Government spending outlook as the debt-ceiling crisis continues
Editor’s note: The following is the sixth of a six-part series on government budgets and government spending that comprise the Keating Report mid-year 2011 forecast. The topics we are covering include: federal budgets, transportation projects, state tax revenue, local government budget trends, ARRA-funded construction and government spending.
Even as lawmakers debate budget cuts, government purchases of goods and services will grow a little in the remaining quarters of 2011, and expand by about 1.4 percent in 2012, according to a recent economic analysis from Macroeconomic Advisers (MA).
On the federal debt ceiling front, MA economists recently blogged that the probability that Congress and the administration will fail to raise the debt ceiling before the Treasury runs out of cash has risen substantially. “Our initial estimates are that if such action is delayed one month while a modest deficit-reduction plan is negotiated, Treasury debt will be downgraded, interest rates will rise modestly, and the economy will enter a brief growth recession.”
Experts at MA say that better solutions to the debt ceiling crisis could still emerge, such as the debt ceiling could be raised by Congress before the Treasury runs out of cash, but that Treasury debt still would be downgraded in the process. “We believe this would have minimal effects on financial markets or the economy,” say MA economists.
Another possibility, and one that looks increasingly likely, according to MA, is a deal under which the White House can raise the debt ceiling up to three times before the next presidential election in exchange for progress on deficit reduction.
According to MA economists, total government purchases of goods and services in the U.S. (also called government consumption and gross investment) will reach $3.06 trillion in the fourth quarter of 2011 versus $3.03 trillion in 2010. State and local governments will account for $1.8 trillion, while federal purchases will exceed $1.2 trillion.
The fiscal health of state governments is getting better, according to the Washington-based National Association of State Budget Officers (NASBO). A total of 46 states closed out fiscal 2011 and began fiscal 2012 on July 1.
Revenues in fiscal 2011 are estimated to have grown 5.9 percent, following declines of 3.1 percent in fiscal 2010 and 8 percent in fiscal 2009, according to NASBO’s recent fiscal surveys. Revenue collections in 44 states are coming in either higher or on target with their most recent revenue projections. “This will likely lead to end of the year surpluses in a number of states,” reports NASBO.
At the local level, the nation’s 3,068 counties are searching for ways to reduce the cost of running local government. They are implementing green government strategies that also deliver cost-savings. A recent survey from the Washington-based National Association of Counties (NACo) found that 68 percent of respondents have sustainability strategies under way.
More than 300 respondents to the NACo survey, roughly 45 percent, said the most important benefit counties are realizing from sustainability efforts is cost savings.
View additional installments of our second-half 2011 forecast as well as the January 2011 forecast.
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