FEDERAL FUNDS AND FISCAL POLICY: EFFECT ON STATES OF FY 2012 APPROPRIATIONS, BUDGET CONTROL ACT AND BEYOND

Last Updated Dec. 20, 2011

As states move into their annual or biennial budgeting cycle, NCSL provides the following information to serve as a guide for your deliberations. This information remains tentative to some extent as Congress continues to finalize its fiscal decisions for this year. Updates will ensue.

(1)    For the current FY 2012 fiscal year, states can expect overall federal discretionary grant funds to be reduced 2.7 percent. Appropriators approved sizeable spending reductions for: weatherization assistance, state criminal alien assistance program (SCAAP), Byrne justice assistance grants, highway and highway safety programs, water revolving funds, community development block grants, low income home energy assistance (LIHEAP), the HOME program and the women, infants and children (WIC) supplemental nutrition program. (From information provided by Federal Funds Information for the States)

(2)    For the next fiscal year, FY 2013, states can expect overall federal discretionary and mandatory/entitlement programs to be reduced 8-9 percent through across-the-board reductions to non-exempt programs. Because of exemptions, these reductions will fall primarily in the program areas of education (including Title I and special education), energy (including low income home energy assistance), environment (including water revolving funds), criminal justice, labor and job training, community development and human services. In FY 2014 and beyond, discretionary and mandatory spending reductions will be determined through the appropriations process working from overall spending caps. If the caps are breached, across-the-boards cuts are instituted.

(3)    State-federal programs that are currently exempt from the FY 2013 reductions include Medicaid, the TANF block grant, Supplemental Nutrition Assistance Program (SNAP-formerly Food Stamps), Childrens’ Health Insurance Program (CHIP), Supplemental Security Income (SSI), child nutrition and other programs designed to serve low-income populations.

(4)    For the next fiscal year, FY 2013, defense appropriations including funding for base operations, defense contracting, weapons development and other activities will be reduced by approximately 10 percent. These reductions are likely to affect state economies.

(5)    Short-term relief from any existing unfunded or underfunded federal mandate is highly improbable. States are likely to pick up any inflationary costs.

(6)    Various federal issues that can affect state economies and state fiscal policy remain unresolved as of this writing. They include:

a.       Extended Unemployment Compensation Benefits. Both extended benefits and the 100 percent federal funding of these benefits expires in early January, 2012.

b.      Reduced Payroll Tax for Employees. This reduction (from 6.2 percent to 4.2 percent) expires on December 31, 2011.

c.       Optional Deduction for State and Local Sales Taxes. It and several other federal tax credits expire at year’s end. An expansion of the Alternative Minimum Tax takes effect on January 1, 2012 unless suspended.

d.      Medicare Provider Reimbursement. A 27 percent reduction in this reimbursement is scheduled to take effect January 1, 2012

(7)    Main Street Fairness and Marketplace Fairness Acts. Both introduced. House hearing held on both. Marketplace Fairness has equal, extensive bipartisan co-sponsorship.

For more information, please contact Michael Bird (202-624-8686; michael.bird@ncsl.org) and Jeff Hurley (202-624-7753; jeff.hurley@ncsl.org), staff for NCSL’s Budgets and Revenue Committee and Federal Deficit Reduction Task Force.