Federal Budget Update

NASBO Spring MeetingApril 20, 2012San Diego, CA

Federal Funds Information for States

It All Began….

FY 2012 appropriations completed in late December 2011.– Major discretionary programs: -2.7% versus FY 2011, -7.2%

versus FY 2010.– Major mandatory programs : +5.5% versus FY 2011, +8.5% versus

FY 2010. BCA baseline would allow +$2 billion for each of security,

nonsecurity discretionary spending in FY 2013 (+0.4%). FFIS estimates about 18% of total state funding would be

subject to sequester in January 2013.

And Then….

President’s FY 2013 budget would replace the BCA sequester with other tax and spending policies to reduce the long-term deficit.– FY 2013 discretionary spending would increase about 2.7%;

mandatory would increase 7%. House budget resolution would change everything, but its

adoption mainly signals that the process is broken:– It deviates significantly from the BCA.– The Senate intends to adhere to BCA spending levels.– Hence, no concurrent budget resolution for FY 2013.

President’s Budget FY 2013

A single, blended Medicaid matching rate; provider taxes; DSH National Preparedness Grant Program Surface transportation reauthorization (6-year) Limits on high-earner itemized deductions (including S/L taxes,

tax-exempt bond interest) Allow Bush tax cuts to expire for household incomes >

$250,000 UTF changes ESEA reauthorization

House Budget Resolution, FY 2013

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2012 2014 2016 2018 2020 2022

Total

National Defense

Global War on Terrorism

Nondefense

Federal Funds Information for States

House Budget Resolution, FY 2013

Suspends sequester provisions for FY 2013.– This results in more defense spending and less nondefense

spending in FY 2013.

Calls for reconciliation.– Affects agriculture, energy and commerce, financial services,

judiciary, oversight and government reform, ways and means.– Generates $18 billion in savings in FYs 2012-13, $261 billion

over 10 years.– Combined with lower discretionary caps, this would generate

more deficit reduction than BCA.– If unsuccessful, sequester would occur in FY 2013.

House FY 2013 Discretionary Budget Authority

Discretionary Budget Authority FY 2012 FY 2013 Dollars PercentNational Defense $554,240 $554,240 $0 0.0%Energy 4,731 2,007 -2,724 -57.6%Natural Resources & Environment 34,706 30,559 -4,147 -11.9%Agriculture 5,851 5,872 21 0.4%Transportation 33,767 30,197 -3,570 -10.6%Community & Regional Development 18,483 10,927 -7,556 -40.9%Education, Training, Employment, and Social Services 92,241 91,498 -743 -0.8%Health 56,089 56,621 532 0.9%Income Security 61,253 59,901 -1,352 -2.2%Administration of Justice 51,188 51,836 648 1.3%Global War on Terrorism 126,544 96,725 -29,819 -23.6%

Discretionary Budget Authority Under the FY 2013 House Budget Resolution, Selected Budget Functions

Change

($ in millions)

House FY 2013 – Mandatory Proposals

Medicaid becomes a block grant. (-$810 billion/10 years)– Indexed to CPI-U and population– Eliminate federal program requirements, enrollment criteria

Premium support in lieu of current Medicare. SNAP becomes a block grant.

– Based on low-income population indexed for inflation– Requires time limits and work requirements

Consolidate workforce/job training programs. Reorganize/consolidate K-12 programs. Deficit-neutral tax reform. Repeal ACA.

Which Leaves us Where?

No concurrent budget resolution. No full-year appropriations bills completed

prior to November elections. Likely lame-duck session to get things in

order between elections and January sequester.

In short, another year of muddling through.

While Nero Fiddles…

Major programs needing long-term reauthorizations:– TANF– ESEA– WIA– SAFETEA-LU

Absent reauthorizations, more short-term extensions, more inability for states to plan ahead.

Contemplating a Lame Duck Session

Looming sequestration

Need to raise the debt limit

Expiration of Bush-era tax cuts

Expiration of payroll tax cut, other tax provisions

FY 2013 budget

Uncompleted reauthorizations (TANF, highways)

The kitchen sink?

Are There Any Common Themes, Any Areas of Agreement?

Yes. Everyone references GAO report on duplication and overlap. What does this mean?– Consolidate grant programs– Homeland Security as example– Reauthorizations for ESEA, WIA and

transportation all consolidate programs– Less funding, more flexibility. At least in theory.