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Good news: Updated state budget projections and business opportunities

The news for state government finance during the recession and slow recovery has been challenged, at best. States reported widespread problems meeting their budgetary obligations during the recession and enacted a variety of measures to remain solvent in the face of declining revenues. The bulk of the most challenging cuts came in 2011 and 2012, as states adjusted to winding down stimulus dollars. Figure 1 (below) illustrates the budget measures states took in efforts to balance their budgets.
Figure 1: State Strategies for Budget Balancing FY 2011-2012

The balancing strategies resulted in 2012 being one of the
toughest fiscal years on record, with combined all funds budgets falling $42.1 billion (-2.4 percent) from 2011. It was the first all funds drop in state budgets since 1987 and dramatically juxtaposed to the $87.9 billion (+5.6 percent) overall state budget gains from FY 2010 to 2011. Putting the record 2012 state budget losses in prespective, the data includes the seminal 1987, 2000, and 2001 stock market losses and resulting economic declines (with 2012 still being the only overall loss).

Even with all of the recent negative press, there is excellent news for state government contractors in 2013 and beyond.
Deltek’s annual state budget analysis shows that with state revenues on the rise, all funds budgets are set to rebound in 2013, increasing $20 billion (+1.21 percent) to $1.67 trillion overall.
Continuing the positive trend, Deltek’s updated state budget projections show great news for continued upward growth in state budgets moving beyond 2013. What we found is graphed below (see Figure 2).We call it the “Good-News Graph.”
Figure 2: State All Funds Budget 10-Year Projections

Analyzing Figure 2, from FY 1987 through FY 2010, the data is remarkably consistent with an average 6.24 percent compound annual growth rate (CAGR). However, as the recession took hold, growth rates slowed to 3.56 in 2011 and fell into the red for 2012. The budgetary growth from 2008-2011 in the face of recession and slow recovery was due to many factors, including: federal stimulus funding, increased health care costs (both for state workers and through the increased Medicaid rolls as the result of the recession), increased retirement/pension costs for state workers, and unemployment compensation.
Subscribers have access to the rest of the article, including additional projections about the state government market, here.

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