The Impact of Sequestration
(and other federal
activities…) on State
Budgets
Association for Budgeting &
Financial Managem...
NASBO 2
The New Normal
NASBO 3
Background on State
Fiscal Situation
NASBO
Slow Budget Growth
-8
-6
-4
-2
0
2
4
6
8
10
12
%
General Fund Expenditure Growth (%)
*36-year historical average ann...
NASBO 5
Federal Fund Expenditures by
Function, Estimated Fiscal 2012
Elementary &
Secondary Education
10.9%
Higher Educati...
NASBO 6
Total State Spending by Function,
Estimated Fiscal 2012
K-12
19.8%
HigherEducation
9.9%
Medicaid
23.9%
Public Assi...
NASBO 7
General Fund Expenditures by
Function, Estimated Fiscal 2012
Elementary &
Secondary Education
34.7%
Higher Educati...
NASBO 8
Sequestration
NASBO
Impact of Sequestration on
State Budgets in 2013
9
Source: Federal Funds Information for States (FFIS) (Note: Above ...
NASBO
Impact of Sequestration on
State Budgets in 2013
10
Source: Federal Funds Information for States (FFIS) (Note: Above...
NASBO
The Example of Maryland:
Sequester Impacts
 $1.6 billion in foregone wages by MD workers
 $2.1 billion total econo...
NASBO
Other Examples
 Virginia – Sequestration contributed to sales tax
decline since April; state missed revenue
estimat...
NASBO
Sequestration: How it Works
in FY 2014 and Beyond
 For FY 2014-2021, works differently for
discretionary programs
...
NASBO
Sequestration: Economic
Effects
 On September 26, 2013, CBO released a letter
on how cancelling automatic spending
...
NASBO
Major state grant programs
affected by sequestration
15
 Major discretionary programs covered by
sequester include…...
NASBO
Major state grant programs
exempt from sequestration
16
 Most mandatory programs are exempt, such as:
 Medicaid an...
NASBO
Sequestration
Implementation Issues
17
 State contingency planning challenges
 In general, states do not have fund...
NASBO
Overall Impact on States
18
 Most grant funding exempt from sequester, but
numerous programs will be affected (espe...
NASBO 19
Shutdown…
NASBO 20
Federal Dysfunction
“Today the country’s main businesses sit on
nearly $2 trillion in cash, afraid to invest in
p...
NASBO
 MD OMB Secretary Eloise Foster said that every
day that the federal government is shut down
would cost the state $...
NASBO
 Exempted Active Guard and Reserve members
may be waiting a while to get paid, but will be
paid retroactively once ...
NASBO 23
Future Outlook
NASBO 24
Shutdown Outlook?
NASBO
Future of Sequestration
 House wants to keep sequester in place, but
reallocate cuts to protect defense
 Nondefens...
NASBO 26
www.nasbo.org
Scott Pattison
Executive Director
(202) 624-8804
spattison@nasbo.org
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The Impact of Sequestration... (Scott Pattison, 2013 ABFM Conf)

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"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

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The Impact of Sequestration... (Scott Pattison, 2013 ABFM Conf)

  1. 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
  2. 2. NASBO 2 The New Normal
  3. 3. NASBO 3 Background on State Fiscal Situation
  4. 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. 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. 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. 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
  8. 8. NASBO 8 Sequestration
  9. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
  19. 19. NASBO 19 Shutdown…
  20. 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. 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. 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
  23. 23. NASBO 23 Future Outlook
  24. 24. NASBO 24 Shutdown Outlook?
  25. 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
  26. 26. NASBO 26 www.nasbo.org Scott Pattison Executive Director (202) 624-8804 spattison@nasbo.org

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