From the U.S. Government Accountability Office, www.gao.gov Transcript for: 2015 Update to GAO's State and Local Fiscal Outlook Model Description: Audio Interview by GAO staff with Michelle Sager, Director, Strategic Issues Related GAO-16-260SP: State and Local Governments' Fiscal Outlook: 2015 Update Released: December 2015 [ Background Music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. It's December 2015. Across the country, state and local governments are facing uncertain fiscal futures. Since 2007, GAO has published simulations of fiscal trends in the state and local government sectors. A team led by Michelle Sager, a director in GAO's Strategic Issues team, recently updated GAO's state and local fiscal outlook. Melanie Fallow sat down with Michelle to talk about what they found. [ Melanie Fallow: ] Can you tell me a little bit about the simulations that GAO does, and what they can tell us about a state or local government's fiscal future? [ Michelle Sager: ] GAO's state and local fiscal model takes data on all revenues and all expenditures for all state and local governments in the United States based on historical data and then using the most current year of data as a jumping-off point, we then run simulations looking 50 years into the future. What this means is you can't extract information about an individual state or an individual locality, but you do get a picture of the pressures facing the sector as a whole. [ Melanie Fallow: ] So how has the outlook for states and localities changed since your last update? [ Michelle Sager: ] One of the interesting things, and kind of exciting things, about the state and local fiscal outlook for 2015 is that it is slightly more positive than it has been in recent years, and what this means is the overall picture remains the same, that the sector faces tremendous challenges in trying to maintain balance every year and trying to make sure their revenues and their expenditures are equal, but at the same time, we have seen some positive news, and that includes state and local revenues overall in the aggregate are up. Healthcare spending is still growing faster than gross domestic product, but the rate of increase is not as great as it has been in prior years, so that is also good news. And the overall economy, in terms of gross domestic product, has also grown more than it has in prior years. So when you put all of that together, it's a slightly more positive picture, but again, the overall outlook remains much the same. [ Melanie Fallow: ] So this is now the ninth time that GAO has run these simulations. Are you seeing any patterns or recurring problems? [ Michelle Sager: ] The big pattern is that the overall message has remained the same since we first ran the model in 2007, and that overall message is that state and local governments face enormous pressures in trying to maintain balance and trying to make sure their revenues and expenditures equal on an annual basis and then for every year going forward. The other thing that has remained the same is that the big driver of the pressures is health care cost, and that is also the big unknown. So we know that health care costs are not growing as fast as they have in prior years, but we also know that demographically, as a nation, we're getting older and we also have a lot of products and services to us for health care that were not available previously. When you put all of that together, it creates a lot of pressure on the system and it also remains the biggest driver for the pressures facing the sector. [ Melanie Fallow: ] Finally, for taxpayers, what would you say is the bottom line of this report? [ Michelle Sager: ] I think the bottom line is that fiscal sustainability is a national challenge, so wherever you live, whatever your local government is, whatever your state government is, you are aware maybe of policy choices that are faced on an annual basis, on a weekly basis, in terms of funding for schools, funding for roads, funding for all of the things that state and local governments do, but none of these choices are made in isolation. So the nature of our federal system is that it is interconnected, that federal, state, and local choices affect each other. So these are shared challenges and they really do require shared solutions. [ Background Music ] [ Narrator: ] To learn more, visit GAO.gov and be sure to tune in to the next episode of GAO's Watchdog Report for more from the congressional watchdog, the U.S. Government Accountability Office.