From the summary:
Fiscal sustainability presents a national challenge shared by all levels of government. GAO’s simulations of long-term fiscal trends in the state and local government sector—published since 2007—have consistently shown that state and local governments face long-term fiscal pressures driven largely by the rising health-related costs of Medicaid and the costs of health care compensation for employees and retirees. Absent any policy changes, the state and local government sector faces a gap between expenditures and receipts in future years. Closing this gap will require state and local governments to make policy changes to assure that receipts are at least equal to expenditures.
GAO’s model uses the Bureau of Economic Analysis’s (BEA) National Income and Product Accounts (NIPA) as the primary data source and presents the results in the aggregate for the state and local sector as a whole. The model shows the level of receipts and expenditures for the sector until 2065 based on current and historical spending and revenue patterns. The model assumes that the current set of policies in place across state and local government remains constant to show a simulated long-term outlook. GAO’s model incorporates Congressional Budget Office (CBO) economic projections, which capture near-term cyclical swings in the economy. Because the model covers the sector in the aggregate, the fiscal outcomes for individual states and localities cannot be identified. This product is part of a body of work on the nation’s long-term fiscal challenges.