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Deltek’s Straight Dope on State Budgets, Pt. V: How They Improved Finances & GovCon Biz Prospects

This blog contains exerpts from the full Deltek GovWinIQ article, located here (subscribers only).

The National Association of State Budget Officers (NASBO) and the National Governor’s Association (NGA) released a report in November 2001 outlining the fiscal condition of the states. As highlighted by NASBO, state general funds (GF) budgetary conditions are actually improving in FY 2012, albeit slowly. NASBO projects growth to continue, with slowly improving economic conditions in FY 2012 and 2013. Deltek projects similar improvement in state all funds (AF) budgets, with slow growth in 2013 and improved growth looking forward to 2014 and 2015. Simply, expenditures, revenues, balances, and rainy day funds are all up and improving. This is good news for the GovCon community.

However, even with this good news, most states made changes and cuts to achieve balance. In this installment of the straight dope series, Deltek examines some of the measures states took to adjust their finances and get government business moving in the right direction again.

As discussed in previous Deltek articles, state expenditures are on the rise again, which is an excellent sign for the business community. Figure 1, below, provides a vivid graphic illustration of the turmoil caused by the recession and the more recent recovery. However, states made many cuts and adjustments to get back to this place of positive growth.

Figure 1: Annual Percentage General Fund State Budget Increases

Examining expenditures for 2012, state priorities for cuts and growth become more apparent. In figure 2, below, the number of states making significant adjustments in expenditures, both positive and negative is fairly high across most verticals. This is likely due to states needing to make many budgetary adjustments in order to bring the books back in balance after the turbulent recession. Subscribers have access to more detailed analysis of state spending changes in 2012 in the full article, here.

Figure 2: 2012 State Budget Vertical Adjustment

States took widely varied approaches to balancing budgets. Looking at figure 4 and 5, below, it is clear that both agency and employee cuts were heavily favored in 2011 and 2012 by many states. With most governors and legislatures being ‘tax’ averse, another popular state strategy is through adding new fees (essentially these amount to user taxes without having the burded of the tax label). Another underreported strategy engaged by many states the last several years is reducing aid to localities, which, by default, increases the burden on these same localities to provid services. Subscribers have access to more detailed analysis of state budget balancing strategies, here.

Figure 4: State Strategy Types for Budget Balancing

Probably most interesting to the business community are the states that turned to privatization as a strategy for balancing the budget, including: Illinois (both years), Louisiana (both years), Florida, Michigan, and Ohio. While not specifically identified in the NASBO survey, many other states are looking toward a variety of privatization solutions (North Carolina serves as a recent example). While these states provide obvious business opportunities, virtually every state is in the process of considering or discussing the privatization opportunities that may reduce their cost of doing business.

Deltek’s Take:

The end result of all this cutting, adjusting, and improving economy is that state financials are improving. As mentioned in the previous article in this series, improving business prospects will translate into improved contracting opportunities for the GovCon community. The best part of the news is that Deltek projects growth to continue with fewer state expenditure cuts looking ahead into 2013 and 2014. In fact, by 2014, state spending should be back to pre-recessionary levels and growing upward.

Deltek’s Recommendations

·        Find additional opportunities to present IT as a cost-savings and efficiency-oriented solution to reduce operating costs.

·        Look to engage directly with state governments in developing cooperative and collaborative solutions.

·        Ambitious GovCon entities can look toward helping a state privatize parts of their operation to cut costs.

·        Contractors should stay engaged in the state market, as financials are solid, looking forward.

·        Strategize now to remain in position through slow growth of 2012 and be prepared for accelerated opportunities in 2013 and 2014.

Source: Deltek and NASBO

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