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“FISCAL CLIFFS, SEQUESTRATION, DEFICIT REDUCTION

“FISCAL CLIFFS, SEQUESTRATION, DEFICIT REDUCTION. 2. HOUSE AND SENATE WAYS AND MEANS AND FINANCE COMMITTEES: JOINT ECONOMIC AND FISCAL ORIENTATION. MICHAEL BIRD SENIOR FEDERAL AFFAIRS COUNSEL NATIONAL CONFERENCE OF STATE LEGISLATURES January 7, 2013. 3. FOR THE RECORD.

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“FISCAL CLIFFS, SEQUESTRATION, DEFICIT REDUCTION

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  1. “FISCAL CLIFFS, SEQUESTRATION, DEFICIT REDUCTION

  2. 2 HOUSE AND SENATE WAYS AND MEANS AND FINANCE COMMITTEES: JOINT ECONOMIC AND FISCAL ORIENTATION MICHAEL BIRD SENIOR FEDERAL AFFAIRS COUNSEL NATIONAL CONFERENCE OF STATE LEGISLATURES January 7, 2013

  3. 3 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

  4. 4 ‘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.

  5. 5 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

  6. 6 SEQUESTRATION FROM 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)

  7. **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. 7 BCA “DEFICIT SAVINGS”

  8. 8 Discretionary Spending Caps “Pot 1" - $917 billion in savings over 10 years from defense/non-defense discretionary spending

  9. 9 What We Can Say About a Sequester- “Pot Two" (non-defense) FFY 12 domestic discretionary and mandatory spending that goes to states

  10. 10 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

  11. 11 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

  12. 12 What We Can Say About a Sequester- “Pot Two" (defense) Total Funding: $530 billion in FY 2012

  13. 13 What We Can Guess About a Sequester

  14. 14 Impact of BCA’S Sequestration on NEW HAMPSHIRE- nondefense“Pot Two“

  15. 15 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

  16. 16 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

  17. 17 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

  18. 18 WHAT’S DRIVING THIS FISCAL CRISIS?

  19. 19 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

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  22. 22 Federal Spending By Category

  23. 23 Nondefense Discretionary Spending2011 Education, Training, Employment, and Social Services Other* 16% 20% 15% Administration of Justice 9% Transportation 9% International Affairs 11% Income Security 10% 10% Health Veterans' Benefits and 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.

  24. 24 MOST OF THIS “STUFF” HAS BEEN NEGOTIATED BEFORE – HERE ARE SOME EXAMPLES

  25. 25 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

  26. 26 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

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  30. 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)

  31. 31 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

  32. For more informationmichael.bird@ncsl.org; 202-624-8686; jeff.hurley@ncsl.org ; 202-624-7753

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