Federal Budget ActivityFederal Budget Activity

NCSL WebinarJanuary 20, 2012

Federal Funds Information for States

Overview: BCA of 2011

Three components with potential to affect future f di ffunding for state grant programs:

Discretionary spending caps w/adjustments (done)

Joint Select Committee on Deficit Reduction (failed)Joint Select Committee on Deficit Reduction (failed)

Sequestration process (forthcoming)

Discretionary Spending Caps

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

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

l $ 08 $ 0 0 $ 6 $ 0 9 $ 0 3 $ 0 $ 066 $ 086 $ 0 $ 3 $ 6 $ 82 $ 208 $ 23

FY 2012

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

**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).

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 Appropriations Wrap-Up

FY 2012 Funding for Major Discretionary Programs Compared to FY 2011

Federal Agency Enacted CRDepartment of Education 0.1% ‐1.5%Department of Health & Human Services ‐2.9 ‐1.5Department of Housing & Urban Development ‐2.9 ‐1.5Department of Energy/EPA ‐7.6 ‐1.5Department of Justice ‐24.7 ‐1.5Department of Homeland Security ‐15 3 ‐1 5Department of Homeland Security ‐15.3 ‐1.5Department of Labor ‐2.2 ‐1.5Department of Transportation ‐3.3 ‐1.5TOTAL ‐ Major Discretionary Grants ‐2.7% ‐1.5%

What We Can Say About aWhat We Can Say About a Sequester

What We Can Guess About aWhat We Can Guess About a Sequester

FY 2010 FY 2011 FY 2012 FY 2013Total Funding $189 8 $181 0 $176 1 $160 2

Potential Impact of FY 2013 Sequester on Selected Discretionary Grant Programs

Total 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%

Impact on States

FY 2012: States got off relatively well.FY 2013+– Sequester percentage will be announced in

January 2013January 2013.– Will the BCA be implemented as passed, or

amended?

BCA, Budgets and Beyond, g y

Michael Bird/Jeff Hurley - January 20, 2012

ABC'S of BCA

Extended debt limit until 2013

Phase 1: $917 billion reduction established through ten-year caps.

Ph 2 F i f j i i d d fi iPhase 2: Formation of joint committee to reduce deficit between $1.2-1.5 trillion. Everything on the table.

If Congress fails to enact the committee’s proposal,If Congress fails to enact the committee s proposal, sequestration is triggered. 50% of cuts for defense, 50% from non-defense spending. Exempt from cuts are programs for ulnerable populations i e Medicaid SNAP

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programs for vulnerable populations; i.e. Medicaid, SNAP, UI, TANF

So....What does this mean for states?

Over $492 billion worth of non-defense discretionary spending on the chopping block

Education, public safety, energy, etc.

Increase borrowing and capital project costs?

Programs exempt in sequestration will not face reductions

Medicaid, SNAP, TANF, possible

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pimpacts from defense sequestration

(continued)( )

Pot 1: $917 billion in discretionary spending ($787 billi i h i i ) ibillion without interest savings) over ten years via spending caps.

Pot 2: $1 2 trillion ($984 billion without interestPot 2: $1.2 trillion ($984 billion without interest savings) over nine years.

$492 billion in non-defense discretionary/mandatory y yspending.With non-exempt mandatory programs omitted, the reduction to non defense discretionary programs would be

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

Total Federal Government Expenditure, Per Capita Amounts by State FY 2010Per Capita Amounts by State, FY 2010

Virginia

Alaska

New Mexico

Hawaii

Connecticut

Maryland

Massachusetts

North Dakota

Kentucky

New Mexico

US Average

Vermont

Per Capita Amounts of Federal ExpenditureSource: U.S. Census Bureau, Consolidated Federal Funds Report for Fiscal Year 2010. 5

Total Federal Expenditures as a Percent of State GDP, FY 2009 (Greater than 30%)

1. Virginia, 38.0%

2. Hawaii, 37.6%

3 New Mexico 35 7%

7. West Virginia, 32.4%

8. Maryland, 32.3%

K k3. New Mexico, 35.7%

4. Mississippi, 34.8%

5. Puerto Rico, 34.1%

9. Kentucky, 32.1%

10.Montana, 31.2%

11 Al k 31 0%5. Puerto Rico, 34.1%

6. Alabama, 32.8%11.Alaska, 31.0%

Source: Federal Funds Information for States, State Policy Reports Vol. 29, Issue 14. July 2011.13

Keeping the streak alive…

For the 15th consecutive year, Congress failed to complete the b h d f h f lappropriations process by the end of the fiscal year.

"Minibus" and "Megabus"

Budget Control Act caps FY 2012 spending at $6 8 billionBudget Control Act caps FY 2012 spending at $6.8 billion less then FY 2011 spending levels.

States should expect a 2.7 percent overall reduction in state-p pfederal discretionary programs in FY 2012.

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HANGING IN ABEYANCE - #1 Short-term budget hiccups

Payroll Tax Reduction for Individuals (expires 2/28/12)Emergency Unemployment Compensation Benefits (expires 2/28/12); 100 percent funding of Extended Benefits program (expires 2/28/12)

A variety of “tax extenders”

Optional State and Local Sales Tax DeductibilityExpansion of the AMT

Medicare provider reimbursement (expires 2/28/12)p p

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HANGING IN ABEYANCE - #2

Longer-term challenges

Revisiting issues expiring 2/28/12– Revisiting issues expiring 2/28/12

– 2001/2003/2010 tax cuts

– Debt ceiling increase

– Completing FY13 appropriations

– Reauthorizations

– All could come together post 2012 election

– All or some could be punted into 2013

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HANGING IN ABEYANCE #3

“COSTS” OF KEY FEDERAL FISCAL ISSUES

– 2% payroll tax reduction one year $ 121 billion2% payroll tax reduction, one year………………………..$ 121 billion

– Extended unemployment insurance, one year…..…………$ 44 billion

– Retain current Medicare rates, 10 years……………….......$ 351 billion

– Extend approx 80 expiring tax credits deductions 10 years $ 920 billion– Extend approx 80 expiring tax credits, deductions, 10 years.$ 920 billion

– Extend the alternative minimum tax “patch, 10 years……..$ 809 billion

– Extend all 2001,2003, 2010 tax cuts, 10 years………....….$ 4.6 trillion

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What does the fiscal future hold?Clarity

2.7 percent cut in FY 20128-9 percent reductions in FY 2013

Uncertainty

What's in store FY 2013 and beyond?What s in store FY 2013 and beyond?

Unpredictability

10 percent reduction in defense?F f d l d fi i d i i ?Future federal deficit reduction action?

Pension funding, tax-exempt financing, etc.

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Possible Future DR Starting Point?2011 Summer negotiations between White House and Congress

Discretionary Spending $1.1 TrillionMandatory Spending $498-685 Billion

-- Medicaid $100 b-- Medicaid DME $5 b-- SNF/Home Health $50 b-- Medigap $53 b-- Medical Education $14 b-- Hospital Bad Debt $14-26 bHospital Bad Debt $14 26 b-- Income Means Testing $38 b-- Clinical Labs $9-16 b-- Miscellaneous Health $41 b

-- Non Health Mandatory $264-332 b

Interest Savings $300 Billion

Total (approx.) $1.9 - 2.1 Trillion

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Comparison of Supercommittee Proposals (billions)

Budget Area 1st Dem Offer 1st Rep Offer 2nd Dem Offer 2nd Rep Offer

Jobs Bill -$450 $0 Unspecified $0

Di ti 400 250 400 200Discretionary 400 250 400 200

Health Care 475 685 400 375

Other Mand. 200 500 200 100

Chained CPI 225 225 0 225

Tax Reform 1,300 0 1,000 250

Soc. Security 0 0 0 0Soc. Secu ty 0 0 0 0

Interest 400 300 300 200

Total Savings 2,550 1,950 2,300 1,350

/ BCA/CR 1 300 1 300 1 300 1 300

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w/ BCA/CR 1,300 1,300 1,300 1,300

Total $3,850 $3,250 $3,600 $2,650

For more information

www.ncsl.org

Michael Birdmichael.bird@ncsl.org202-624-8686202-624-8686

Jeff Hurleyjeff.hurley@ncsl.orgj y@ g202-624-7753

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