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

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

Pieces of the Federal Budget Pie Pieces of the Federal Budget Pie

Grants to State and Local Government Grants to State and Local Government

State/Local Grants by Program Area Federal Outlays to State and Local Governments, FY 2010 State/Local Grants by Program Area Federal Outlays to State and Local Governments, FY 2010 ($ in Billions, % of Total) Justice, $5 (1%) HHS makes up 37% Other, $8 (1%) Income Security, $115 (19%) Energy, Natural Resources, Environment, $12 (2%) Health, $290 (48%) Agriculture, $1 (0%) HHS makes up 15% Community and Regional Development, $19 (3%) Education, Training Employment, and Social Services, $98 (16%) Transportation, $61 (10%)

Federal Debt Negotiations Federal Debt Negotiations

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

Federal Debt Negotiations l What will it mean for states if an agreement is Federal Debt Negotiations l 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 l Macro-level cuts (discretionary spending caps) – Funding reductions will vary by program, determined through appropriations process l – Mandatory program changes inevitable l Create committee to propose further deficit reduction

Major Themes of Various Deficit Reduction Commissions, Plans l l l l Reduce federal Major Themes of Various Deficit Reduction Commissions, Plans l l l l 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

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

Blended Medicaid Matching Rate: Much Attention, Few Details l President’s deficit reduction framework: “Under Blended Medicaid Matching Rate: Much Attention, Few Details l 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. ”

Blended Medicaid Matching Rate: Much Attention, Few Details l What we are hearing: – Blended Medicaid Matching Rate: Much Attention, Few Details l What we are hearing: – – l 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)

Current Medicaid Matching Rates Description of Exception Federal Match Rate Certain populations, services, and Current Medicaid Matching Rates Description of Exception Federal Match Rate Certain populations, services, and payments: Newly eligible individuals in new eligibility group for non-elderly, non-pregnant adults at or below 133% federal poverty level (FPL) Individuals in early-expansion states that are enrolled in above eligibility group Certain women with breast or cervical cancer Qualifying Individuals Program Calendar years (CY) 2014 -2016 = 100% CY 2017 = 95% CY 2018 = 94% CY 2019 = 93% CY 2020+ = 90% Varies based on formula, effective CY 2014 Enhanced FMAP 100% Family planning services and supplies 90% Certain preventive services and adult immunizations Effective CY 2013, a one percentage-point increase in FMAP

Current Medicaid Matching Rates Description of Exception Federal Match Rate Smoking cessation for pregnant Current Medicaid Matching Rates Description of Exception Federal Match Rate Smoking cessation for pregnant women (if states also cover preventive services and adult immunizations) Health homes for certain individuals with chronic conditions Home and community-based attendant services and supports to certain individuals Increased Medicaid physician reimbursement rates for certain primary care services (as mandated by ACA for CYs 2013 -2014) Services through Indian Health Service Facility State balancing incentive payments for long-term care services and supports Effective CY 2013, a one percentage-point increase in FMAP As of CY 2011, 90% for first eight quarters Effective FY 2011, six percentage-point increase in FMAP 100% of the incremental cost (only CYs 2013 -2014) 100% FYs 2011 -2015, two or five percentagepoint increase

Federal Budget: FY 2011 Recap l Enacted via CR, not regular appropriations bill – Federal Budget: FY 2011 Recap l Enacted via CR, not regular appropriations bill – – Account-level funding, some program detail – l No explanatory statements, funding tables 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. 5 b in CHIPRA performance bonuses – Reduced funding for major HHS programs (-2. 4%)

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

President’s FY 2012 Budget - Overview l Replaces existing formula programs with competitive programs President’s FY 2012 Budget - Overview l Replaces existing formula programs with competitive programs l Increased focus on performance, incentive payments (CSBG, CSE, Foster Care) l Major Discretionary Programs: 20% increase (absent transportation, level funding) – l Health and Human Services – 1. 7% reduction (some program eliminations) Major Mandatory Programs: 7% increase

FY 2012 Congressional Action l House adopts budget resolution (4/15/11) – – Sharply reduced FY 2012 Congressional Action l House adopts budget resolution (4/15/11) – – Sharply reduced spending ceilings Major program assumptions l l l 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

Progress on Appropriations Bill House Agriculture Full: 6/16/11 Commerce/Justice/ State Committee: 7/13/11 Defense Full: Progress on Appropriations Bill House Agriculture Full: 6/16/11 Commerce/Justice/ State Committee: 7/13/11 Defense Full: 7/8/11 Energy/Water Full: 7/15/11 Financial Services Committee: 6/23/11 Homeland Security Full: 6/2/11 Senate Conference

Progress on Appropriations Bill Interior/ Environment House Senate Committee: 7/13/11 Labor/HHS/Ed Legislative Branch Full: Progress on Appropriations Bill Interior/ Environment House Senate Committee: 7/13/11 Labor/HHS/Ed Legislative Branch Full: 7/22/11 Military/Veterans Full: 6/14/11 State/Foreign Operations Transportation/ HUD Full: 7/20/11 Conference

Overall Cap, Subcommittee Allocations Appropriations Subcommittee President’s Request (in millions) Senate House v. President Overall Cap, Subcommittee Allocations Appropriations Subcommittee President’s Request (in millions) Senate House v. President House v. FY 2011 Agriculture $22, 868 -22. 6% -13. 4% Commerce/Justice 60, 539 -12. 9 -5. 8 Defense 530, 891 -1. 7 3. 3 Energy/Water 35, 343 -16. 1 -3. 3 Financial Services 25, 514 -22. 6 -9. 4 Homeland Security 43, 636 -6. 8 -2. 6

Overall Cap, Subcommittee Allocations Appropriations Subcommittee President’s Request (in millions) Interior/EPA Labor/HHS/Ed House v. Overall Cap, Subcommittee Allocations Appropriations Subcommittee President’s Request (in millions) Interior/EPA Labor/HHS/Ed House v. President House v. FY 2011 $32, 377 -12. 2% -7. 1 170, 611 -23. 0 -11. 6 Legislative Branch 5, 124 -11. 1 -5. 0 Military/Veterans 75, 996 -1. 7 -0. 8 State/Foreign Operations 56, 656 -22. 1 -17. 8 Transportation/ HUD 68, 739 -36. 2 -13. 9 $1, 128, 294 -10. 7% -2. 9% TOTAL Senate

Funding Levels for Major Health and Human Services Program FY 2010 (in millions) FY Funding Levels for Major Health and Human Services Program FY 2010 (in millions) FY 2011 v. FY 2010 President v. FY 2011 $1, 799 $1, 783 -0. 9% -17. 0% -16. 2% Mental Health Block Grant 421 420 -0. 3 3. 5 Maternal & Child Block Grant 662 656 -0. 9 -1. 2 -0. 4 2, 190 1, 581 -27. 8 -3. 3 34. 0 Preventive Health Block Grant 102 80 -21. 5 -100. 0 Family Planning 317 299 -5. 6 3. 2 9. 2 Substance Abuse Block Grant Consolidated Health Centers

Funding Levels for Major Health and Human Services Program FY 2010 (in millions) FY Funding Levels for Major Health and Human Services Program FY 2010 (in millions) FY 2011 v. FY 2010 President v. FY 2011 Immunization Grants $497 $426 -14. 3% -12. 8% 1. 7% Ryan White AIDS Grants 2, 291 2, 312 0. 9 4. 8 3. 9 Hospital Preparedness Formula Grants 420 378 -10. 0 -10. 7 -0. 8 CDC-State & Local Capacity 761 654 -14. 0 -14. 5 -0. 5 7, 235 7, 560 4. 5 12. 0 7. 1 282 281 -0. 4 0. 0 0. 4 Head Start Child Welfare Services

Funding Levels for Major Health and Human Services Program FY 2010 (in millions) FY Funding Levels for Major Health and Human Services Program FY 2010 (in millions) FY 2011 v. FY 2010 President v. FY 2011 Community Services Block Grant $700 $679 -3. 1% -50. 0% -48. 4% Child Care & Development BG 2, 127 2, 233 4. 5 37. 6 31. 7 Low-Income Home Energy Assistance 5, 100 4, 701 -7. 8 -49. 6 -45. 3 731 729 -0. 2 12. 9 13. 1 1, 516 1, 497 -1. 3 6. 9 8. 3 Refugee Assistance Administration on Aging

All Eyes on Program Accountability, Performance, and Transparency l Digital Accountability and Transparency Act All Eyes on Program Accountability, Performance, and Transparency l Digital Accountability and Transparency Act – – l 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) l Focus on waste, fraud, and abuse

All Eyes on Program Accountability, Transparency, and Integrity l State concerns – – – All Eyes on Program Accountability, Transparency, and Integrity l 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

Even More Program Uncertainty l Upcoming program expirations (require congressional action) – TANF, Child Even More Program Uncertainty l Upcoming program expirations (require congressional action) – TANF, Child Care Development Fund – matching and mandatory (September 30, 2011) l – – l 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

Health Care Reform Funding Remains at Risk l l Affordable Care Act (ACA) included Health Care Reform Funding Remains at Risk l l 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) – l Most programs received only an authorization – – l Prevention and Public Health Fund (PPHF) Require funding through appropriations process No new funding to date, some programs have received PPHF transfers Proposals to restrict/repeal funding

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

Take-Aways l l FY 2012 budget won’t happen anytime soon Program extensions continue (few, Take-Aways l l 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 foreseeable future Major restructuring of state-federal programs – – l Program consolidations Entitlement reform What does this mean for states?

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

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