States will feel it when sequestration takes effect tomorrow, but there could be worse things down the road.  “For states, I would say the hit (from sequestration) is significant, but it’s not catastrophic,” said Chris Whatley, director of CSG’s Washington, D.C., office. When Congress passed the Budget Control Act in 2011, it put into place mandatory budget cuts for both domestic and defense spending if Congress could not agree on a way to reduce the national deficit. Originally set to take effect Jan. 2, the American Taxpayer Relief Act of 2012 extended that deadline to March 1.

When legislators return to their statehouses, the usual suspects of concern will be waiting for them—and some new areas that have been waiting in the wings will rear their heads as well.

States face looming fiscal problems in Medicaid, public pensions and budget gaps, as well as unemployment issues—both in the number of unemployed people who won’t receive benefits after federal extensions end and continued unemployment trust fund insolvency. That doesn’t even touch the problems of funding the everyday services constituents have come to expect.

While Congress averted the fiscal cliff with a last-minute New Year’s Day vote, it kicked the sequestration can just a little farther down the road. Basically, the deadline for some “grand bargain” to avoid automatic spending cuts mandated by the Budget Control Act of 2011 was extended to the beginning of March. If that extension expires with no further Congressional action, it would mean cuts of 6 percent rather than 8 percent to 28 federal programs, Chris Whatley, director of The Council of State Governments’ Washington, D.C., office, said during a CSG webinar, “Beyond the Cliff.”

Jennifer Burnett, CSG's fiscal policy expert, outlines the top five issues related to fiscal and economic development policy, including state revenue recovery, federal funds availability, Medicaid, state employee and retiree health care costs, and rethinking economic development strategies.  

Despite all of the drama over the past few weeks, it looks like both sides are ready to split the difference.  The President began the negotiations by calling for $1.6 trillion in tax revenue, Speaker Boehner countered with $800 billion.  A deal would likely include roughly $1.2 trillion, the midpoint between both first offers.  The president began by stating that any deal must spare social safety net programs and offering only $400 billion in ill-defined cuts while Speaker Boehner said that entitlement reform and other spending cuts must form the majority of any deal.  Both sides are now hinting at a compromise including equal amounts of revenue and spending cuts.  

The American economy stands at the edge of a precipice created by expiring tax cuts and a host of spending reductions that could collectively shave $600 billion from the U.S. gross domestic product next year. This session featured a presentation and discussion led by Barry Anderson, deputy executive director of the National Governors Association, on the potential impact of the fiscal cliff and the prospects for congressional action to forestall it. Anderson previously served as acting director of the Congressional Budget Office, as well as in senior leadership roles in the Office of Management and Budget, the International Monetary Fund, and the Organization for Economic Cooperation and Development.

The American economy stands at the edge of a precipice created by expiring tax cuts and a host of spending reductions that could collectively shave $600 billion from the U.S. gross domestic product next year. This session featured a presentation and discussion led by Barry Anderson, deputy executive director of the National Governors Association, on the potential impact of the fiscal cliff and the prospects for congressional action to forestall it. Anderson previously served as acting director of the Congressional Budget Office, as well as in senior leadership roles in the Office of Management and Budget, the International Monetary Fund, and the Organization for Economic Cooperation and Development.

Stateline Midwest ~ September 2012

Under a restructuring of the state’s retirement system for public school employees, Michigan teachers will be paying more for their benefits.