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2007-2008 Policies for the Jurisdiction of the:
Budgets and Revenue Committee

Budgets and Revenue Committee
Standing Committee Main Page
Staff Contacts

Policies:

Federal Grants & Programs	Federal Mandate Relief	Financial Policies that Reward Work: Earned Income Tax Credit and Individual Development Accounts (Joint policy with Human Services and Welfare)
Fiscal Federalism	Free Online Tax Preparation and Electronic Filing	Homeland Security and Emergency Preparedness: An Underfunded National Expectation
Maintaining a Balanced Federal Budget	National Conference of State Legislatures Supports and Urges Enactment of S. 2152, The Sales Tax Simplification and Fairness Act.  (Action Resolution).  (Joint Policy with Communications, Financial Services and Interstate Commerce)	NCSL Calls Upon the Federal Government to Meet Its Responsibilities To The States
Nexus in the New Economy: Ensuring a Level Playing Field for all Commerce (Joint Policy with Communications, Financial Services and Interstate Commerce)	Payments in Lieu of Taxes Program (Joint policy with Agriculture and Rural Development)	State Legislator's Tax Issues

Homeland Security and Emergency Preparedness: An Underfunded National Expectation

While the experience of the terrorist attacks of September 11, 2001, the subsequent anthrax attack on the Capitol, the Hurricane Katrina disaster, and the threat of avian flu have prompted Americans to become better prepared for national disasters or threats to homeland security, nearly two-thirds of our citizens do not believe that government is adequately prepared to respond to such events.  There is a general consensus among federal, state, and local public policy leaders, and emergency management experts that “all disaster response is local,” that any response to a terrorist attack or natural disaster begins at the local level where the event occurs, and involves state and federal response as local, then state, resources are overwhelmed by the magnitude of the event. 

Therefore, the National Conference of State Legislatures, urges Congress and the Administration to join with NCSL and other organizations representing state and local government in a “Partnership for Preparedness.”

Specifically, the National Conference of State Legislatures (NCSL) urges Congress and the administration to maintain and improve funding for homeland security and natural disaster preparedness and response by state and local governments to:

a) Continue to channel funding directly to the states to ensure compliance with statewide strategies for maximum coordination; and require that such funds be subject to the state legislative oversight or the state appropriation process to ensure the coordination, accountability, and long–term viability of these activities;

b) Permit state flexibility among grant program categories for spending-planning, training, equipment, and exercises allowing transfer of funds across categories;

c) Continue to provide a minimum grant even for states that appear to have low risk, vulnerability, and criticality factors, in order to sustain the basic response infrastructure for public safety and public health emergencies;

d) Consult with NCSL and state legislatures regarding each state's cost for the development and implementation of performance standards and other accountability measurements related to grant programs; and

e) Ensure that any grant funds complement, and DO NOT replace, existing funding sources for other key programs such as first responder programs that existed prior to September 11, 2001.

In addition, NCSL urges Congress and the administration to:

• Recognize the strain on personnel, equipment, and other resources that activation of the National Guard for federal services poses for state and local ability to secure the homeland from terrorism and natural disasters; and to work with state legislatures to develop programs to ensure adequate resources to maintain domestic security while addressing any needs of national security such as utilization of retired National Guard and Reserves as State Guard units for domestic purposes only.
• Develop a centralized grant application process for homeland security and emergency preparedness activities; utilize an all-hazards approach including terrorism, natural and man-made disasters, and public health emergencies; and avoid adding new compliance requirements to existing grant programs.
• Establish a separate intergovernmental affairs office within the DHS Office of State and Local Government Coordination to facilitate exchange of information and strengthen the “Partnership for Preparedness.”
• Fund the Emergency Management Planning Grants (EMPG) at a level that meets current needs.
• Provide funding to support the Emergency Management Assistance Compact (EMAC).
• The Department of Homeland Security (DHS) should work closely with NCSL, individual state legislatures, state emergency management and public safety leaders to meet the goal of fully funded and fully operating Fusion Centers that blend relevant law enforcement and intelligence information analysis and coordinate security measures to reduce threats in their communities by 2008, and to continue to improve the quality and quantity of analytical intelligence products that are provided to state and local governments.
• The Department of Homeland Security should direct its team of four universities conducting research on advanced methods for information analysis and developing computational technologies that contribute to securing the homeland to recognize the role of state and local agencies as partners in the network of information users and to identify research opportunities for partnering with other state universities and state officials on a risk-based prioritization to share in translating research into practice at the state and local levels across the country.

August 2009

Federal Grants and Programs

The National Conference of State Legislatures (NCSL) urges the federal government to maintain its existing financial commitments to state-federal partnership programs. Too often, the federal government has responded to budget pressures by simply shifting costs to the states. The federal government should not attempt to accomplish national goals through unfunded mandates on state and local governments.

NCSL believes that the federal government must:

• Maintain its financial commitment to federal programs that rely on state participation for implementation;
• Maintain its matching rate for federal programs for which it shares responsibility with state governments. Any reduction in the matching rate for shared programs must have a corresponding reduction in the regulatory and administrative burdens imposed on states;
• Reject any plan to increase federal domestic programs at the expense of funding for state administration or state sharing ratios;
• Streamline the waiver process that states are subject to concerning education, the environment, human services, Medicaid and other health programs;
• Provide stable and predictable funding for state-federal partnership programs;
• Fully fund the long-term maintenance as well as the short-term startup costs of federal mandates;
• Avoid the unsound practice of delaying the release of funds for state-federal programs within a fiscal year;
• Avoid capping federal entitlement spending while retaining the legal entitlement obligation of the states;
• Avoid the long-term commitment of funds based on short-term revenue projections; and
• Limit the federal oversight role of state grant funds to audit and evaluation.

NCSL believes the devolution of certain federal responsibilities to the states should constitute a serious attempt at restoring balance to the state-federal partnership. To that end, the NCSL has developed a set of principles to be considered with regard to any new block grant the federal government creates. Because state legislatures are the bodies that are most involved in the decision-making process with regard to program delivery in the states, we urge Congress and the administration to adhere to the following principles when constructing any new block grant plan or revising any existing block grant program:

• Funding levels for block grants must be adequate to finance mandated programs and to respond to economic changes. 
• In the event that Congress imposes "maintenance of current level of services" mandates on funds appropriated for any federal grant program, Congress should provide the funds necessary to maintain and support the current levels of services existing at the time of such mandates. State "maintenance of effort" (MOE) clauses are inappropriate for program consolidations. Requiring states to spend a fixed amount while implementing decreases in federal funding for block grants is equivalent to an unfunded mandate.
• The consolidation of categorical programs into a single funding stream, should not be accompanied by a limitation in the types of services provided or constitute new mandatory categories of services.
• Language should be included in any block grant legislation that allows federal block grant funds to be distributed or expended "according to state law." Federal law must allow each state to choose the manner of appropriation of federal block grants. States should be authorized to determine the branch of state government that is responsible for carrying out public participation requirements.
• Maximum flexibility in terms of program implementation and administration should be maintained.
• Technical assistance to states by federal agencies during transition to any block grant should be continued.
• State reporting requirements should not be burdensome or require the use of funds that would otherwise be spent on program delivery.
• The Federal government should not create new entities to oversee the implementation of any block grants to the states.   
• It is critical that federal agencies and their administrators rely on the single audits prepared by the states. The federal government should pay the full costs for performing these audits.

August 2010

Federal Mandate Relief

The growth of federal mandates and other costs that the federal government imposes on states and localities is one of the most serious fiscal issues confronting state and local government officials. NCSL has worked diligently over the past quarter century to restore a balance to the intergovernmental fiscal partnership and raise the awareness of the problem of unfunded and underfunded federal mandates. NCSL applauds the success of the Unfunded Mandates Reform Act of 1995 (UMRA; P.L. 104-4) in bringing attention to the fiscal effects of federal legislation on state and local governments, improving federal accountability and enhancing consultation. However, unfunded and underfunded federal mandates continue to pose an undue burden on state and local governments. NCSL calls upon the federal government to reassess the Unfunded Mandate Reform Act and to broaden its scope and increase its effectiveness.

The manner in which the federal government imposes costly unfunded mandates on state and local governments is multi-faceted, including:

• direct federal orders without sufficient funding to pay for their implementation,
• burdensome conditions on grant assistance;
• cross sanctions and redirection penalties that imperil grant funding in order to regulate and preempt the states actions in both related and unrelated programmatic areas;
• amendments to the tax code that impose direct compliance costs on states or restrict state revenues;
• overly prescriptive regulatory procedures that move beyond the scope of congressional intent;
• incomplete and vague definitions which cause ambiguity; and
• perceived or actual intrusion on state sovereignty.

These actions have resulted in substantial costs to state and local governments, and collectively, have eroded state legislators' control over their own states' budgets. Continued pressure for mandatory federal spending and restrictions on the growth of discretionary spending promote a tendency to seek the accomplishment of national goals through federal mandates on state and local governments.

Therefore, NCSL advocated passage of the bipartisan Unfunded Mandate Reform Act as a first step in eliminating the practice of unfunded federal mandates. UMRA has raised awareness of the problem of unfunded mandates, improved federal accountability, and enhanced consultation between the federal government and states and localities. NCSL also applauded passage of the State Flexibility Clarification Act of 1999 (P.L. 106-141) that expands the requirement for cost estimates and mandate statements for legislation that caps federal funding for large entitlement grant programs without providing offsetting state flexibility. NCSL is encouraged that many federal lawmakers have recognized the difficulties posed by unfunded and underfunded federal mandates and are pursuing means to require that the federal government meet its commitments to the states.

 NCSL continues to demand sufficient federal funding for state-federal partnership programs through the mechanism of mandatory spending. If the federal government is unwilling to provide such funding as an entitlement to the states, states should be absolved of their legal responsibility to provide services to entitled individuals and fulfill other federal mandates. A promising approach is the "trigger" mechanism that delays the testing requirement contained in the Elementary and Secondary Reauthorization Act of 2001 (Public Law 107-110) for any year in which the federal government does not meet its stated funding commitment.

UMRA fosters a more balanced state-federal partnership by, among other provisions:

• Requiring the Congressional Budget Office to perform intergovernmental cost estimates on federal legislation and instituting a point of order against legislation containing significant intergovernmental federal mandates without corresponding funds,
• Establishing procedures for executive branch agencies in the development of federal regulations, and
• Encouraging consultation between the Congress, the Administration and state and local government officials throughout the federal legislative and regulatory development process.

Title I of UMRA-requiring the Congress to perform cost estimates and providing for a point of order-has been successful in reducing the number of unfunded mandates passed by the Congress. Further, the unfunded mandate point of order and other procedural mechanisms contained in UMRA have proven to be effective without impeding the legislative process. Many unfunded mandates, however, are not subject to these procedural tools because they do not meet the strict definition under UMRA. NCSL appreciates that the Congressional Budget Office State and Local Government Cost Estimates Unit endeavors, within its resources, to provide information on the costs of mandates outside of this strict definition. NCSL encourages the Joint Committee on Taxation, which is responsible for performing cost estimates of tax legislation, to provide similar additional information. Title II-requiring administrative agencies to consult with state governments and provide for regulatory accountability and reform-has been only marginally effective in reducing costly and administratively cumbersome rules and regulations on states and localities. Further, consultation with state and local governments in the construction of these rules is haphazard.

The experience of state and local governments with the Unfunded Mandate Reform Act warrants further review. There remain gaps in the fiscal protections provided to state and local governments. The law must be refined to provide broader protections to states and localities against the imposition of costly and administratively cumbersome mandates. Specifically, NCSL encourages the federal government to enact reforms that should include:

• Expansion of the definition of an unfunded mandate to include all open-ended entitlements, such as Medicaid, child support and Title 4E (foster care and adoption assistance) and proposals that would put a cap on or enforce a ceiling on the cost of federal participation in any entitlement or mandatory spending program. Further, any proposal that places a cap or enforces a ceiling must be accompanied by statutory offsets that reduce state spending, administrative duties or both.
• Review of the existing exclusions under Section 4 of UMRA. Excluding legislation from the requirements of UMRA precludes an official accounting of the costs imposed under such legislation.
• Expansion of the definition of mandates to include new conditions of federal funding for existing federal grants and programs, including costs not previously identified, including mandated results.
• Expansion of the definition of mandates to include proposals that would reduce state revenues, especially when changes to the federal tax code are retroactive or otherwise provide states with little or no opportunity to prospectively address the impact of a change in federal law on state revenues.
• Expansion of the definition of mandates to include those that fail to exceed the statutory threshold only because they do not affect all states.
• Expansion of legislation subject to UMRA review.
• Revision of the definitions of mandates, direct costs or other provisions of the law to capture and more accurately reflect the true costs to state governments of particular federal actions.
• Requiring that mandate statements accompany appropriations bills.
• Enactment of legislation which would require federal reimbursement, as long as the mandate exists, to state and local governments for costs imposed on them by any new federal mandates.
• Improvement of Title II, including enhanced requirements for federal agencies to consult with state and local governments and the creation of an office within the Office of Management and Budget that is analogous to the State and Local Government Cost Estimates Unit at the Congressional Budget Office.
• Restrictions regarding the preemption of state laws.
• Repeal or modification of certain existing mandates as recommended by other NCSL resolutions.

NCSL will continue to monitor the growth of new federal mandates and call for the continued review of existing mandates for possible repeal or modification.

 August 2008

Financial Policies that Reward Work: Earned Income Tax Credit and Individual Development Accounts

(Joint policy with Human Services and Welfare Committee)

The National Conference of State Legislatures (NCSL) supports financial mechanisms that reward work. We encourage the federal government to enact financial policies that reward work. Two current tools are the Earned Income Tax Credit (EITC) and Individual Development Accounts (IDAs). These valuable programs complement each other.

Earned Income Tax Credit (EITC)

Congress created the Earned Income Tax Credit (EITC) in 1974. In 1986, the Tax Reform Act expanded the value of the EITC and indexed the credit for inflation. In 1993, Congress further increased the value of the credit, adjusting it for family size and expanding coverage to include very poor childless workers. An increasing number of states have enacted their own EITC as an incentive for low-income families to work and earn income. Many states have enacted their own refundable credit or non-refundable credit. NCSL supports the federal EITC as a means of reducing poverty among working poor families, and ensuring that the benefits of work surpass the benefits of public assistance.

Increasing public awareness is essential to the success of this program. Too few working poor individuals know how to apply and even fewer employers are aware of the program and the ability employees have to receive the credit through their paycheck. The federal government should provide technical assistance to the public and private sector as part of the effort to assist eligible employees. Employers need to know that the EITC does not add costs to their businesses and helps them retain employees. NCSL strongly urges the federal government to work with states as partners to develop new and creative methods to inform eligible families about the following:

• They must file a federal return even if they pay no federal taxes in order to receive the refundable credit;
• They can use the toll-free IRS hotline;
• They can receive free tax preparation assistance through the VITA (Volunteer Income Tax Assistance) program; and
• They can file a W5 form with their employers to receive their credit benefit throughout the year.

Because an expanded EITC supplements the wages of low-income working families without decreasing work incentives, NCSL supports federal efforts to increase the value of the credit, adjust it for family size, and eliminate the marriage penalty. Research has shown that the EITC increased labor force participation and employment rates among low-skilled single mothers.  NCSL supports expanding the EITC to single workers, especially noncustodial parents, to have the same impact on low-skilled fathers.  However, NCSL objects to increases to the credit that result in cost shifts to the states. NCSL urges Congress to continue to use the EITC as part of federal efforts to reform welfare. NCSL supports continuation of federal practice that allows states to use TANF and MOE funds for the state EITC. Such support should not count as "assistance" under the welfare law nor should federal data reporting for "assistance" programs apply. Such a requirement for a state EITC program is overly burdensome. Further, NCSL encourages the Administration to provide states the maximum flexibility to administer their own EITC programs. NCSL urges the federal government to simplify the application for the federal EITC and reduce the paperwork burden on filers. NCSL believes that such an effort will reduce errors.

Congress and the administration have implemented several error-reducing measures supported by NCSL:

• IRS access to the Federal Child Support Case Registry which will allow the IRS to reduce filing errors on the part of non-custodial parents who are ineligible to receive the EITC;
• Linking of Social Security numbers of parents to new numbers established for children in the Social Security database, enabling the IRS to verify parentage and thereby eligibility for the credit; and
• Providing additional funds to the IRS, which allow the IRS to substantially intensify efforts to curb EITC errors through screening and other means.

NCSL supports continued efforts to reduce errors but opposes proposals that would limit eligibility and reduce benefits. Such proposals would hamper state welfare reform efforts. Further, NCSL opposes efforts to reduce errors that would be overly burdensome to states.  NCSL also supports bipartisan efforts to increase the availability of the child tax credit to low-income families by revising the income threshold.

Individual Development Account (IDA)

Individual development accounts (IDAs) are another tool to promote financial self-sufficiency. At least half of the states have enacted state IDA programs to encourage the accumulation of assets by the working poor through matched savings accounts. NCSL supports federal efforts to provide incentives for the creation of IDAs as a complement to state efforts to reform welfare and to support working families' efforts to move out of poverty. NCSL urges the federal government to continue to allow states to have the flexibility to use TANF funds for IDA programs. Further, NCSL supports changes in the federal tax code that would expand opportunities for IDAs including a tax credit for financial institutions that participate with matching funds and for private entities that invest in nonprofits that administer IDAs. NCSL also urges the U.S. Department of Health and Human Services to examine and eliminate barriers in the TANF program, including those associated with the Cash Management Improvement Act, to simply administration of IDAs.

August 2010

Fiscal Federalism

State and local governments are partners with the federal government in the delivery of vital services to the nation's citizens. Consequently, state and local governments have as much at stake in the method of financing the public budget as does the federal government.  When changes in federal tax policy are considered, Congress and the administration should discuss and account for the effect of federal changes on state and local financing and revenue bases.

Principles for Fundamental Federal Tax Reform

The National Conference of State Legislatures (NCSL) advances the following set of principles to guide fundamental federal tax reform efforts because of the important implications of reform on states. Congress and the Administration must recognize that:

• Federal and state tax systems are inextricably linked;
• Any federal reform will have serious fiscal and administrative ramifications on the states; and
• State legislators must be involved from the beginning of the federal reform process and throughout the process.

Therefore, as elected officials responsible for providing public services, NCSL urges   Congress and the administration to work with state legislatures to ensure that any changes to the federal tax code:

General

• Preserve the fiscal viability and sovereignty of state governments;
• Encourage work, savings, equity and simplicity;
• Avoid further intrusion upon the state excise tax base;
• Continue to rely on an income tax as its primary source of revenue.
• Preserve states’ ability to tax certain revenue sources; and
• Preserve the ability of state and local government to adopt fair and effective tax systems.  This includes authorizing states with sales and use taxes to require interstate sellers to collect and remit those taxes and preserving the state and local income tax, sales tax and property tax deductions for federal income tax purposes.

Transition

• Provide states with adequate transition time to implement and respond  to new tax systems, preferably  three to five years.
• Avoid the negative state impact of retroactive application of tax changes.  
• Provide technical expertise to states to ease any transition of administrative responsibilities to the states resulting from federal tax reform.
• Provide adequate federal administrative funds for any federal tax reform that involves modified or increased collection responsibilities for the states.
• Ensure that federal tax changes are made in a manner that preserves federal data collection used by the states.

Do No Harm

• Provide flexibility and strengthen states’ ability to finance and administer programs for which they are traditionally responsible or have gained through devolution.
• Recognize that federal tax reductions should not compromise existing and future commitments to state-federal partnership programs.
• Avoid a national sales tax in any form, including a federal consumption based tax, which would seriously erode the sales tax base, a traditional revenue source for state governments.

Tax-Exempt Financing/Bonds

• Preserve the flexibility of state and local government to use tax-exempt financing, including the use of public-private partnerships.
• Maintain the tax-exempt status of state and local government bonds and lift existing restrictions on state and local government use of tax-exempt bonds.
• Avoid provisions that weaken the fiscal integrity of state and local governments. This includes: the arbitrage rebate provisions, which essentially are a one-hundred percent tax on the interest income of state and local governments; the alternative minimum tax, which now taxes interest from otherwise tax-exempt bonds; volume caps, which have unduly restricted the use of bonds for projects that have increasingly become governmental responsibilities; and, restrictions on advance refunding which increases the cost of government.
• Support the Mortgage Revenue Bond (MRB) program and the low-income housing tax credit.
• Base MRB price limits on current state or area median income, rather than out-dated home price statistics.
• Repeal the MRB Ten-Year Rule, which requires states to use MRB mortgage payments to retire MRBs that are outstanding more than 10 years rather than fund new mortgages for low-income first-time home buyers.  
• Provide states flexibility in developing housing credit properties in low income areas where they cannot be developed under current law.

Enforcement

• Increase enforcement efforts of the federal income tax laws so individual and business taxpayers are not bearing the burden of those who fail to pay owed taxes.
• Continue to take into account states’ reliance on federal tax rates and federal collection efforts.

Other

• Prohibit further preemption of state courts by refusing to give federal courts jurisdiction to establish the valuation of property for state and local tax purposes or by refusing to give selected classes of state and local taxpayers procedural and substantive privileges unavailable to most taxpayers.

NCSL also encourages Congress and the administration to:

Non-Discrimination

• Review the Railroad Revitalization and Regulatory Reform Act (4-R Act) to determine if the courts have expanded the 4-R Act beyond the original intent of Congress.
• Reject federal legislation that would extend to other industries 4-R type benefits.

In summary, state legislators are concerned about specific aspects of fundamental federal tax reform. NCSL calls upon Congress and the Administration to address each of the issues in any fundamental tax reform proposal in collaboration with state and local government.

 

August 2010

Free Online Tax Preparation and Electronic Filing

WHEREAS, a program that is important to the citizens of the United States is in jeopardy as the result of decisions being proposed in the United States Congress;

WHEREAS, twenty of our states that have an individual income tax have implemented an innovative solution to meet the needs of the low-income, disadvantaged, underserved and working poor taxpayers many of whom are eligible for the Earned Income Tax Credit and Child Tax Credit;

WHEREAS, this innovative solution, called the State Free File Alliance, has been developed over the last decade where public need, private corporate citizenship and community based organizations have worked together in an era of fiscal limits and new challenges;

WHEREAS, the State Free File online tax program is based upon a formal Federal agreement reached between the Internal Revenue Service and the American software industry, whereby working poor and other lower income and underserved families and individuals are able to obtain free electronic tax preparation and electronic filing for their federal and state tax returns through government revenue service websites;

WHEREAS, the program saves State budgets the very high cost of creating duplicative online government tax preparation and filing services. Twenty states have each decided to create a Free File Alliance public-private partnership based on the Federal IRS agreement, creating Free File programs in their individual states. This has collectively saved state governments billions of dollars in expenditures, while providing free services to those who need them;

WHEREAS, the Internal Revenue Service negotiated the terms of the national Free File Agreement with the software providers, this agreement is the common basis for all the Free File programs in the Free File states;

WHEREAS, that same Internal Revenue Service program has over the five years of the program adopted significant management rigor and operational safeguards to improve the Free File program and protect consumer safety, ensuring that Free File is free of sales, marketing or advertising of any products and services other than a tax return, and affirming that no products other than tax returns should be offered or provided through this program;  and that these program management reforms should be commended, supported and rigorously implemented, and;

WHEREAS, the United States Congress is considering whether to adopt legislation to direct the Internal Revenue Service to terminate the national Free File program and replace it with a government-provided direct tax preparation and filing system at public expense,

BE IT THEREFORE RESOLVED, that because the public and the States must rely upon the Internal Revenue Service that it continues its rigorous management  and governance of the national Free File program, so that the program  benefits from continuous process and program improvements and reforms over time;

BE IT FURTHER RESOLVED, that while participating companies should continue to provide free Federal tax returns under the national Free File program, the Internal Revenue Service should be directed to encourage those companies to also all voluntarily provide Free State returns for eligible taxpayers;

BE IT FURTHER RESOLVED, that the National Conference of State Legislatures (NCSL) recommends that the United States Congress support the recommendations of the U.S Treasury Inspector General to expand the public awareness of the availability of the Free File Program for eligible taxpayers;

BE IT FURTHER RESOLVED, that NCSL strongly recommends that the United States Congress take no action that would cause the Free File program to be terminated or replaced with a government-provided online tax preparation and filing system, and consequently end the availability of the Free File program to the several States, and thus impose without funding the need to replace such free services with government-provided services at the State level as well, requiring States to develop, sustain and deploy their own state government-furnished tax preparation products, services and systems at substantial taxpayer expense;

BE IT FURTHER RESOLVED, that copies of this resolution be transmitted to the President of the United States; each member of the United States Senate and House of Representatives; the United States Secretary of the Treasury; the Commissioner of Internal Revenue; and the Governors of the 20 Free File states; and;

BE IT FURTHER RESOLVED, that NCSL urges the United States Congress and the President of the United States to take immediate action in furtherance of the public good advocated in this resolution.

August 2010

____________________________________________________________________________________________________________________________________________

Maintaining A Balanced Federal Budget

The National Conference of State Legislatures (NCSL) was one of the first national organizations to call on Congress and the President of the United States to eliminate the federal budget deficit. NCSL applauded the return of the federal budget to balance during the late 1990's and is dismayed at the subsequent return to deficit spending.

NCSL calls on Congress and the President of the United States to continue their commitment to a balanced federal budget. There is nothing less at stake than: our very viability as a nation; our fiscal stability; our competitiveness with the rest of the world; our ability to invest for the country's future; and, our capacity to devote resources to such pressing intergovernmental problems as health care, education, infrastructure, the environment and homeland security. At the same time, we insist that the interests of state governments be recognized and protected in budget plans the Congress and the President adopt. We urge, therefore, that state legislators be directly involved in all discussions implementing agreements to maintain a balanced federal budget.

State governments, as partners in the federal system, have an incalculable stake in how the federal government balances its budget. Too often, the federal government has responded to its budget problems by simply shifting costs to the states, limiting state flexibility and intruding on state revenue systems. These practices stifle the creativity and responsiveness of state and local governments, exacerbate fiscal pressures, and undermine devolution, further eroding the confidence of the American public in government at all levels. NCSL urges the federal government to refrain from such approaches in pursuing any tax or spending changes necessary to balance the federal budget.

NCSL is concerned that excessive spending increases or tax cuts, given the need for continued fiscal discipline, may threaten funding for existing and future intergovernmental programs. NCSL urges the federal government to keep its existing commitments to state-federal partnership programs and, moreover, to consider the funding necessary to maintain these commitments in the future. Should programmatic cuts be required, all federal spending programs, including defense, entitlements, domestic discretionary, and international, should be scrutinized for savings. The federal government should not disproportionately cut domestic discretionary programs. The federal government should avoid establishing artificial firewalls dividing defense and domestic discretionary spending. Furthermore, Congress should respect the fiscal integrity of trust funds and not use those revenues for programs or tax reduction other than those for which the money was collected. Also the federal government should compensate the states for significant unfunded and underfunded federal mandates.

States rely on short-term projections, often crafting tax and spending policy on the basis of year-by-year projections. NCSL is concerned that the practice of making long-term projections, in excess of a few years, may prove unsound and may exacerbate the shifting of responsibility for the state-federal partnership to the states.

To ensure the integrity of state fiscal systems and to provide states flexibility to respond to the needs of our shared constituents, NCSL believes that any federal budget plan should at a minimum adhere to the following:

• A balanced budget must be achieved and maintained except in times of extreme national emergency. When unbalanced, there should be an action plan with a timetable to return to a balanced budget.
• There should be a significant component of the budget, and of any projected surplus, that is allocated to a fiscally responsible plan for reducing the national debt. The federal government ought to incur debt only for fiscally sound purposes, such as capital planning, not for the ongoing maintenance of existing spending or tax policy. Responsible debt reduction in times of federal surplus will provide more flexibility in the future for addressing intergovernmental and other priorities.
• The federal government should avoid the use of one-time savings measures, which temporarily ameliorate a deficit or provide a false justification for long-term commitments in tax or spending policy. To the extent that the federal government pursues any new spending programs or long-term commitments to tax reduction, it should develop a mechanism to fully fund such obligation and should cease reliance on mechanisms, which underestimate the true costs of these commitments and avoid sound fiscal planning.
• The federal government should not attempt to accomplish national goals through unfunded mandates on state and local governments. A cost estimate indicating the likely cost to be imposed on state and local governments should accompany any legislative proposals that contain new mandates on state and local governments, including those contained in reconciliation and appropriation bills.

NCSL Supports and Urges Enactment of Sales Tax Simplification and Fairness Act (S. 34/HR3396) Action Resolution.