This past weekend I had the opportunity to attend a conference of the National Association of State Budget Officers (NASBO). Many things were discussed, but the main topics of conversation were the nation’s economic outlook, the implementation of the Affordable Care Act, and the impact on states’ budgets from monetary discussions in Washington for the upcoming fiscal year. I will highlight some of the more interesting areas, so as not to bore you with mind-numbing economic numbers.
National Economic Outlook
This conference focuse on, amonth other issues, those pertaining to budgetary resources for the states. All of the states receive a portion of their annual budgets from the federal government, which is why states are closely watching results from the sequester cuts. For example, North Carolina’s FY 2013-14 total budget is 33% composed of federal funds. Imagine if the federal government wasn’t able to pay their portion or promised amount. The states, North Carolina included, have become too reliant on federal funds and need to start acting as though their federal check will shrink.
One of the more interesting facts noted was the amount of student loan debt, which was estimated to be more than $1 trillion nationwide. Americans in their 20s and 30s have less disposable income due to debt, which suppresses their ability to purchase products that generate sales taxes for the states. This is not an assumption; consumer-spending growth depends on disposable income, which is forecasted by many to remain weak throughout 2013. What does this mean for the states? Sales tax is not a safe source of income, since universities are increasing tuition rates to account for budget cuts, thus more student debt can be expected in the future, which may generate a viscous cycle of lower sales tax revenues for states.
Affordable Care Act
Many states have decided not to participate in Medicaid expansion — 15 to be exact (see map). To help attendees better understand the impact of the Affordable Care Act (ACA) on the states, there was extensive conversation about health care costs and how they are expected to change in the upcoming years from a budget perspective. According to the Centers for Medicare and Medicaid Services, "U.S. health care spending grew 3.9 percent in 2011, reaching $2.7 trillion or $8,680 per person. As a share of the nation’s Gross Domestic Product, health spending accounted for 17.9 percent, the same share as 2010 and 2009." See the graph below by the Congressional Budget Office and notice how large the health care portion of the nation’s budget will be in 20 years.
Percent of Gross Domestic Product
I found this particularly interesting since North Carolina voted to reject Medicaid expansion and there wasn’t much discussion on the impact of rejection of the program. Most states were focused on the growing cost of health care and how the leveling of revenues at the federal level were going to sustain health care costs in the future (as evidenced from the chart above).
The Bottom Line
The most likely outcome from 2013 is continued moderate economic growth. Real GDP growth is expected to pick-up in 2014 and 2015 on the assumption of an improving housing market and increased business investment. Health care must rein in costs using information technology and consolidation in services and allow market forces to have more ‘skin’ in the game and drive prices lower.
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