Newsworthy developments in Washington, D.C. and how they affect the funding programs most valuable to communities across the country.
With the election now behind us, lawmakers in Washington are pivoting from campaign mode and getting back to work more quickly than usual. That’s because Congress and the President must soon figure out how to replace or postpone automatic funding cuts (or “sequestration”) required by the Budget Control Act of 2011. Barring action to repeal or delay sequestration between now and the end of the year, the nation will experience $109.3 billion in automatic budget cuts in FY13, split evenly between defense and non-defense spending.
Sequestration Recap: The threat of sequestration became reality in August 2011 when Congress passed, and the President signed, the Budget Control Act. In exchange for raising the nation’s debt ceiling to avoid default on the government’s debt obligations, the law called for federal program spending cuts to reduce the federal budget deficit. For some perspective, the Office of Management and Budget released a report outlining the impact of the scheduled sequestration cuts. The National Association of Counties also produced a useful presentation that explains how sequestration would impact the federal budget, especially programs that benefit counties — and how the sequestration process would work.
As would be expected, the scheduled spending sequester will have acute and tangible ramifications for local governments across the nation. Spending cuts will not differentiate between programs on the basis of necessity or effectiveness; nor will they be imposed broadly and equally. Any local government with a revenue mix heavily reliant on federal funding will feel the effects.
Preparing for Cuts
Although many Washington insiders are skeptical that the plan will be implemented, at least in full, local finance officials nationwide are girding for its potential impact. Many local and state governments are already preparing for the worst.
District of Columbia
Despite ending fiscal year 2012 with a projected $140 million surplus, the threat of sequestration has led District of Columbia Mayor Vincent Gray to severely limit most non-essential travel, hiring and pay raises. Gray issued an executive order, signed Oct. 2, that prohibits the hiring of new employees or extending the terms of existing term employees, freezes promotions, pay raises, reclassifications, bonuses and awards, freezes travel — except travel within 50 miles of the District that includes only the use of government vehicles, cabs or Metro — and freezes training, seminars and conferences, except those conducted by D.C. employees at D.C. government facilities. Agencies may apply to the Office of the City Administration for a waiver.
Gray urged lawmakers to consider the looming effects of sequestration as they hash out the city’s spending priorities for fiscal year 2013 and a supplemental budget for the rest of the current year. Source: The Washington Times
Fairfax County, VA
Although direct revenue from the federal government accounts for only one percent of the county’s general fund, Fairfax County, VA is expected to set aside over $7 million in a reserve for pending federal sequestration cuts. In addition to setting up the $7 million fund, the County has asked each agency to prepare for 5 percent budget reductions. Source: The Washington Post
State of Vermont
State lawmakers and budget officers in Vermont are making contingency plans for the effects of sequestration. Aside from setting aside a one-time reserve to prepare for federal reductions, officials are approaching federal reductions from a broad perspective, reviewing how federal funds might diminish over the course of the next decade.
Vermont set up an informal process with regular meetings of the budget team to conduct a thorough review of all the programs for which the state receives federal funds. The team looks at the climate in Washington and the effect any potential federal action would have on those programs. The fiscal offices of both the executive and legislative branches also conduct a semi-annual review of that initial review to develop a consensus analysis. Source: Capitol Ideas
Why We’re Hopeful
For all the consternation over looming cuts, we’re optimistic that lawmakers will not only delay the cuts but that the White House and a new Congress can also form a bigger budget deal in early 2013.
In fact, it appears as if senior members of both parties are poised to pass a measure during a lame duck session that would add additional time to the fiscal clock. As of late last week, lawmakers were talking openly about kicking down the road the date that would trigger initial spending cuts. Republican leaders say revenues are on the table as part of a long-term budget agreement, though higher tax rates for high-income households are not.
The President too says he willing to compromise on nearly all elements of his own deficit reduction plan, with one exception: any agreement must be “balanced.” Though the White House has been outward in its desire to raise taxes on individuals making more than $200,000 annually (or $250,000 for married couples), it’s important to note that tax increases come in many forms - not just higher rates.
Broader Implications?
With the above in mind, it’s important to take a step back and grasp what the threat of sequestration really means for local governments moving forward. For one, it’s clear that the federal spigot isn’t drying up tomorrow. Congressional members and the President are fearful of taking the political blame for drastic cuts to hometown services. Their growing sense of urgency to address the looming fiscal cliff is palpable.
That being said, recent development should serve as one more signal that local government leaders must work harder in years ahead to break away from being so heavily dependent on federal spending. There’s no doubt that federal aid to states and local governments for certain programs will take a hit over the next decade. The scenarios of either sequestration, postponement of sequestration, or a “grand bargain” to prevent sequestration, each involve cuts in spending - and local leaders will ultimately have to make decisions on those cuts.
About James Alfano
Prior to joining Gov1, James served as Grants Director at the Washington D.C.-based municipal lobbying firm, Marlowe & Company. Representing local governments across the country, James worked with clients to implement successful legislative strategies that targeted hundreds of millions in federal funding through both the annual appropriations process and federally administered grant programs. Mr. Alfano is also the founding editor of the FundBook, a free information resource read by over 10,000 local governments and two-thirds of Congress.