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Federal Grants Management Training May 6, 2013 Renaissance Downtown Phoenix, AZ. Presented by Michael Brustein, Esq. Brustein & Manasevit, PLLC mbrustein@bruman.com www.bruman.com. Agenda. The State of Congress Fiscal and Budgetary Developments (Sequestration)
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Federal Grants Management TrainingMay 6, 2013Renaissance DowntownPhoenix, AZ Presented by Michael Brustein, Esq. Brustein & Manasevit, PLLC mbrustein@bruman.com www.bruman.com
Agenda The State of Congress Fiscal and Budgetary Developments (Sequestration) The State of the Federal Role in Education A Test on Federal Grants Management EDGAR and OMB Tutorial Questions
Congressional Productivity The 112th Congress was the least productive since analysts started keeping track Clinton impeachment 112th: 283 Public laws passed
Congressional Productivity • Lack of Productivity is a result of: • Gridlock in legislative process • Divides between parties and within parties • Divided Congress, continued influence of “Tea Party” • Significant focus on “must-pass” legislation in contentious policy areas like federal spending • 113th Congress not doing much better
Congressional Popularity > Source: PPP poll January 2013
Congressional Popularity • Root Canals • Lice • Colonoscopies > Source: PPP poll January 2013
The Good News > Source: PPP poll January 2013
Retirements and Turnover • Significant numbers of Representatives and Senators have retired or announced pending retirement in recent years. • Most cite age, but also driven out by gridlock, partisan politics, etc. • Voter dissatisfaction means greater electoral turnover in Congress • Lucrative post-Congressional job opportunities add incentive to retire at younger age
Largest Turnover Since 1970’s • Current announced retirements, plus defeats in last election, means largest turnover in Congress since 1970’s • Especially pronounced in Senate • Expect continued turnover in next few years
The State of Congress • Overall: • Continued partisanship • Significant turnover on education-relevant Committees and Committee leadership • Loss of institutional knowledge/relationships • Focus on fiscal policy above all else
Fiscal and Budgetary News Sequestration The Fiscal Cliff Deal FY 2013 Appropriations How Cuts Will be Implemented FY 2014 and Beyond
Sequestration • Also known as “the sequester” • A series of automatic, across-the-board budget cuts • Amount and type of cuts depends on category of spending • Following procedures laid out in 1985 law
Where does sequestration come from? • Budget Control Act of 2011 • Set deficit reduction targets • Created Congressional debt “supercommittee” • If supercommittee failed to come up with a deficit reduction plan meeting targets, automatic cuts triggered • Sequestration as failsafe/threat not really meant to go into practice • Because supercommittee did not come up with a plan, sequestration is triggered • American Taxpayer Relief Act • Also known as the fiscal cliff deal • Modified sequestration amounts, timing
How does sequestration work?* • Triggers procedure set out in Balanced Budget and Deficit Control Act of 1985 • Congress identifies total amount to be cut and time period over which cuts occur • Cuts are divided evenly by year • Cuts are split between defense and non-defense spending • Exempt programs (outlined in law) are removed from equation • All other programs see equal, across-the-board cuts in first year (in this case, modified procedure for subsequent years) • General procedure is subject to modification by Congress
The Fiscal Cliff Deal • In the days leading up to the end of 2012, fiscal picture looked dire • Temporary (“Bush-era”) tax cuts set to expire • Sequestration set to go into effect January 2nd • Concerns about how sequestration, increase in tax rates would affect economy • No alternatives in place
The Fiscal Cliff Deal • Congress passed comprehensive spending/tax package known as “American Taxpayer Relief Act” early on New Year’s Day • Extended most of the Bush-era “middle-class” tax cuts (though not payroll tax cuts) • Raised marginal income tax rates on those with incomes above $400,000 for individuals ($450,000 for couples) • Made changes to implementation date of sequestration and total cut amount
Changes to Sequester • Delays start by two months (was January 2; now March 1, 2013) • Reduces FY 2013 cut by $24 billion to compensate for shorter time period • Offsets reduction in cuts with: • $12 billion in new taxes to IRAs that are converted from traditional to Roth plans • $12 billion in cuts to annual spending caps • Split evenly between Defense and non-defense • Cut now at 5% of FY 2013 funding • Sequestration still applies for remainder of FY 2013 and for FY 2014 through FY 2021
Vanishing Sequestration Cuts • Fiscal cliff deal creates $24 billion in offsets to pay for delay • Half will come from spending cuts ($12 billion) • Split evenly between defense and non-defense discretionary (“NDD”) funding (includes education) ($6 billion each) • One-third of cuts to be applied in FY 2013, remaining two thirds in FY 2014) • $2 billion in NDD cuts for FY 2013
Vanishing Sequestration Cuts • Fiscal cliff deal spending cuts will be applied through reductions in Congressional spending caps • Cuts to caps =/= cuts to funding • These cuts are in addition to any across-the-board cuts from sequestration • Due to differences between spending and caps, little anticipated effect this year • Takes originally estimated 8.2% cuts down to 5%
Two major factors in determining federal funding under sequestration: • Congressional spending caps • Regular-year federal appropriations
Regular-YearAppropriations • Still important!!! • For FY 2013, sequestration cuts represent reductions below the “budget baseline” (current federal spending levels) • Funding for FY 2013 set by two continuing resolutions (CRs) (temporary budget measures) • Second FY 2013 CR set funding at FY 2012 levels, with some exceptions • E.g. Head Start (additional $33.5 million) • For FY 2014 and beyond, cuts are incorporated into funding levels through regular appropriations process
How Sequestration Cuts are Calculated • Adjust total cut for interest to reflect lesser debt principal • $1.2 trillion $984 billion • Divide by year from FY 2013 through FY 2021 $109.3 billion • Reduce FY 2013 cuts by $24 billion, to $85.3 billion* • Split function between defense and non-defense spending (about $42.7 billion each in FY 2013, $54.5 billion each per subsequent year) • Take exempt programs out of the equation • Spread cuts equally among remaining programs in FY 2013 • Cut is taken at federal “program, project, or activity” level • Sequestration cut will be 5% of FY 2013 funding* (*change due to fiscal cliff deal)
How Cuts will be Implemented • All funds allocated October 2012 and later are subject to cuts starting March 1 • Single allocation or monthly programs affected starting with first allocation after sequester date (e.g. April 1) • For competitive grants, funds previously awarded will remain unaffected(even for multi-year/continuation grants) • Cuts will be implemented in next competition • For bifurcated funding programs*: • Advance funding received in October of 2012 did not see cuts when allocated • BUT cuts will be calculated and total FY 2013 cut deducted from July 2013 allocation *Per a July 2012 memorandum, confirmed in February 26 conference call.
FY 2013 Funding Under Sequestration In programs with bifurcated funding, grantees usually receive about 75% of program funds in October, and the remaining 25% the following July. Though sequestration cuts represent approximately 5% of year’s allocation, that entire amount will be taken out of July 2013 funds.
Sample Sequestration Cut • Assume the (fictional) “School is Cool” (SIC) grant program provides $100,000 per year to your State • As with most bifurcated funding programs, 75% of SIC funds ($75,000) are distributed to States in October, with the remaining 25% ($25,000) available in July • Under sequestration, ED* provided the full funding amount in October of 2012. However, it will calculate a cut for the full fiscal year (approximately 5%, or $5,000) and will apply that full year’s cut against July 2013 funds. *Per a July 2012 memorandum, confirmed in February 26 conference call.
Sample Sequestration Cut – FY 2013 • Your State received its regular SIC appropriation ($75,000) on October 1, 2012. • The full-year sequestration cut of $5,000 will be taken out of July 2013 funding • So the SIC funds sent out on July 1, 2013 will be $20,000 ($25,000 - $5,000) *Per a July 2012 memorandum, confirmed in February 26 conference call.
NOTE: Actual allocations may shift by more or less than 5% • Because of variations in census data, poverty data, and per pupil expenditures, FY 2013 allocations under Title I and other formula programs will be different from FY 2012 • In addition, ED will not reduce small or shrinking districts below hold-harmless amount, leaving other district to share that cut • Result: actual cuts from 2012 to 2013 at district level can range from 0% to approximately 10%
NOTE: Second CR Means Additional Across-the-board Cut • Second FY 2013 CR contains provision that triggers automatic cuts if appropriations were above spending caps • OMB says this has occurred • Will mean 0.2% across-the-board cut in addition to sequestration in FY 2013 • Unclear at this point how this cut will be implemented, but likely through sequester process
Sequestration in 2014 and Beyond • For FY 2014 through 2021, cuts are applied through reductions in annual spending caps as part of regular Congressional appropriations process • Cuts will be applied to both allocations for bifurcated programs (October and July) • Total cut is estimated at 8.2% of non-defense discretionary spending • But actual cut for each program depends on appropriation bills
Sample Sequestration Cut – FY 2014 • For FY 2014 and beyond, sequestration cuts (and cuts from the fiscal cliff deal) are taken out of 302(b) appropriations caps • Sequestration will not be applied as a percentage cut • Appropriators have discretion in distributing spending/cuts • So 75% of SIC funds will be sent out in October, and 25% in July • The only variable here is total program funding – the size of the pie.
Sequestration in 2014 and Beyond • Reductions in caps give appropriators more discretion in choosing where to spend or trim (as opposed to automatic cuts) • Can preserve some programs entirely • Expect preservation, in large part, of Title I, IDEA funds • Can “zero out” programs entirely • Can be unpredictable • In years where budget set late, funding is up in the air
The FY 2014 Double Whammy? • States and school districts generally structure budget cycles differently from the federal government • For federal government, FY13 funding = October 2012 + July 2013 allocations • For States/districts, SY 2013-14 = July 2013 + October 2013 • Assuming FY 2014 program funds are cut, SY 2013-14 will see a double reduction: • July 2013 funding will be cut proportionate to full FY 2013 • October 2013 funding will be cut by up to 8.2%, depending on Congressional appropriations
FY 2014 Appropriations Progress • Both House and Senate have passed non-binding budget resolutions • House: cut $5.7 trillion over next decade • Senate: cut $975 billion in spending over next decade, matched with $975 billion in new revenues • President released annual budget proposal April 10th • Both chambers determined to get budget done on time
1960s: Congress began recognizing unmet educational needs • Children in Poverty • Students with Disabilities • Vocational Training • Limited English Proficient Students • Homeless Students
Federal education programs • Designed to address specific unmet needs
Limited Federal Capacity • State administered programs created
Department of Health Education and Welfare • Education responsibility generally given to the U.S. Department of Health, Education, and Welfare (HEW) • United States Office of Education • Divided into program bureaus with specific responsibility • Elementary and Secondary Education • Vocational Education • Special Education, etc.
Office of Education • Bureaus: Responsibility for individual program • Individual programs contained separate administrative rules • Not always consistent • Burdensome due to differing requirements
U.S. Department of Education (ED) in 1980 • Education responsibility transferred • HEW becomes ED and Health & Human Services (HHS)
ED • Separation of program function is preserved • Funds allocated to States for program administration • Funds allocated to States for distribution to school districts – local education agencies (LEAs)
State Education Agencies (SEAs) • SEAs expanded • Significant function: Administer federal programs • Divided into program offices • Generally reflect federal organization • Examples • Elementary and Secondary • Students with Disabilities • Career Education
Federal Government recognizes inefficiency! • Programs with separate administrative requirements • Duplication of efforts • Inconsistent requirements • Changes need to be program by program • Leads to administrative standardization
Administrative Standardization • General Education Provisions Act (GEPA) • Education Department General Administrative Regulations (EDGAR) • Single Audit Act • Office of Management and Budget (OMB) Circulars
GEPA • Part of the organic law establishing ED’s structure • Cross-cutting provisions
EDGAR • Department of Education administrative rules covering all ED programs
Single Audit Act OMB Circular A-133 • Standardized audit requirements for all entities expending > $500,000 federal $ annually