National Factors Influencing State Budget Decisions | Eastern North Carolina Now

    Publisher's note: This article was written by Sarah Curry, who is the Director of Fiscal Policy Studies for the John Locke Foundation.

    RALEIGH     During the recent conference of the National Association of State Budget Officers, which I attended, 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 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 focused on, among other issues, those pertaining to budgetary resources for the states. All 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, federal funds constitute 33 percent of North Carolina's 2013-14 budget. Imagine if the federal government wasn't able to pay its 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 many analysts forecast to remain weak throughout 2013.

    What does this mean for the states? The sales tax is not a safe source of income. Universities are increasing tuition rates to account for budget cuts, thus more student debt can be expected in the future, which may generate a vicious cycle of lower sales tax revenues for states.

    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 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 above from the Congressional Budget Office and notice how large the health care portion of the nation's budget will be in 20 years.

    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 focused on the growing cost of health care and how the leveling of revenues at the federal level would affect 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, along with allowing market forces to play a greater role. This means health care customers would have more "skin" in the game, which would help drive prices lower.