You asked us to provide information on (1) the fiscal pressures facing state and local governments and (2) principles to consider in determining how to effectively target and time temporary assistance to states, especially for Medicaid. This information is intended to inform ongoing congressional deliberations regarding fiscal relief to state and local governments as a component of an economic recovery initiative to respond to the current recession.
We have developed a model that enables us to simulate fiscal outcomes of the state and local sector in the aggregate for several decades into the future. The model is not designed to highlight the fiscal position of individual states. Rather, the model projects the level of aggregate receipts and expenditures of the state and local sector in future years based on current and historical spending and revenue patterns. We first published the findings from our state and local fiscal model in 2007.1 A January 2008 report provided a detailed methodology for how we constructed the model.2 For a November 19, 2008, Senate Committee on Finance hearing, we provided a statement which included updated model results based on August 2008 National Income and Product Account (NIPA) data from the Bureau of Economic Analysis.3 The findings from the model discussed in this letter include data released in the Congressional Budget Office’s (CBO) Budget and Economic Outlook on January 8, 2009.