April 19, 2011

Bleak Future for State Budgets Through 2060?

A new GAO (Government Accountability Office) report released last week provides an update to an ongoing assessment of State and Local Government fiscal health. The GAO has been publishing fiscal simulations for the state and local public sector (in aggregate) since 2007, and their modeling has consistently shown structural problems facing state budgets into the future.

The April update notes that, absent major policy changes, state operating budgets will face continuing decline through 2060 primarily due, in the short term, to decreased tax receipts, and, over time, to rising healthcare-related costs (both for Medicaid and Medicare as well as to meet the cost of providing health benefits to state employees and retirees).

The report concludes that in order to close the ‘fiscal gap’ (estimated action required today to ensure long-term fiscal balance), the state and local sector would have to, on average, decrease spending or increase revenue by about 12.5 percent and maintain that change in each successive year.

The conclusions in the report reflect adjustments made  for costs and savings associated with the Patient Protection and Affordable Care Act (PPACA) passed by Congress in 2010.

See our previous post for links to sources that provide updated assessments of state budgets as they continue to evolve.