1. “FISCAL CLIFFS, SEQUESTRATION, DEFICIT REDUCTION

2. MICHAEL BIRD SENIOR FEDERAL AFFAIRS COUNSEL NATIONAL CONFERENCE OF STATE LEGISLATURES January 7, 2013 2 HOUSE AND SENATE WAYS AND MEANS AND FINANCE COMMITTEES: JOINT ECONOMIC AND FISCAL ORIENTATION

3. FOR THE RECORD  WWW.NCSL.ORG FOR MORE INFORMATION WWW.NCSL.ORG  COMMENTS AND ANALYSES ARE MINE, NOT REPRESENTATIVE NECESSARILY OF NCSL POLICY  COMMENTS AND ANALYSES BASED ON CURRENT LAW  UPCOMING EVENTS WHERE THIS TOPIC WILL BE REVISITED: –TO BE SCHEDULED WEBINARS –MAY 2-4, 2013 SPRING FORUM –AUGUST 12-15, 2013 LEGISLATIVE SUMMIT 3

4. ‘CLIFF’ AVERTED  H.R. 8, “THE AMERICAN TAXPAYER ACT”  GENERATES APPROXIMATELY $620 BILLION IN NEW REVENUE OVER 10 YEARS VIA VARIOUS TAX CHANGES  CONTRIBUTES APPROXIMATELY $4.6 TRILLION OVER 10 YEARS TO THE NATIONAL DEBT VIA VARIOUS TAX AND OTHER CHANGES  POSTPONES THE SEQUESTER TO MARCH 1, 2013. COST THAT IS OFFSET: $24 BILLION.  TEMPORARILY “FIXES” MEDICARE PROVIDER REIMBURSEMENTS, EMERGENCY UNEMPLOYMENT COMPENSATION BENEFITS, QI AND TMA PROGRAMS, FARM BILL, VARIOUS TAX CREDITS AND DEDUCTIONS. 4

5. THE LOOMING ’CLIFFS’ OF ’13  FebruaryDebt Ceiling  March 1Sequestration  March 27Continuing Resolution Ends  February-AprilPresident’s ’14 Budget and Congress’ Budget Resolutions  All Year LongReauthorizations 5

6. SEQUESTRATION FROM THE BUDGET CONTROL ACT OF 2011: Three components with potential to affect future funding for state grant programs:  Discretionary spending caps w/adjustments (done)  Joint Select Committee on Deficit Reduction (failed)  Sequestration process (forthcoming) 6

7. **August, 2011, deal increases debt ceiling by $2.1 trillion in exchange for the below:  “Pot” 1: $917 billion in discretionary spending ($787 billion without interest savings) over ten years via spending caps.  “Pot 2” 2: $1.2 trillion ($984 billion without interest savings) over nine years. –$492 billion in non-defense discretionary/mandatory spending. –With non-exempt mandatory programs omitted, the reduction to non-defense discretionary programs would be $44 billion per year. –$492 billion in defense discretionary spending. BCA “DEFICIT SAVINGS” 7

8. Discretionary Spending Caps 8 “Pot 1" - $917 billion in savings over 10 years from defense/non-defense discretionary spending

9. What We Can Say About a Sequester- “Pot Two" (non-defense) 9 FFY 12 domestic discretionary and mandatory spending that goes to states

10. SELECTION OF PROGRAMS EXEMPT FROM SEQUESTRATION Most Transportation Programs Medicaid (vendor payments and administration) Pell Grants Children’s Health Insurance Program Most child nutrition and Food Stamp programs Most child care, child support enforcement, foster care and adoption assistance programs 10

11. Programs Not Exempt from Sequestration Education (elementary, secondary, vocational, higher) Employment and Training Energy Environment Agriculture/Natural Resources Justice Housing/Community Development Social Services (non-mandatory programs) Health (non-Medicaid/CHIP programs) National Forests/Mineral Leasing Defense 11

12. What We Can Say About a Sequester- “Pot Two" (defense) Total Funding: $530 billion in FY 2012 12

13. What We Can Guess About a Sequester 13

14. Impact of BCA’S Sequestration on NEW HAMPSHIRE - nondefense “Pot Two“ FFY 2012 - Exempt$1,287,719,000 FFY 2012 - Covered$ 376,672,000 Total$1,664,391,000 Hypothetical FFY 2013 Covered$ 344,197,000 FFY 1013 for covered programs compared to FFY 2012 $ - 32,476,000 14

15. Federal Government Expenditures –New Hampshire-2010 Retirement and Disability$4.3 billion Other Direct Payments$2.4 billion Grants$2.3 billion Procurement$1.4 billion Salaries and Wages$0.9 billion TOTAL$11.3 billion Source: Consolidated Federal Funds Report for Fiscal Year 2010 15

16. Per Capita Federal Government Expenditures, by State, all Categories  New Hampshire$ 8,400 +  USA average$10,000 +  Source: Consolidated Federal Funds Report for Fiscal Year 2010 16

17. New Hampshire - Rank – Per Capita Federal Expenditures - 2010  Retirement and Disability18th  Other Direct Payments46th  Grants44th  Procurement28th  Salaries and Wages40th  OVERALL46th 17

18. WHAT’S DRIVING THIS FISCAL CRISIS? 18

19. SUMMARY OF THE CHALLENGE  “$1.00 SPENDING WITH 60 CENTS OF REVENUE (PLUS FOREGONE REVENUE)  DOZEN + YEARS OF “EMERGENCY” AND “NON-OFFSETTING” FISCAL POLICY VIA BIPARTISAN AGREEMENTS  FOUR STRAIGHT YEARS OF TRILLION DOLLAR + DEFICITS  GREAT RECESSION PLUS EARLY 2000’S RECESSION  SLOWER ECONOMIC RECOVERY THAN HISTORICAL STANDARDS 19

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22. Federal Spending By Category 22

23. Nondefense Discretionary Spending 2011 Administration of Justice 20% 16% 15% 11% 10% 9% Other * International Affairs Health Veterans' Benefits and Services Income Security Transportation Education, Training, Employment, and Social Services R ce: Congressional Budget Office. * Includes funding for natural resources and environment; general science, space, and technology; general government; community and regional development; agriculture; Medicare and Social Security (for administrative activities); energy; and commerce and housing credits. 23

24. MOST OF THIS “STUFF” HAS BEEN NEGOTIATED BEFORE – HERE ARE SOME EXAMPLES 24

25. DEFICIT REDUCTION “NEGOTIATIONS”  President Obama/Speaker Boehner (2011-2012)  Vice President Biden/House and Senate members  Senate “Gang of Six” (44)  House “Gang of 100”  Super Committee of 2011  House FY 2013 Budget Resolution  President’s FY 2013 Budget  Vice President Biden/Senate Minority Leader McConnell 25

26. Common Features Among Reports/Negotiations  Comprehensive in scope –include both spending and revenue recommendations –put everything or most everything on the table  Bipartisan  Primarily federal policymakers  Missing ingredient: state and local government impact 26

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30. Major Areas with Potential Repercussions for State-Federal Fiscal Partnerships  Domestic discretionary spending  Medicaid, Medicare and other mandatory and entitlement programs (provider taxes, DSH, blended rates, unfunded mandates, more)  Federal tax reform (deductibility)  Federal tax expenditures (tax exempt financing)  Social security (mandatory social security participation) 30

31. SOURCES FOR SLIDES: SLIDES 8-9 Federal Funds Information for the States, NCSL Federal Funds Webinar, January, 2012 SLIDES 15-16 -17, Consolidated Federal Funds Report, FY 2010 SLIDES 20-21-28-29, Bill Hoagland, Bipartisan Policy Center, NCSL Fall Forum, Dec. 2012 All Others, NCSL 31

32. For more information michael.bird@ncsl.org; 202-624-8686; jeff.hurley@ncsl.org ; 202-624-7753