicly Released: Dec 17, 2014.
State and Local Governments' Fiscal Outlook: April 2013 Update

GAO-13-546SP: Published: Apr 29, 2013. Publicly Released: Apr 29, 2013.
State and Local Governments' Fiscal Outlook: April 2012 Update

GAO-12-523SP: Published: Apr 5, 2012. Publicly Released: Apr 5, 2012.
State and Local Governments' Fiscal Outlook: April 2011 Update

GAO-11-495SP: Published: Apr 6, 2011. Publicly Released: Apr 6, 2011.
State and Local Governments' Fiscal Outlook: March 2010 Update

GAO-10-358: Published: Mar 2, 2010. Publicly Released: Mar 2, 2010.
Update of State and Local Government Fiscal Pressures

GAO-09-320R: Published: Jan 26, 2009. Publicly Released: Jan 26, 2009.
Looking for our recommendations? Click on any report to find each associated recommendation and its current implementation status.
Higher Education: State Funding Trends and Policies on Affordability

GAO-15-151: Published: Dec 16, 2014. Publicly Released: Dec 16, 2014.
Federal Assistance: Temporary State Fiscal Relief

GAO-04-736R: Published: May 7, 2004. Publicly Released: Jun 7, 2004.
Portrait of Michelle Sager

Michelle Sager
Director, Strategic Issues
SagerM@gao.gov
202-512-6806