GAO Updates State and Local Governments' Fiscal Outlook

In a recently issued report, the U.S. Government Accountability Office is advising that the state and local government sector continues to face near- and long-term fiscal challenges that grow over time and that the fiscal challenges confronting the state and local sector add to the nation's overall fiscal difficulties. Although the sector's near-term fiscal picture has improved slightly since GAO's March 2010 update, the economic downturn has created an unprecedented fiscal situation for states as revenues declined in tandem with the economy.

The GAO's computer simulations show that the fiscal position of the state and local sector will steadily decline through 2060 absent any policy changes. Since most state and local governments are required to balance their operating budgets, GAO reports that the declining fiscal conditions shown in their simulations suggest that these governments would need to make substantial policy changes to avoid growing fiscal imbalances. In other words, absent any intervention or policy changes, state and local governments would face an increasing gap between receipts and expenditures in the coming years.

This update to GAO's model incorporates near-term revenue changes as well as recent expenditure data, but it focuses on the long-term outlook for state and local governments as a sector. According to GAO, the decline in the sector's operating balance over time is primarily driven by rising health-related costs. Because most state and local governments are required to balance their operating budgets, the declining fiscal conditions shown in their simulations suggest the fiscal pressures the sector faces and foreshadow the extent to which these governments will need to make substantial policy changes to avoid growing fiscal imbalances.

To access the complete GAO report, please visit:

GAO: State and Local Governments' Fiscal Outlook: April 2011 Update (6 APR 11)