NASBO Releases Fall 2023 Fiscal Survey of States

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NASBO Releases Fall 2023 Fiscal Survey of States

On December 19, 2023, the National Association of State Budget Officers (NASBO) released its semi-annual report, Fall 2023 Fiscal Survey of States. The report updates information on the states’ fiscal conditions, including aggregate and individual state data on general fund receipts, expenditures and balances. The survey was conducted by NASBO and completed by state budget officers in all 50 states. 

The report highlights states’ enacted budgets for fiscal 2024. The survey shows state general fund spending in fiscal 2024 is projected to total over $1.26 trillion, an increase of 6.5% over fiscal 2023 levels. In fiscal 2023, general fund spending totaled $1.19 trillion, an increase of 11.8%. This increase followed an increase of 16.0% in fiscal 2022, which was the highest annual growth rate recorded in the Fall Fiscal Survey in 40 years. Adjusted for inflation, general fund spending increased 8.0% in fiscal 2022 and 7.0% in fiscal 2023. The 2023 increase was due to several factors including: 1) higher inflation; 2) one-time spending on investments from surplus funds; 3) increased spending from general funds since federal funds were expiring in certain areas; and 4) lower baseline due to spending reductions for some states in fiscal 2021.

In fiscal 2023, general fund revenues totaled over $1.2 trillion, an increase of 0.9% over fiscal 2022 levels. In 2024 enacted budget forecasts, general fund revenue is projected to decline 1.8%. In fiscal 2023, the slower revenue growth than expected was mainly due to: 1) the impact of recently enacted tax cuts; 2) weaker stock market performance in 2022; 3) slower growth in consumption; 4) changing spending patterns; and 5) lower inflation.

In fiscal 2023, 41 states reported year-over-year increases in their rainy day funds (also referred to as budget stabilization funds). As a percentage of general fund spending, the median rainy day fund balance increased from 10.8% in fiscal 2022 to 12.3% in fiscal 2023. Based on states’ enacted budgets, it is also projected to increase to 13.8% in fiscal 2024.  

The full report and summary are available here.

NCSL Reports on State Legislation for Prescription Drug Access and Affordability in 2023

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NCSL Reports on State Legislation for Prescription Drug Access and Affordability in 2023

On December 13, 2023, the National Conference of State Legislatures (NCSL) reported that the highest priorities in 2023 state legislation were related to prescription drug access and affordability. According to the NCSL, “Of the more than 800 bills proposed across all 50 states, Washington, D.C., and Puerto Rico, nearly 150 were enacted. The year’s major legislative trends included pharmacy benefit manager reforms, lowering patient costs and increasing access, and curbing high drug prices.”   

Over the past 10 years, states have attempted to reduce drug costs by addressing various business practices of pharmacy benefit managers (PBMs). In 2023, about 25% of prescription drug legislation was directed at PBM reforms. 

In 2024, it is expected that state legislators will likely continue to focus on laws intended to increase access to prescription drugs and help control drug costs.

Further information is available here.

NASBO Releases 2023 State Expenditure Report

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NASBO Releases 2023 State Expenditure Report

On December 6, 2023, the National Association of State Budget Officers (NASBO) released its 2023 State Expenditure Report: Fiscal Years 2021-2023. This annual report examines spending in the various areas of state budgets including: elementary, secondary and higher education; public assistance; Medicaid; corrections; transportation; and other areas. It also includes data on capital spending and revenue sources in state general funds.   

According to the 2023 report, total state spending (including general funds, other state funds, bonds, and federal funds) has been significantly affected by a combination of federal COVID-19 pandemic aid and rising state tax collections over the past three years. In fiscal 2023, total state spending is estimated to reach $2.96 trillion, up from $2.78 trillion in fiscal 2022. This represents an increase of 6.5%, which is mainly driven by additional general fund spending.

Other key findings include: 

  • In fiscal 2022, general fund spending increased 14.3%, which is the highest rate over the past 37-year history of the State Expenditure Report. However, in fiscal 2023, the growth in general fund spending slightly declined to 11.3%. The increase is primarily due to: 1) states spending down surplus funds following two consecutive years of strong revenue growth in fiscal 2021 and fiscal 2022; and 2) more modest revenue surpluses in fiscal 2023.
  • Spending from the states’ own funds (general funds and other state funds combined, excluding bonds) increased 12.3% in fiscal 2023.
  • In fiscal 2022, the “Medicaid” program category had the largest gain in total state spending at 11.5% while the “transportation” category is estimated to have the highest growth in fiscal 2023 at 12.9%.

The report is available here.

NIRS Report Examines Impacts of Switching Away from Defined Benefit Plans

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NIRS Report Examines Impacts of Switching Away from Defined Benefit Plans

On December 3, 2023, the National Institute on Retirement Security (NIRS) released its report, No Quick Fix: Closing a Public Pension Plan Leads to Unexpected Challenges. The report analyzed the experience of five states that shifted new employees away from defined benefit (DB) pensions to defined contribution (DC) or cash balance plans. Of the states that switched to a DC plan, the report indicated that there were increases in costs, negative cash flow and employee turnover. In addition, the retirement security of plan participants in DC plans was negatively impacted due to a large amount of “leakage” of retirement assets from the DC accounts that replaced pension plans.  

Other report findings include:

  • Of the states studied, employer costs significantly increased after closing a pension plan. In some states, poor funding practices preceded the plan closure and funding discipline improved only after closing the plan. In one of these plans, employer costs remain high even after 26 years of being closed. However, the ongoing contributions of new active members combined with sound funding practices show strong results.
  • In the closed plans, cash flows have become more negative over time as demographics shift and the plan initiates spending down its assets.
  • The available retention data indicates that retention is poor in the new plans or tiers even though claims exist that younger workers will be attracted to savings-based plans (i.e., DC and cash balance plans). The analysis indicates that workforce management has become a challenge in many of these states with closed plans.
  • When leaving a public sector job, many workers have cashed out their DC plan account balances and those amounts are likely not used for producing retirement income. The available data suggests that DC plans are failing to help many workers accumulate sufficient retirement savings.

The report concludes, “Closing a public DB plan offers no quick fix to the ongoing challenges of maintaining a robust and thriving public workforce and managing existing financial obligations. Instead, experience shows that closing a DB pension plan creates more problems for public sector employer[s] and employees for many decades.”

The report is available here.

A Comprehensive Funding Policy: The Recommended Instrument for Navigating Public Plan Funding

A funding policy for a public sector defined benefit pension or OPEB plan is a systematic set of rules and procedures used to determine the annual funding contribution requirements to be made by the employer(s) in a specific year or a series of years. Establishing and reviewing a comprehensive funding policy will help govern decision making that will lead to better financial outcomes and improved benefit security for all members of a public sector pension or OPEB plan.