“FISCAL CLIFFS, SEQUESTRATION, DEFICIT REDUCTION

“FISCAL CLIFFS, SEQUESTRATION, DEFICIT REDUCTION

MICHAEL BIRD

SENIOR FEDERAL AFFAIRS COUNSEL

NATIONAL CONFERENCE OF STATE LEGISLATURES

January 7, 2013

2

HOUSE AND SENATE WAYS AND MEANS AND FINANCE

COMMITTEES: JOINT ECONOMIC AND FISCAL

ORIENTATION

FOR THE RECORD WWW.NCSL.ORG FOR MORE INFORMATION

COMMENTS AND ANALYSES ARE MINE, NOT REPRESENTATIVE NECESSARILY OF NCSL POLICY

COMMENTS AND ANALYSES BASED ON CURRENT LAW

UPCOMING EVENTS WHERE THIS TOPIC WILL BE REVISITED:

– TO BE SCHEDULED WEBINARS

– MAY 2-4, 2013 SPRING FORUM

– AUGUST 12-15, 2013 LEGISLATIVE SUMMIT

3

‘CLIFF’ AVERTED H.R. 8, “THE AMERICAN TAXPAYER ACT”

GENERATES APPROXIMATELY $620 BILLION IN NEW REVENUE OVER 10 YEARS VIA VARIOUS TAX CHANGES

CONTRIBUTES APPROXIMATELY $4.6 TRILLION OVER 10 YEARS TO THE NATIONAL DEBT VIA VARIOUS TAX AND OTHER CHANGES

POSTPONES THE SEQUESTER TO MARCH 1, 2013. COST THAT IS OFFSET: $24 BILLION.

TEMPORARILY “FIXES” MEDICARE PROVIDER REIMBURSEMENTS, EMERGENCY UNEMPLOYMENT COMPENSATION BENEFITS, QI AND TMA PROGRAMS, FARM BILL, VARIOUS TAX CREDITS AND DEDUCTIONS.

4

THE LOOMING ’CLIFFS’ OF ’13 February Debt Ceiling

March 1 Sequestration

March 27 Continuing Resolution Ends

February-April President’s ’14 Budget and Congress’ Budget Resolutions

All Year Long Reauthorizations

5

SEQUESTRATIONFROM THE BUDGET CONTROL ACT OF 2011: Three components with potential to affect future funding for state grant programs:

Discretionary spending caps w/adjustments (done)

Joint Select Committee on Deficit Reduction (failed)

Sequestration process (forthcoming)

6

**August, 2011, deal increases debt ceiling by $2.1 trillion in exchange for the below:

“Pot” 1: $917 billion in discretionary spending ($787 billion without interest savings) over ten years via spending caps.

“Pot 2” 2: $1.2 trillion ($984 billion without interest savings) over nine years.– $492 billion in non-defense discretionary/mandatory spending.– With non-exempt mandatory programs omitted, the reduction

to non-defense discretionary programs would be $44 billion per year.

– $492 billion in defense discretionary spending.

BCA “DEFICIT SAVINGS”

7

Discretionary Spending Caps

FY 2010 FY 2011 President House Agreement FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021Security** $683 $689 $719 NA $684 $686 NS NS NS NS NS NS NS NSNon-Security $402 $361 $397 NA $359 $361 NS NS NS NS NS NS NS NS Total $1,084 $1,050 $1,116 $1,019 $1,043 $1,047 $1,066 $1,086 $1,107 $1,131 $1,156 $1,182 $1,208 $1,234

Dollar change from previous year -$34 $66 -$31 -$7 $4 $19 $20 $21 $24 $25 $26 $26 $26Percent change from previous year -3.2% 6.3% -2.9% -0.7% 0.4% 1.8% 1.9% 1.9% 2.2% 2.2% 2.2% 2.2% 2.2%

*Figures exclude funding for overseas contingency operations

Sources: FY 2012 budget for FY 2010 and FY 2012 President; House Budget Committee website for House FY 2012; NGA for FY 2011

FY 2012

Discretionary Spending Limits Under Budget Control Act of 2011*($ in billions)

**Security spending consists of spending from within the departments of Defense, Homeland Security, VA, National Nuclear Security Administration, intelligence community management, and budget function 150 (international affairs).

8

“Pot 1" - $917 billion in savings over 10 years from defense/non-defense discretionary spending

What We Can Say About a Sequester- “Pot Two" (non-defense)

9

FFY 12 domestic discretionary and mandatory spending that goes to states

SELECTION OF PROGRAMS EXEMPT FROM SEQUESTRATION

Most Transportation Programs

Medicaid (vendor payments and administration)

Pell Grants

Children’s Health Insurance Program

Most child nutrition and Food Stamp programs

Most child care, child support enforcement, foster care and adoption assistance programs

10

Programs Not Exempt from Sequestration

Education (elementary, secondary, vocational, higher)

Employment and Training

Energy

Environment

Agriculture/Natural Resources

Justice

Housing/Community Development

Social Services (non-mandatory programs)

Health (non-Medicaid/CHIP programs)

National Forests/Mineral Leasing

Defense

11

What We Can Say About a Sequester- “Pot Two" (defense)

Covered65%

35%

Total Funding: $530 billion in FY 2012

12

What We Can Guess About a Sequester

FY 2010 FY 2011 FY 2012 FY 2013Total Funding $189.8 $181.0 $176.1 $160.2Annual Change -$8.8 -$4.9 -$15.8Annual Percent Change -4.6% -2.7% -9.0%Cumulative Change -$8.8 -$13.7 -$29.6Cumulative Percent Change (compared to FY 2010) -4.6% -7.2% -15.6%

Potential Impact of FY 2013 Sequester on Selected Discretionary Grant Programs

13

Impact of BCA’S Sequestration on NEW HAMPSHIRE- nondefense

“Pot Two“

FFY 2012 - Exempt $1,287,719,000

FFY 2012 - Covered $ 376,672,000

Total $1,664,391,000

Hypothetical FFY 2013 Covered $ 344,197,000

FFY 1013 for covered programs compared to FFY 2012

$ - 32,476,000

14

Federal Government Expenditures –New Hampshire-2010

Retirement and Disability $4.3 billion

Other Direct Payments $2.4 billion

Grants $2.3 billion

Procurement $1.4 billion

Salaries and Wages $0.9 billion

TOTAL $11.3 billion

Source: Consolidated Federal Funds Report for Fiscal Year 2010

15

Per Capita Federal Government Expenditures, by State, all Categories

New Hampshire $ 8,400 +

USA average $10,000 +

Source: Consolidated Federal Funds Report for Fiscal Year 2010

16

New Hampshire - Rank – Per Capita Federal Expenditures - 2010

Retirement and Disability 18th

Other Direct Payments 46th

Grants 44th

Procurement 28th

Salaries and Wages 40th

OVERALL 46th

17

WHAT’S DRIVING THIS FISCAL CRISIS?

18

SUMMARY OF THE CHALLENGE “$1.00 SPENDING WITH 60 CENTS OF REVENUE (PLUS FOREGONE

REVENUE)

DOZEN + YEARS OF “EMERGENCY” AND “NON-OFFSETTING” FISCAL POLICY VIA BIPARTISAN AGREEMENTS

FOUR STRAIGHT YEARS OF TRILLION DOLLAR + DEFICITS

GREAT RECESSION PLUS EARLY 2000’S RECESSION

SLOWER ECONOMIC RECOVERY THAN HISTORICAL STANDARDS

19

20

21

Federal Spending By Category

22

Nondefense Discretionary Spending2011

Administrationof Justice

20%

16%

15%

11%

10%10%

9%

9%

Other*

InternationalAffairs

Health Veterans' Benefits and Services

Income Security

Transportation

Education, Training,Employment, andSocial Services

R ce: Congressional Budget Office.* Includes funding for natural resources and environment; general science, space, and technology; general government; community and regional development; agriculture; Medicare and Social Security (for administrative activities); energy; and commerce and housing credits.

23

MOST OF THIS “STUFF” HAS BEEN NEGOTIATED BEFORE – HERE ARE SOME EXAMPLES

24

DEFICIT REDUCTION “NEGOTIATIONS”

President Obama/Speaker Boehner (2011-2012)

Vice President Biden/House and Senate members

Senate “Gang of Six” (44)

House “Gang of 100”

Super Committee of 2011

House FY 2013 Budget Resolution

President’s FY 2013 Budget

Vice President Biden/Senate Minority Leader McConnell

25

Common Features Among Reports/Negotiations

Comprehensive in scope– include both spending and revenue

recommendations– put everything or most everything on the table

Bipartisan

Primarily federal policymakers

Missing ingredient: state and local government impact

26

27

28

29

Major Areas with Potential Repercussions for State-Federal Fiscal Partnerships

Domestic discretionary spending

Medicaid, Medicare and other mandatory and entitlement programs (provider taxes, DSH, blended rates, unfunded mandates, more)

Federal tax reform (deductibility)

Federal tax expenditures (tax exempt financing)

Social security (mandatory social security participation)

30

SOURCES FOR SLIDES:

SLIDES 8-9 Federal Funds Information for the States, NCSL Federal Funds Webinar, January, 2012

SLIDES 15-16 -17, Consolidated Federal Funds Report, FY 2010

SLIDES 20-21-28-29, Bill Hoagland, Bipartisan Policy Center, NCSL Fall Forum, Dec. 2012

All Others, NCSL

31

For more [email protected]; 202-624-8686; [email protected] ; 202-624-7753

Documents

“FISCAL CLIFFS, SEQUESTRATION, DEFICIT REDUCTION