"The Impact of Sequestration (and other federal activities) on State Budgets" presentation by Scott Pattison, National Association of State Budget Officers, presented during "Sequestration's Impact on State Budgets" plenary session, 2013 ABFM Annual Conference, October 3, 2013
Transaction Management in Database Management System
The Impact of Sequestration... (Scott Pattison, 2013 ABFM Conf)
1. The Impact of Sequestration
(and other federal
activities…) on State
Budgets
Association for Budgeting &
Financial Management
October 3, 2013
Scott Pattison
Executive Director
National Association of State Budget Officers
444 North Capitol Street, NW, Suite 642 • Washington, DC 20001 • (202) 624-5382 • www.nasbo.org
4. NASBO
Slow Budget Growth
-8
-6
-4
-2
0
2
4
6
8
10
12
%
General Fund Expenditure Growth (%)
*36-year historical average annual rate of growth is 5.5 percent *Fiscal 2014 numbers are recommended
Source: NASBO Spring 2013 Fiscal Survey of States
*Average
5. NASBO 5
Federal Fund Expenditures by
Function, Estimated Fiscal 2012
Elementary &
Secondary Education
10.9%
Higher Education
3.5%
Medicaid
43.9%
Public Assistance
2.6%
Corrections
0.2%
Transportation
8.0%
All Other
30.9%
Source: NASBO State Expenditure Report
6. NASBO 6
Total State Spending by Function,
Estimated Fiscal 2012
K-12
19.8%
HigherEducation
9.9%
Medicaid
23.9%
Public Assistance
1.4%
Corrections
3.2%
Transportation
8.1%
All Other
33.7%
Source: NASBO State Expenditure Report
7. NASBO 7
General Fund Expenditures by
Function, Estimated Fiscal 2012
Elementary &
Secondary Education
34.7%
Higher Education
10.0%
Medicaid
19.6%
Public Assistance
1.5%
Corrections
7.0%
Transportation
0.5%
All Other
26.6%
Source: NASBO State Expenditure Report
9. NASBO
Impact of Sequestration on
State Budgets in 2013
9
Source: Federal Funds Information for States (FFIS) (Note: Above figures only include programs that are part of
FFIS VIP Series.)
The largest grant
programs (in terms of
funding) are exempt
from sequestration
82% of federal funds
for major grant
programs to states
are exempt
10. NASBO
Impact of Sequestration on
State Budgets in 2013
10
Source: Federal Funds Information for States (FFIS) (Note: Above figures only include programs that are part of
FFIS VIP Series.)
Sequester affected the
majority of grant
programs for states,
which are mostly
discretionary,
however…
11. NASBO
The Example of Maryland:
Sequester Impacts
$1.6 billion in foregone wages by MD workers
$2.1 billion total economic impact from
sequester
MD has set $100 million aside in anticipation of
lost revenues due to the sequester.
11
12. NASBO
Other Examples
Virginia – Sequestration contributed to sales tax
decline since April; state missed revenue
estimates for all tax sources
Connecticut –concerned about long term
economic impacts more than direct budget
effects of the sequester
Wisconsin – Concerned about economic effects
more so than grant funding losses
12
13. NASBO
Sequestration: How it Works
in FY 2014 and Beyond
For FY 2014-2021, works differently for
discretionary programs
Implemented by reducing BCA spending caps
Still 50/50 split between defense and nondefense
Cuts administered through appropriations process
(in theory)
Enforced by sequestration (triggered after
Congress adjourns in January)
Cuts to non-exempt mandatory programs work
same as in FY 2013
13
14. NASBO
Sequestration: Economic
Effects
On September 26, 2013, CBO released a letter
on how cancelling automatic spending
reductions would affect 2014 economy
CBO estimated that cancelling the cuts
(beginning in FY 2014) would increase GDP by
0.6 percent and increase employment by 800k
by the last quarter of calendar year 2014
Although output and employment would be
higher, cancelling the cuts would lead to
greater federal debt
14
15. NASBO
Major state grant programs
affected by sequestration
15
Major discretionary programs covered by
sequester include…
Title I Education grants
Special Education (IDEA) grants
Head Start
LIHEAP
Women, Infants and Children (WIC) nutrition
grants
Few mandatory programs affected
Example: Social Services Block Grant (SSBG)
16. NASBO
Major state grant programs
exempt from sequestration
16
Most mandatory programs are exempt, such as:
Medicaid and CHIP
SNAP (food stamp program)
Child nutrition programs
Temporary Assistance for Needy Families (TANF)
Most highway and other surface transportation
programs also exempt
17. NASBO
Sequestration
Implementation Issues
17
State contingency planning challenges
In general, states do not have funds to make up
for all federal cuts
Looming uncertainty, first over whether sequester
would be triggered, now over whether it will
remain in place
Lack of clear guidance from federal agencies
Legal questions and conflicts
Secure Rural Schools
Mineral royalty payments
18. NASBO
Overall Impact on States
18
Most grant funding exempt from sequester, but
numerous programs will be affected (especially
in education)
Grants that support local programs
disproportionately affected
States are generally more concerned about
indirect effects than direct budgetary impact
Lower tax collections, economic slowdown,
especially in states with many federal employees
and/or large defense presence
20. NASBO 20
Federal Dysfunction
“Today the country’s main businesses sit on
nearly $2 trillion in cash, afraid to invest in
part because corporate bosses cannot
imagine any of Washington’s feuding
partisans fixing anything.”
The Economist, March 16, 2013
21. NASBO
MD OMB Secretary Eloise Foster said that every
day that the federal government is shut down
would cost the state $5 million in lost revenue,
including about $1 million in lost sales-tax
dollars.
VA Secretary of Finance Ric Brown said “The
biggest impact on us is probably the economic
impact on the federal workforce.”
CT OPM Secretary Benjamin Barnes said a
shutdown could have “a serious negative impact
on state revenues,”
21
22. NASBO
Exempted Active Guard and Reserve members
may be waiting a while to get paid, but will be
paid retroactively once Washington funds the
government again. The members that are under
emergency furlough will not get retroactive pay
unless Congress passes a law authorizing that
pay.”
22
25. NASBO
Future of Sequestration
House wants to keep sequester in place, but
reallocate cuts to protect defense
Nondefense programs would see even larger cuts
Senate and President Obama want to replace
sequester with a combination of targeted
spending cuts and revenue increases
Chained CPI proposal
No “grand bargain” in sight
May be modest changes made, but will likely stay
in effect for the most part
25