SEQUESTRATION 2.0 Through the County Lens WWW.NACO.ORG | MARCH 2013 - - PowerPoint PPT Presentation

SEQUESTRATION 2.0

Through the County Lens

WWW.NACO.ORG | MARCH 2013

Understanding Sequestration Context for Federal Debt and Deficit Discussion Sequestration: Congressional Action Impact of Sequestration

Overview

Federal Fiscal Cliff

Fiscal Cliff Debate: Key Issues and Timelines

Sequestration in Effect: Across-the-Board Cuts (Begin March 1, 2013) FY2013 Federal Appropriations: Process Completed for FY2013 Federal Debt Ceiling Deal: Debate Delayed to June/July 2013 President's FY2014 Budget: Release Delayed Until April 10, 2013 FY2014 Appropriations Process: Congress has Just Started Tax and Entitlement Reform: Congressional Hearings have Started

Key Dates

Congressional Budget Process: Key Dates

Source: National Journal

Sequestration

 COUNTIES ALREADY IMPACTED: Nearly 70 percent of the 2010 Bowles-Simpson Commission’s recommended cuts to discretionary spending have already been enacted into law  MORE CUTS AHEAD: With a first fiscal-cliff deal complete and sequestration enacted, Congress will re-focus its attention on resolving the debt limit issue and tax and entitlement reform

Why Counties Should Care About Sequestration and Ongoing Debt and Deficit Negotiations

Sequestration

What is Sequestration?

Sequestration: Process of applying automatic, across-the-board spending reductions evenly divided between security (defense) and non-security(mandatory/entitlement funds + annual discretionary funds) functions

• Sequestration was first enacted in 1985 as part of the

balanced budget and emergency deficit control act (commonly known as the Gramm-Rudman-Hollings Act)

• Serves as the model for the process to be used during

implementation of the Federal Budget Control Act of 2011

Sequestration

Potential Impact of Sequestration

“However, the report leaves no question that sequestration would be deeply destructive to national security, domestic investments, and core government functions.”

• OMB Report Pursuant to the Sequestration Transparency Act of 2012 (P. L. 112–155),

President’s Office of Management and Budget, September 14, 2012

Federal Budget Picture

Context for Federal Debt and Deficit Discussion and Actions

Federal Budget Picture

Nearly One-Third

• f Our Spending

is Borrowed Fiscal Year 2012 Outlays: $3.63 Trillion

Federal Budget Picture

Source: Congressional Budget Office (January 2012)

Federal Budget Picture

FY2012 Federal Budget Snapshot

Source: Congressional Budget Office (January 2012)

Federal Budget Picture

Source: Office of Management and Budget

Federal Budget Picture

Source: Fix the Debt

Projected U.S. Debt

A Historical Comparison

Federal Budget Picture

Health Care Costs are the Primary Driver of the Debt

Federal Budget Picture

Federal Spending and Revenues (Percent of GDP)

U.S. Debt Drivers

Growing Entitlement Spending

Source: Fix the Debt

Sequestration

Sequestration: Congressional Action

Sequestration

How Did We Get Here?

• Reached Old Federal Debt Ceiling in 2011
• Budget Control Act of 2011 (S. 365) Signed into

Law

• Super Committee Fails to Reach Agreement

Sequester Scheduled To Begin January 2, 2013

• American Taxpayer Relief Act (H.R. 8)

Delayed Sequester Until March 1, 2013

• Sequester Begins March 1, 2013

Sequestration Effect for 2013 Impacted by Continuing Resolution (P.L. 113-6)

Sequestration

Source: National Journal

American Taxpayer Relief Act (ATRA) Delays Sequester

Sequestration

How Did We Get Here?

Budget Control Act of 2011 (S. 365)

Signed into law August 2, 2011 Set stage for $2.4 Trillion increase in Federal debt ceiling BUT with offsetting reductions in two phases $900 Billion in savings over next 10 years, including new spending caps for 12 annual appropriations bills Established Joint Select Committee on Deficit Reduction (―Super Committee‖) to identify at least $1.5 Trillion in extra savings over 10 years

Joint Committee failed to reach agreement on savings, triggering the sequester—the across-the-board cuts in both defense and non-defense accounts each year through FY2021

Sequestration

How Did We Get Here?

American Taxpayer Relief Act of 2012 (ATRA/ H.R. 8)

Signed into law January 2, 2013 Delayed sequestration by two months to March 1, 2013

Under the original Budget Control Act of 2011 (BCA), the sequester would have occurred

• n January 1, 2013

Lowers discretionary spending caps for FY2013 by another $4 billion and by $8 billion in 2014 to offset cost of delay Cuts overall FY2013 spending by $85 billion and pro-rates FY2013 spending until the end of the fiscal year (September 30)

Sequestration

Impact of Sequestration

Sequestration

Breaking Down the FY2013 Sequester

According to the American Taxpayer Relief Act of 2012

Source: Bipartisan Policy Center

Sequestration

Breaking Down the FY2013 Sequester

Source: Center on Budget and Policy Priorities (March 22)

Sequestration

• FEMA Disaster Relief = $430 Million
• DOJ State Criminal Alien Assistance Program (SCAAP) =

$10 Million

• Education Dept’s Elementary & Secondary Education =

$789 Million

• FTA Transit Capital Grants = $96 Million
• HHS Substance Abuse & Mental Health = $168 Million
• HHS Child Care Discretionary = $115 Million
• HHS Older American / Aging Services = $75 Million
• DOJ State & Local Law Enforcement = $56 Million
• DOJ Juvenile Justice = $13 Million
• DOL WIA Title I Formula Grants to States = $162 Million
• HUD Community Development Block Grant (CDBG) =

$165 Million

• HUD HOME Investment Program = $50 Million
• HUD Section 8 Housing = $938 Million
• HUD Homeless Assistance = $96 Million
• U.S. Economic Development Administration (EDA) =

$13 Million

• USDA Rural Development = $127 Million
• Clean Water State Revolving Fund (CWSRF) =

$72.55 Million

• Drinking Water State Revolving Fund (DWSRF) =

$46.1 Million

• EPA Brownfields = $4.71 Million
• State and Local Air Quality Management = $11.76 Million
• FEMA State & Local Disaster Preparedness & Recovery

Programs = $67 Million

FY2013 Projected Cuts:

5.0% Domestic Discretionary Reduction = $25.8 Billion Total

Sequestration

FY2013 Projected Cuts:

5.1% Domestic Mandatory Reduction = $5.495 Billion Total

• Payment-in-Lieu-of-Taxes (PILT) = $20 Million
• HHS Social Service Block Grant (SSBG) = $85 Million*
• HHS Temporary Assistance for Needy Families = $1 Million
• USDA recently announced that funding for the Secure Rural Schools

(SRS) program is now subject to sequestration and is requiring that States pay back 5.1% ($17.9 million) of the FY2012 funding that had been previously dispersed to counties and rural schools

*Calculation factors in supplemental appropriation for Hurricane Sandy relief package

Sequestration

• Medicaid
• Social Security
• Medicare Part D – Low-income Subsidies
• Medicare Payments to States for

Qualified Individual Premiums

• Food Stamps (SNAP)*
• Children’s Health Insurance Funds
• Transit Formula Grants
• Grants in Aid to Airports
• Childcare Entitlement
• Veteran’s Affairs Programs
• Commodity Loans and Conservation

Reserve Program

• Crop Insurance
• Military Personnel Funding
• Pell grants
• Salary and benefits for Members of

Congress and the President

Here is a snapshot of 149 exempt programs:

What is Exempt from Sequestration?

Sequestration

Impact of Continuing Resolution on Sequester

FY2013 Continuing Resolution (P.L. 113-6)

Signed into law March 26, 2013 Ordinarily, a CR pro-rates funding for federal agencies and programs at the prior year’s level for a short period, but this CR locks in the $85 billion in sequestration or the automatic, across-the-board cuts of 5 percent for domestic discretionary programs It also contains some spending adjustments that give certain federal agencies (i.e. DOD, USDA, VA, Commerce, Homeland Security and Justice) flexibility to implement the across the board sequester cuts Additionally, it provides new and adjusted FY2013 funding levels through the end of the fiscal year (Sept. 30, 2013) for the departments of Defense, Agriculture, Justice, Commerce, Homeland Security and Veterans Affairs The CR did contain some funding increases for various federal programs that offset reductions that resulted from sequestration

Sequestration

Sequestration and Furloughs

Furloughs Will Decrease Service Delivery

The CR provides some flexibility to implement sequestration but the overall magnitude of the cuts will ensure that the announced staff furlough plans of many federal agencies could still go into effect County governments can expect decreased service delivery from their federal partners Furlough plans vary widely, with some agencies saying they won’t need to require employees to take unpaid days off, while others have projected furloughs ranging from several days to 22 days this fiscal year Where furloughs are planned, timing also differs. Several agencies, including the largest, the Defense Department, expect to start the week of April 21, while some do not expect to begin until later in the year The impact of these furloughs comes on top of stagnant salaries, numerous general hiring freezes by federal agencies and cuts to overall staffing levels

Sequestration

U.S. Department of Housing and Urban Development (HUD): will begin furloughs in May and require employees to take up to 7 days of furloughs, with one day per pay period for employees until August. HUD will be closed May 10, May 24, June 14, July 5, July 22, August 16 and August 30. Processes will slow down and there will be consequences on HUD products such as FHA insurance U.S. Environmental Protection Agency (EPA): agency employees were given notice they could be furloughed up to 13 days. In addition to the furloughs, the EPA Acting Administrator indicated other forms of money savings garnered through interagency agreements, grants, contacts are also areas that may be cut U.S. Department of Energy (DOE): stated in a Feb. 28 memo that most DOE employees would not be subject to a furlough, except the National Nuclear Security Administration and the Office of the Chief Human Capitol Officer U.S. Department of Agriculture (USDA): a successful last minute Senate amendment by Sen. Roy Blunt (R-MO) and Sen. Mark Pryor (D-AR) ended the threat of furloughing all USDA food and safety inspectors, which would have crippled the livestock industry and increased prices for consumers. The amendment transferred $55 million from U.S. Agriculture Department school-equipment grants to its Food Safety and Inspection Service in order to ensure food inspectors are not furloughed. However, 25,000 other employees within USDA, including USDA Rural Development staff will still face short-term furloughs under the CR U.S. Department of Labor (DOL): issued furlough notices to about 4,700 employees, roughly 28 percent of its workforce U.S. Border Patrol: is using a combination of reductions in overtime and furloughs. Furlough notices were issued to all 60,000 employees on March 7, providing notification that furloughs could be up to 14 days

Examples of Furlough Impacts

*Agency furlough plans continue to evolve as they implement the sequester

Sequestration

Sequestration: FY2014 through FY2021

Source: Center on Budget and Policy Priorities

For discretionary programs funded through the annual appropriations process, sequestration works very differently after FY2013 Instead of Congress enacting appropriations bills at levels that do not breach the existing discretionary caps and the President then ordering an across-the-board sequestration of the funding provided by those bills, the law requires that the sequestration of discretionary programs be implemented up front through reductions in the defense and non-defense discretionary caps themselves House and Senate Appropriations Committees will determine how to fund each agency and program within those reduced caps Essentially, after 2013, there are no automatic, proportional cuts of affected discretionary programs; instead, the Appropriations Committees (and then, more broadly, the President and Congress) decide how to fund discretionary defense and non-defense programs within the newly reduced funding caps

Sequestration

Sequestration: FY2014 through FY2021

Source: Center on Budget and Policy Priorities March 22

Debt and Deficit

Stabilizing vs. Reducing the Debt

Federal Fiscal Cliff

Areas of Continued Risk for Counties:

Continued Cuts to Discretionary Spending Medicaid cuts and cost shifts to states and counties Elimination or reforms to Tax-Exempt Municipal Bonds Elimination of state and local property, income and sales tax deductions on federal income tax forms

Deficit Reduction

It is nearly impossible to address the federal debt and deficit crisis by severely cutting domestic, non-military discretionary programs Federal assistance to state and local governments will help mitigate further layoffs; new round of cuts will most likely result from sequester Federal investments and matching funds in state and local infrastructure projects helps produce private sector jobs and improve our competitiveness Deficit reduction should NOT be accomplished by shifting costs to counties, imposing unfunded mandates, or pre-empting county programs and taxing authority Special care should be taken to ensure that reforms to Medicaid, in particular, are not simply a shift of health care costs to counties

NACo Position: Balanced Approach

Federal Policy Agenda

Key County Issues

FY2013 and FY2014 Federal Appropriations Aid to Locals Affordable Care Act and Impact on Counties MAP-21 Highway and Transit Reauthorization Multi-Year Farm Bill Reauthorization Immigration Reform and County Impact Workforce Investment Act (WIA) reauthorization PILT and Secure Rural Schools Funding and Extension White House/OMB Regulatory Review

2013 NACo Annual Conference

JULY 19-22, 2013  TARRANT COUNTY, TEXAS

Network with your peers and explore new innovations, trends and emerging practices in county government!

REGISTRATION NOW OPEN AT WWW.NACO.ORG

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Deborah Cox, NACo Legislative Director 202.942.4286 or dcox@naco.org Matthew Chase, NACo Executive Director mchase@naco.org

25 Massachusetts Avenue, N.W. ▲ Suite 500 Washington, D.C. 20001 202.393.6226 www.naco.org

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