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Economic Woes and Wins: Government Budgeting Breakdown

In just two months the government will be faced with sequestration. And that has everyone in and around government worried.

But Michael Keating says there is some room to be optimistic about next year’s budgets across all levels of government.

Keathing is the Senior Editor for Government Product News Magazine and publishes his annual Keating Report on government budgets and spending.

He told Chris Dorobek on the DorobekINSIDER program about the results of his forecast.

From the Report:

Keating Report: Federal Finances

Sure, the federal budget deficit in 2013 will still be huge, but so are federal government revenues. The federal government ran a deficit of $292 billion for the first two months of fiscal year (FY) 2013 — October and November. In FY 2013, the U.S. federal budget deficit is projected to be $901 billion.

Total federal revenues, says the Congressional Budget Office (CBO), will rise to $2.91 trillion in 2013, up from $2.44 trillion in 2012. Download the projections of the CBO’s recent “An Update to the Economic and Budget Outlook: Fiscal Years 2012 to 2022,” from the CBO’s web site.

The indicators are pointing to a continued sluggish U.S. economy in 2013. The World Bank cut its GDP projection for the U.S. in 2013 by 0.5 percentage points, forecasting GDP growth of 1.9 percent, down from the already meager 2.2 percent for 2012. It is projecting an improvement by 2015 to a mere 3.0 percent, which is too tepid a rate of growth to significantly reduce unemployment levels.

Keating Report: State Finances

At first glance, state government budgets appear to be on the mend. According to the Denver- based National Conference of State Legislatures‘ (NCSL) fiscal brief “Projected State Tax Growth in FY 2013,” 45 states and the District of Columbia expect total tax collections in FY 2013 to be higher than they were in FY 2012. Nine states expect total tax collections to grow at least 5 percent above FY 2012 levels.

FY 2013, in fact, marks the third consecutive year that state officials are forecasting higher state tax revenues compared with the previous fiscal year. In spite of the good news, state tax collections aren’t bouncing back like they have in previous economic recoveries. The pace of revenue growth, in fact, has slowed in the last four quarters. Overall, says the NCSL in its brief, “the state revenue situation continues to improve, albeit at a leisurely pace.”

So state government budgets are looking healthier. But state governments, cautions CanagaRetna, still face a number of significant expenditure categories that have to be dealt with in the coming years. Some of the problematic expenditure categories include increased Medicaid costs, higher pension liabilities as many state workers retire, and costly infrastructure repairs that have been delayed.

Keating Report: Local Finances

Cities continue to face the prolonged effects of the economic downturn, according to a recent report by the National League of Cities (NLC). The 27th annual “City Fiscal Conditions” report shows that for the sixth straight year, city revenues continue to fall. Cuts in state and federal aid are impacting cities’ bottom lines, as well as health care, infrastructure and pension costs.

The NLC report, which is based on a survey of city finance officers, shows that fiscal pressures are forcing cities to make personnel cuts, delay or cancel infrastructure projects and trim local services. The report also projects that 2013 will continue to present challenges to city budgets due to slumping housing markets, persistently high unemployment and potential federal budget cuts.

Despite the expressed local economic optimism, county elected officials see the greatest threat to fiscal health as insufficient revenues, cited by 21 percent of respondents. Other major threats include the poor economy and unemployment. Other threats cited were unfunded mandates (13 percent), health care and an aging population (7 percent).

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