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Sequestration and the state budget

POSTED: December 6, 2012 2:43 p.m.

In August 2011, Congress was deadlocked on the decision to raise the debt limit. As a compromise, Congress passed the Budget Control Act (BCA) of 2011, which mandated the creation of the Joint Select Committee on Deficit Reduction. As required by the Act, this committee was tasked with proposing recommendations by Nov. 23, 2011, to reduce the deficit by $1.2 trillion, over a 10-year period beginning in 2013.


As an incentive to achieve meaningful deficit reduction, the Budget Control Act provided for automatic cuts if the commission did not pass legislation by the deadline date. These cuts are known as sequestration (the funds are sequestered or held back). These automatic cuts were intended to be a poison pill since both Republicans and Democrats would see their priorities hurt if the Joint Committee failed to act. Half of the $1.2 trillion in automatic cuts would come from defense and half would come from domestic programs.Unfortunately, the Joint Committee did not come up with an acceptable plan so the poison pill has become reality.


Sequestration instituted caps on discretionary programs and limited the growth of those appropriations to about 2 percent a year from FFY2014 through FFY2021. Mandatory programs such as Social Security, Medicaid, food stamps and Children’s Health Insurance Program (PeachCare as implemented in Georgia) are exempt from the reductions. The total amount of deficit reduction required is $1.2 trillion over a 10-year period. The total spending reduction required by sequestration for FFY2013 is approximately $109.333 billion.


Georgia receives about $12 billion in various federal grants and payments that are reflected in the state budget. About half of this amount is the federal share of the Medicaid program which is exempt. With our Medicaid issues, Georgia leaders are a little relieved that we will not have another problem to contend with.


But there are other programs that will be impacted. The National Conference of State Legislatures predicted that Georgia will receive about $200 million less in federal funds in FY2013. For those programs that are subject to sequestration, there will be about an 8 percent cut in FY2013. Some Title I funding for low-income schools as well as funds for children with disabilities will be reduced. Various public health and social service funds will be reduced as well.


Although education and public health are not the only areas impacted by the sequestration, these areas will be heavily affected. Also, some of these federal funds flow through Georgia’s budget while others go directly to local governments. However, it is necessary to note that a vast majority of defense spending does not flow through the state budget and it is a little too early to tell how those reductions will impact Georgia.


I recently heard a saying that “You can’t cut spending without cutting spending.” Georgia has followed this mantra over the past few years. If you compare Georgia’s FY2008 budget of $20.5 billion with the FY2012 budget of $18.5 billion, the state is collectively down over $2 billion or 10 percent.


If you include inflation and population growth in areas like health care and education, we are doing more with less. Obviously some of these sequestration issues are not ideal, but we must be cognizant of the situation in Greece. Their national government got to a size that was unsustainable and the economy suffered tremendously as a result. I hope our national leaders streamline the federal government so that we avoid a similar fate.


Fiscal cliff — tax increases and spending cuts
The term “fiscal cliff” does not refer to just one bill that is set to expire, but rather a series of laws and policies that expire in January 2013. These range from scheduled revenue increases that will kick in as well as mandatory spending cuts that will begin to be implemented.This is a list of the components of the fiscal cliff and the FY2013 national impact.

Tax Increases ($393 billion total)
Expiration of the Bush Tax Cuts ($225 billion)
Expiration of the payroll tax cut ($85 billion)
Taxes included in the Affordable Care Act ($18 billion)
Other revenue provisions ($65 billion)
Spending cuts ($98 billion total)
Sequestration ($54 billion)
Expiration of federal extended unemployment insurance benefits ($34 billion)
Expiration of the Medicare “doc fix” ($10 billion)


You can find additional information and resources on the sequestration at the following websites:
http://www.pewstates.org/uploadedFiles/PCS_Assets/2012/Pew_fiscal_cliff_report.pdf
http://taxpolicycenter.org/numbers/displayatab.cfm?Docid=3389&DocTypeID=2


I may be reached at
234 State Capitol, Atlanta, GA 30334
(404) 656-5038 (phone)
(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
Or call toll-free at
1-800-367-3334 day or night
Reidsville office: (912) 557-3811

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