Federal Funding Update

1. Federal Funding Update New Era in State-Federal Relations August 2011 Federal Funds Information for States

2. Overview: What’s in Store for States? • Significant reductions in federal spending • Program consolidations, eliminations, funding cuts • Potential changes in Medicaid financing, matching rates (no longer the unthinkable) • Increased focus on program accountability, performance, and transparency • New reporting requirements • Even more program uncertainty • Program expirations, extensions • Health care reform

3. Pieces of the Federal Budget Pie

4. Grants to State and Local Government

5. State/Local Grants by Program Area Federal Outlays to State and Local Governments, FY 2010($ in Billions, % of Total) HHS makes up 37% HHS makes up 15%

6. Federal Debt Negotiations

7. Federal Debt Negotiations • What will it mean for states if the debt limit isn’t raised? • Reduced or delayed payments • Federal revenue = 20% state/local revenue • Bills paid in order they come due • Treasury officials – don’t have legal authority to pay bills based on political, moral, or economic considerations • Bipartisan Policy Center Analysis • Daily inflow vs. committed spending (by program)

8. Federal Debt Negotiations • What will it mean for states if an agreement is reached to raise the debt limit and reduce federal spending over the next several years? • Deep cuts in discretionary spending • Most state impacts not immediately known • Macro-level cuts (discretionary spending caps) • Funding reductions will vary by program, determined through appropriations process • Mandatory program changes inevitable • Create committee to propose further deficit reduction

9. Major Themes of Various Deficit Reduction Commissions, Plans • Reduce federal debt to a sustainable level • Bring federal budget into balance within the next several years • Implement fundamental tax reform • Restrict domestic discretionary and defense spending • Reduce improper payments • Cap growth of entitlement spending • Implement health care cost containment

10. Focus on Debt, Deficit Reduction • Examples of Medicaid Reforms • Greater use of managed care for “dual eligibles” • Modifying current federal matching payment system • Block grant • Reduce administrative costs • Restrict/eliminate provider taxes • Increase state flexibility, waivers • Blended Medicaid matching rate

11. Blended Medicaid Matching Rate: Much Attention, Few Details • President’s deficit reduction framework: “Under current law, states face a patchwork of different federal payment contributions for Medicaid the Children’s Health Insurance Program (CHIP). The President’s framework would replace the current complicated Federal matching formulas with a single matching rate for all program spending that rewards States for efficiency and automatically increases if a recession forces enrollment and State costs to rise.”

12. Blended Medicaid Matching Rate: Much Attention, Few Details • What we are hearing: • Proposal focuses on services, not administrative costs • A single blended rate for each state • What we don’t know: • Effective date • How calculated, assumptions (particularly regarding health care reform changes)

13. Current Medicaid Matching Rates

14. Current Medicaid Matching Rates

15. Federal Budget: FY 2011 Recap • Enacted via CR, not regular appropriations bill • No explanatory statements, funding tables • Account-level funding, some program detail • Provided agencies with wide discretion • Cut spending by $40 billion, approximately $10 billion from state/local programs • Included 0.2% across-the-board cut • Canceled $3.5b in CHIPRA performance bonuses • Reduced funding for major HHS programs (-2.4%)

16. President’s FY 2012 Budget - Overview • Overall freeze on non-security discretionary spending for five years • Major restructuring of education and transportation programs, few changes in other areas • Program consolidations (chronic disease) • A few new programs (substance abuse/mental health) • Focus on program integrity (LIHEAP, Medicaid, Child Care)

17. President’s FY 2012 Budget - Overview • Replaces existing formula programs with competitive programs • Increased focus on performance, incentive payments (CSBG, CSE, Foster Care) • Major Discretionary Programs: 20% increase (absent transportation, level funding) • Health and Human Services – 1.7% reduction (some program eliminations) • Major Mandatory Programs: 7% increase

18. FY 2012 Congressional Action • House adopts budget resolution (4/15/11) • Sharply reduced spending ceilings • Major program assumptions • Convert Medicaid to block grant in FY 2013 • Repeal key provisions of health care reform • Convert SNAP into block grant with time limits and work requirements • And more! • No budget resolution in Senate, action on hold • Behind schedule, even more than usual (another year of CRs, great uncertainty); most difficult bills not yet tackled

19. Progress on Appropriations Bills

20. Progress on Appropriations Bills

21. Overall Cap, Subcommittee Allocations

22. Overall Cap, Subcommittee Allocations

23. Funding Levels for Major Health and Human Services Programs

24. Funding Levels for Major Health and Human Services Programs

25. Funding Levels for Major Health and Human Services Programs

26. All Eyes on Program Accountability, Performance, and Transparency • Digital Accountability and Transparency Act • Passed House committee in June • Support from Senate, administration • Key provisions • Mandates full multi-tier reporting • Requires recipients to report on use of funds • Fewer exemptions from reporting requirements • Establishes FAST Board (Federal Accountability and Spending Transparency Board) • Focus on waste, fraud, and abuse

27. All Eyes on Program Accountability, Transparency, and Integrity • State concerns • Increases cost for states without funding or ability to increase administrative caps within existing programs • Leaves significant discretion to FAST Board, particularly regarding reporting frequency • Excludes state/local representative from FAST Board • Retains duplicate reporting for states • Creates new reporting system, less than a year after FFATA was fully implemented

28. Even More Program Uncertainty • Upcoming program expirations (require congressional action) • TANF, Child Care Development Fund – matching and mandatory (September 30, 2011) • TANF supplemental grants (June 30, 2011) • Medicaid Qualifying Individuals (QI) Program (December 31, 2011) • Transitional Medical Assistance (TMA) Program (December 31, 2011) • Many discretionary programs w/ lapsed authorization

29. Health Care Reform Funding Remains at Risk • Affordable Care Act (ACA) included more than 100 funding opportunities of interest to states • Some programs received both authorizations and appropriations (most of these funds have been announced or awarded) • Prevention and Public Health Fund (PPHF) • Most programs received only an authorization • Require funding through appropriations process • No new funding to date, some programs have received PPHF transfers • Proposals to restrict/repeal funding

30. Health Care Reform Grant Allocations(dollars in thousands)

31. Take-Aways • FY 2012 budget won’t happen anytime soon • Program extensions continue (few, if any, reauthorization bills will pass) • Entering an era of restrained federal spending for foreseeable future • Major restructuring of state-federal programs • Program consolidations • Entitlement reform • What does this mean for states?

32. Federal Revenue as a Percent of State and Local General Revenue, FY 2008

33. The End • Questions? • Check for updates at www.ffis.org • Almost all states subscribe to FFIS, please contact us for your password and to be added to the distribution list: ttomsic@ffis.org, 202-624-8577