What does it all mean for companies doing business with states and localities and advocacy groups trying to influence policy?

1. A State & Local
Finance Market Briefing
Trends. Drivers.
Opportunities.
governing.com

2. 2
FLICKR / Phil Roeder
Critical Imperatives Facing
State and Local Government
•• Despite mend, prolonged
effects of downturn are
still present
•• Deteriorating transportation
infrastructure
•• Shrinking middle class and
increased stress on social
service programs
•• Massive overcrowding
and rising costs of
correctional facilities
•• Unreliable water supply
•• Aging workforce and
shrinking tax base

3. 3
FLICKR / Rob Shenk
State and Local Government
Self Perception of Financial Health
72%
Excellent or Good
9%
Poor or Very Bad
19%
Average
Source: Governing Institute

4. 4
Why Do They Feel This Way?
•• State taxes increased 2.2%.
•• It is the 4th
consecutive annual increase.
•• Things are getting better…
State Tax Revenues on Rise
5%
0%
-5%
-10%
-15%
2006 2007 2008 2009 2010 2011 2012 2013 2014
RECESSION
Source: Pew Trust
shutterstock.com

5. 5
FLICKR / Sam Beebe
But It’s a Mixed Picture By State
State Tax Revenues
Source: U.S. Census
15% or more below
0 to 15% below
0 to 15% above
15% or more above

6. 6
shutterstock.com
Revenue & Expenditures
•• Projected state spending growth for 2015 is 3.3%.
•• The majority of states (43) enacted budgets with
general fund increases in 2015.
General Fund Spending: FY 2008–FY 2015
$750
$ IN BILLIONS
$687
$661
$623
$645
$667
$695
$729
$752
FISCAL YEAR
$700
$650
$600
$550
2008 2009 2010 2011 2012 2013 2014 2015
Source: NASBO

7. 7
FLICKR / tallkev
States Are Not Yet
Out of the Woods
•• Nearly half faced at least 2 of 4 major budget
stressors in 2014.
•• A lot of states missed their revenue forecast
and had to tap reserves.
•• Budgeters will approach the current year more
conservatively.
Source: NACO, Governing Institute

8. 8
FLICKR / markheyboFLICKR / Kevin Dooley
Local Government: Not Yet
Out of the Woods Either
•• Out of 3,000 counties only 65 have fully recovered
to pre-recession levels.
•• Only 33% of cities recovered past their pre-recession
revenue peak by 2012.
•• State aid is likely to continue to decline.

9. 9
FLICKR / Kevin Case
Tax Policy
•• The pressure on taxes is more than ideological — it stems
from stagnant wage growth and lack of trust.
•• Neither of those is going to change soon, so the only way
to meet demands for core services and infrastructure is
to improve efficiency.
Our Out-of-Whack Tax System
•• SLG tax structures are disconnected from the economy.
•• By 2011 80% of the national GDP was service-based.
•• SLG can broaden sales tax structures by extending it to
service delivery and knowledge creation.

10. 10
shutterstock.com
The Issues: Public Pensions
•• GASB’s new rules will become visible for 1st
time ever on
government balance sheets.
•• Stricter view of unfunded liabilities will encourage talk of
reforms in states that are struggling to fund their pensions.
The Issues: Public Pensions Stress SLG
3,000
3,500
2,500
2,000
1,500
1,000
200619991997 200720001998 20082001 20092002 20102003 20112004 20122005
ASSETS
LIABILITIES
$Billions
Source: Pew Trust, Governing Institute

11. 11
FLICKR / m01229
Municipal Bonds
Outperformed in 2014
Investment-Grade Municipal 9.05
High-Yield Municipal 13.84
Local General Bond Obligations 8.51
Treasuries 5.05
Investment-Grade Taxable 5.97
High-Yield Taxable 2.45
TOTAL RETURN (%)
Past returns are not a reliable indication of future results.
Data reflects the following Barclays indices: Municipal Bond; Municipal Bond High Yield; Municipal Bond
Local GO; U.S. Treasury; U.S. Aggregate; U.S. High Yield. It is not possible to invest directly in an index.
Source: Charles Schwab

12. 12
shutterstock.com
The Issues: Credit Spread
Source: Charles Schwab
BasisPointsAboveAAAIndex

13. 13
shutterstock.com
The Issues:
Government Workforce
•• The average age of a government worker is 44 years old.
•• Silver Tsunami: A number of states expect to be hit with a
large wave of retirements.
Projected Public-Sector Retirements
In 2014, 19 percent of the 2012 public administration workforce reached age 61, the
average retirement age. By 2018, this figure rises to 28 percent of those working in 2012.
20%
25%
30%
15%
10%
5%
0%
2014 2015 2016 2017 2018
Source: ACP Research Institute
%of2012employeesage61andolder

14. 14
The Issues: Rising Healthcare Costs
According to The Center for State and Local
Government Excellence:
•• Most local governments have seen healthcare costs rise
6% to 15% over the past five years.
•• The top driver of rising costs is increased claims costs (64%).
Source: ACP Research Institute

15. 15
shutterstock.com
The Issues:
Rising Healthcare Costs
According to The Center for State
and Local Government Excellence:
•• The most popular approach is wellness programs to reduce costs.
•• However, one state, Maryland, has taken a carrot and stick approach.
OFFERS IS
CONSIDERING
IS NOT
CONSIDERING
DID NOT
ANSWER
Wellness program(s) 69% 14% 2% 15%
Disease management program(s) 57% 8% 8% 27%
On-site physicians 7% 8% 33% 53%
On-site clinics 15% 13% 26% 46%
Reliance on pharmacists for
chronic care assistance 5% 5% 35% 56%
Reliance on nurses and physicial
assistants for primary care 10% 9% 28% 53%

16. 16
The “New” Normal
While 2015 doesn’t appear to be a year
of shrinking budgets, the growth —
if any — is certainly minimal.
shutterstock.com

17. 17
Health and Human Services
•• Expansion of healthcare with new eligibility mandates
•• Integrating systems and IT infrastructure
•• Looking to lower healthcare costs
2015 Projected Change +14%
Source: Governing Institute, U.S. Census
shutterstock.com

18. 18
Transportation
•• Integrating technological advancements
in intelligent infrastructure
•• Greater use of public-private partnerships
•• Expansion of internet of things
2015 Projected Change +2.6%
Shutterstock.com

19. 19
Administration
•• Address workforce recruitment, retention
and retirement issues
•• Modernize core technology systems related to tax collection
2015 Projected Change -2.7%
Looking Forward
The shape of public policy will be the result of the collision
between what legislators and governors want to deal with
and what they have to deal with.
shutterstock.com

20. 20
Source: GOVERNING Institute
What does it all mean for
companies doing business
with states and localities and
advocacy groups trying to
influence policy?
Drivers
•• Must have a quick return on investment
•• New systems and procedures scaled up
•• Ideally be self-funded
•• Cross integrate across departments
and increase efficiency
•• Reduce fraud, redundancy, and waste
Source: Governing Institute

21. September 23 & 24, 2015
Washington, D.C.
COSTOFSUMMIT
ON THE
GOVERNMENT
An intimate, high-level gathering
of state and local treasurers, CFOs,
finance and budget officials.

22. Source: GOVERNING Institute
22
Governing covers politics, policy and management for state
and local government leaders. Recognized as the most
credible and authoritative voice in its field, Governing provides
non-partisan news, insight and analysis on budget and finance;
transportation and infrastructure; workforce and economic
development; health and human services and more.
Governing is a division of e.Republic, the nation’s only media
and research company focused exclusively on state and local
government and education.