Special Briefing: 2024 Fiscal Outlook for States and Cities

Special Briefing Panel Discussed the Economic Outlook and Budget Strategies State and Local Governments are Adopting in this Presidential Election Year

Overall, the panelist's outlook for state and local governments remains positive, with recent GDP data pointing to economic growth in all sectors. However, some cited for more infrastructure investment in revenue-generating areas in downtown business districts and more affordable housing to meet the demand for increased productivity.

“The truth is that the past several years have been challenging for our nation's municipalities, but they've also been full of opportunities and achievement,” said Clarence Anthony, CEO and Executive Director, National League of Cities. “There is a lot on the plates of local leaders, but city leaders are also resilient and optimistic, and they're determined to build their communities back better than ever before, in tandem with their state and federal partners. And the great news is that those dreams really are becoming reality in so many communities. A lot of this rebuilding and reimagining has been made possible by the unprecedented investment in cities in the past four years, including the American Rescue Plan Act and the Bipartisan Infrastructure Law. Thanks to the funds in those pivotal pieces of legislation, American cities, towns, and villages are making a strong and sustainable fiscal recovery from the recession that the pandemic brought on.”

“A year ago, there were a lot of calls [about a ] recession. And not only did we not get a recession, we got a fantastic year for the economy, and it does make you feel good about 2024,” said Mark Zandi, Chief Economist, Moody’s Analytics. “Obviously, there are lots of risks… there are things that can go off the rails, but I will say that for the first time in a long time, the risks are more symmetric. It's not only that things could turn out to be worse than anticipated, but they could actually turn out to be better than anticipated. I think the word is I think the word [I feel] is giddy,”

“We're a town of about 124,000 people and we’re home in Minnesota to the state's largest employer, which is the Mayo Clinic, and we are pleased to say that our local economy has rebounded fairly well from the pandemic,” said Kim Norton, Mayor of Rochester, Minnesota. “I would say revenues for the city have returned to normal but work from home, however, has impacted many of our businesses in the downtown area, and I think that's probably happening not only around the country but also the world…And we might need help from our state and federal partners on some incentives to make those expensive changes in our buildings.”

“We definitely see some headwinds in terms of revenue for the next year, but long term, we see continued growth. We also see the demand on those revenues and the demand on the state government to just continue to grow,” said Mark Ferrandino, Director, Colorado Office of State Planning and Budgeting. “We're in a strong place with our reserve and [we are] not over-committing, and that's one of the things we keep emphasizing with the legislature is we need to be smart of where we make investments and make sure we're not doing too much ongoing compared to one time [spending], especially with those one-time dollars we're getting with ARPA. Overall, I think things in Colorado are looking good, but we definitely are worried about the downside, but we keep living in an upside scenario.”

“In December, our economics team published its quarterly global economic outlook. And as we were just talking about, 2023 was a surprisingly good year. So good, in fact, that Fitch took off its recession forecast for 2024 in our last update, [and] we were one of those many in the consensus that we're expecting a recession, but we've pulled back on that,” said Eric Kim, Senior Director, Fitch Ratings. “We do still expect the economy here in the U.S. to slow; higher interest rates, a slowdown, and bank credit will continue filtering through the economy. Our expectation as of December was that real GDP growth would be below trend, just 1.2 percent for 2024, and very similar for 2025. We do expect labor markets to continue cooling, we did see a bit of that in the second half of ‘23 and the unemployment rate ticking up a little bit over the coming year, but we've also got a boost from fiscal policy. Specifically, the federal investments that are still coming under the Bipartisan Infrastructure Law, the Inflation Reduction Act, the CHIPS Act, and even some pandemic stimulus money that's still to be spent.”