Ten-year state budget projections and business opportunities, part one: The good-news graph

Deltek Sr. Analyst Chris Cotner reports.

This is part one of a two-part series on INPUT’s 10-year state budget projections.

The news for state and local government simply has not been good this year. Record government employee layoffs are reported across the country. Wisconsin rioted. Minnesota is currently not functioning as a government. California had several near misses and is cutting deep. Texas almost shut down state IT. New York, Texas, Florida, New Jersey, and Pennsylvania are all making deep cuts. What about the good news? Did we forget about that? No, we did not. There is good news in state budgets, and not so far in the future.

INPUT ran a statistical analysis of state budgetary spending from FY 1987 through FY 2012. This analysis, based on strong data and an extremely robust model, projects great news for future state budgets. What we found is graphed below (See Figure 1, below). We are calling it the “Good-News Graph.”

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From FY 1987 through FY 2008, the data is remarkably consistent with an average 5.84 percent annual growth rate. However, the state budgetary train starts to unsettle a bit in 2009, moving slightly above the prediction line (compare the blue line of actual state expenditures to the red line of prediction by FY in Figure 1, above). This slight bump was likely the result of the first rounds of stimulus funding. Then, budgets experienced a massive spike in FY 2010 and 2011 due to many factors, notably stimulus funding, increased health care costs (both for state workers and Medicaid), increased retirement/pension costs for state workers, and unemployment compensation. This is an anomaly – an outlier in terms of state budgetary spending with a combined 10.75 percent growth rate over the two-year period (FY 2010 was +6.68% and FY 2011 was +4.07%). Projections put 2012 as the largest (and only) overall budget decrease (-2.99%) since we began tracking. It should be noted that the tracked data includes the seminal 1987, 2000, and 2001 stock market losses and resulting economic declines.

For the complete blog, go here.

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