Category Archives: Federal Issues
It could be quite the exaggeration to say that the coming fiscal cliff will devastate the economy, but it will certainly shift the U.S. economy from 1st gear (the current growth rate is only 2% in real, inflation-adjusted dollars) into reverse. The nonpartisan Congressional Budget Office and IHS Global Insight both estimate that if we go off the cliff the economy will drop 4% from a positive 2% growth rate to a -2% contraction.  The subsequent changes in business investment, and other secondary effects resulting from downturns in federal spending, would undoubtedly cut into Utah taxable sales (expect a decline of at least 4%).
Before we draw conclusions though, we must look at the crux of the problem at hand—the yawning gap between federal revenues (red) and expenditures (blue) in Chart 1 below. One coming event that will lead to a decrease in expenditures will be ending the war in Afghanistan. That would be good from several standpoints: 1) lower defense spending, and 2) fewer deaths and injuries that need to be covered by the Veteran’s Administration budget. However, fixing Afghanistan permanently would take another 10 to 50 years, and some of the consequences of careening off the fiscal cliff are immediate.
While something must be done in the near-term to bring these lines closer together, it is encouraging that over the past few periods it appears that expenditures have leveled out, while revenues are in a straight up trajectory (Chart 1). This may be due to the fact that the slow recovery is starting to gain traction.
While most economists agree that cutting our economic growth by 4% would not be a good thing at this time, compounding the situation is the fact that many federal grants and programs could be indiscriminately cut by about 8 percent.
In mid-October Juliette Tennert, Chief Economist from the Utah Governor’s Office of Planning and Budget, identified the 8% cuts from the hundreds of major federal grants. Below (chart 2) is a rearranged version of her more detailed table identifying the largest cuts and those that have the greatest impact Utah cities and towns (specific cuts to grants for cities will vary upon whether they utilized CBDG or EPA grants). The bottom line is that sequestration will cause federal spending in Utah to drop $100 million. Assuming a multiplier of 2.0 on a base of $100 billion economy, that means a loss of just 0.2% to the Utah economy. More worrisome for the state’s economy is the potential for major reductions at northern Utah’s Hill Air Force Base which could very well be double the federal grant impact amounts.
While this reduction in federal spending (sequestration) will take place relatively gradually, the more immediate result of a failure to compromise in Washington will be across the board federal tax increases if the 2001 Tax Relief Reconciliation Act (aka the Bush tax cuts) expires on December 31, 2012. As soon as January 1, 2013 or February 1, 2013, when the Treasury Department changes its withholding tables, the federal government could experience $535 annual increases in revenue (Chart 3).
Results from the Urban-Brookings Tax Policy Micro-simulation Model indicate that something less than $300 billion of these possible tax increases will hit the lower- and middle-classes (116 million families, bottom 73%). The balance—$235 billion in tax increases—will impact 42 million families with incomes more than $75,000. While the so-called “average” tax increase for a family will go up $300 per month, the median tax increase will be more like $150 to $200 per month.
Since powerful influences in congress represent each of these constituencies, it seems unlikely that congress will deadlock and go over the fiscal cliff. Yet, a year ago, a congressional “super committee’s” inability to hammer out a deal is what led to sequestration in the first place, and in August 2011, congress was unable to agree on expanding the debt ceiling on a timely basis, leading to a lowering of our debt ratings.
We can only hope that congress and the president can compromise before the New Year lest these huge impacts blindside an already weak recovery.
By now, we hope that your city has evaluated the environmental conditions within your city and taken appropriate steps to inform the public about your city’s restrictions (if any). ULCT met with Governor Herbert on Thursday afternoon and again yesterday afternoon (Monday) to discuss the legality of municipal restrictions. The Governor seems comfortable with most of the actions taken by municipalities to date. We don’t expect a special session on fireworks but the Governor is willing in January to reevaluate the existing statutes and clarify city authority over fireworks. Please let ULCT know if you need additional assistance on fireworks either for this week or for the Pioneer Day time period.
Additionally, ULCT met on Monday afternoon with shooting sports representatives, legislators, the state forester and his attorneys, and the governor to discuss potential restrictions on firearms discharge due to the hazardous environmental conditions. Cities already have the authority to restrict firearms discharge within city limits. Meanwhile the governor, the state forester, and state attorneys believe that current law grants authority to the state forester to temporarily limit firearms discharge in certain areas. In order to implement a temporary restriction, the area’s environmental conditions must meet certain hazardous standards including low humidity, high temperatures, high winds, and lack of moisture. Likewise, state law currently empowers the state forester to restrict certain types of ammunition and targets that are scientifically proven to cause sparks and potentially cause fires in the dry conditions. The entire group was supportive of the state forester’s efforts to educate residents on what types of ammunition and targets to use as well as enforcing illegal discharges. The group also approved of the state forester taking necessary and limited steps to restrict firearm discharge in unincorporated counties in targeted areas per the standards listed above. As with fireworks, we do not expect a special session to address potential firearm discharge restrictions.
FEDERAL TRANSPORTATION FUNDING:
Last Wednesday night (June 27), House and Senate conferees signed off on a two-year transportation authorization bill, which would fund federal surface transportation programs at current levels through September 2014. Senator Hatch and Congressman Bishop were both on the conference committee and were instrumental in including policies in the bill that are favorable to Utah and to local government. The previous surface transportation bill was set to expire on Saturday, June 30. On Friday afternoon, the U.S. House of Representatives voted 373 to 52 and the U.S. Senate voted 74 to 19 to approve the bill. Utah’s Representatives voted in favor of the bill (HR 4348). The transportation bill also includes an agreement on interest rates for student loans and the National Flood Insurance Program.
The final transportation authorization bill includes key provisions for local governments:
- An off-system bridge set-aside for local bridges not on a federal-aid system
- Maintains the threshold for Metropolitan Planning Organizations at the current level of 50,000 in population and provides new authority in rural regions in the planning process
- Replaces the current Transportation Enhancement, Safe Routes to Schools, and Recreational Trails programs into one new Transportation Alternatives Program; cuts total funding by 34%, and makes MPOs responsible for administering half of the new program
- Makes changes to project delivery, increasing the threshold for “categorical exemptions” and defines certain activities as categorical exclusions under NEPA
- Creates a streamlined approval process to accelerate project delivery for transit
- Funds transit at $10.584 billion in FY 2013 and $10.701 in FY 2014
Please let ULCT know if you have any questions about any of the 3Fs. Have a Happy and safe 4th of July!
Estimates from CBO economist using several different economic models show that, contrary to some opinions by radio and talk show hosts, the economic impacts of the American Recovery and Reinvestment Act of 2009 & 2012 (ARRA) were more positive than is currently believed by most of the American public.
Real GDP increased between 1% and 4% during the second and third years of the bill’s impact, 2010 and 2011. The unemployment rate would be -0.5% to 2% higher without the federal dollars passing through the economy. ARRA impacted employment favorably too by increasing it 1% to 2% in 2010 and 2011.
The chart above illustrates the difficulty in cutting $200 billion or $400 billion per year from the federal budget. But there are some tips for analyzing the process.
- The top four areas (Health Care, National Defense, Income Security, Social Security and Net Interest) comprise 77% of the budget.
- More than half of the talk-show rhetoric abused programs are in the smaller budgets, which comprise 17% of the budget.
- The top 4 programs have significant constituents and lobbies. For example, the 19% spent by the Defense Department hire contractors, some of which are the biggest corporations in the country. Second, people more than 65 (years of age) vigorously support the Social Security (20%) and the Medicare program (13%, within the Health Care slice of the pie).
Rule #1 in federal budgeting: Most program costs are often cited run over a10 year period, so divide by 10 to ascertain the annual cost. Politicians like the bigger numbers because they get attention and headlines. We are not saying that presenting fiscal notes over a ten-year period is misleading, it is necessary, but when people look at annual revenue and hear trillion dollar impacts there can be a disconnect.
ULCT’s Cameron Diehl and Nick Jarvis spent last week in Washington, D.C., meeting with staff members from Utah’s congressional delegation, the International City Management Association, Facebook, and the National League of Cities. The League’s Roger Tew, who was coincidentally on vacation with his family in D.C. at the time, also joined them for some meetings. He did not, however, have to share the red-eye flight to Baltimore with our other staff members—apparently Cameron and Nick are either more adventurous or less insightful in their youth!
Cameron and Nick discussed the League’s federal outreach with staff from each member of Utah’s congressional delegation and explained the objective of the monthly federal question on the website and urged the delegation to use ULCT as a resource in communicating with Utah cities. They encouraged the staff members to notify the League of how their offices are interacting with cities so that we can promote those efforts and they all expressed interest in participating in upcoming ULCT events such as Local Officials Day and the 2012 conferences. Likewise, they discussed transportation funding, the progress and consequences of the “super-committee,” and the future of the federal budget.
For example, Senator Hatch’s office offered the expertise of the Senator’s staff on the Senate Finance Committee and briefed ULCT on the status of transportation and other federal funding before the committee. Senator Lee’s office arranged a meeting with Facebook’s governmental relations staff (discussed in more detail below) and outlined the Senator’s upcoming “Virtual Mike” plan to broadcast Senator Lee from DC to city council meetings and other events. Congressman Bishop’s office suggested how to coordinate outreach and alerted ULCT of potential bills of interest currently in Congress. Congressman Matheson’s office gave examples of the Congressman’s activity with Utah cities. Congressman Chaffetz’s office explained his emphasis on the need for a federal nexus connecting federal funds to local projects. Senator Lee and Congressman Matheson provided Cameron and Nick with a behind-the-scenes look at the Senate and a capitol tour—Nick’s first time ever in the U.S. Capitol!
Cameron and Nick met with Katie Harbath of Facebook to discuss the use of social media by government and some of the recent changes the social networking site has made to allow entities like the League and its members to more easily target their desired audience. Ms. Harbath expressed a willingness to work with Utah’s cities and towns on developing their social media skills—from how to set up and use a Facebook account to utilizing the site’s Ad, List, and Insight features to make the social media experience more fruitful for local governments. We look forward to working with Katie and her counterpart at Twitter, Adam Sharpe, in the future as the League plunges into the 21st Century towards eventual domination of the Internet!
ULCT staff was also able to meet with four different representatives from the National League of Cities to discuss their upcoming Congress of Cities in Phoenix, AZ. The event will take place November 9-12, 2011 and will consist of a series of four concurrent conferences, each with their own important theme for municipal governments: Economic Development, Green Cities, Infrastructure, and Your City’s Families. NLC was impressed with Utah’s achievements in each of those areas, in particularly by the League’s unique interaction with youth during our annual Local Officials Day. ULCT staff also discussed international outreach, potential conference speakers/presenters, and the successes and failures of various conference formats.
ULCT also met with NLC staff and the International City Management Association to discuss ULCT’s blossoming relationship with Mayor Yeah Samake of Ouelessebougou, Mali and seek recommendations for fostering a partnership with the Mali League of Cities. We will continue to develop our relationship with NLC in order to continue to improve conferences every year, and to share with other state leagues our successes and new ideas regarding such events.
As such, the DC trip was productive and introduced Nick to the nation’s capital for the first time. ULCT anticipates a rigorous discussion with the delegation about how the federal government’s action (or inaction) impacts Utah cities and appreciates their universal willingness to talk with us. We all agreed that they and Utah’s municipal officials “all represent the same constituents” and we look forward to working together. Keep an eye on the League’s website www.ulct.org for upcoming questions and answers on the What’s D.C. Thinkin’? link and check ULCT’s Facebook page for pictures of the trip.
The Utah League of Cities and Towns and the Utah Municipal Policy Forum invite you to a screening of a portion of the provocative film I.O.U.S.A. Solutions, followed by a Q&A forum with the Northwest Regional Director of the Concord Coalition, Christine Hovde.
All are invited to attend, and a continental breakfast will be served.
Date: Thursday, February 17, 2011
Time: 8:00 a.m. to 9:30 a.m.
Location: Zions Bank Building, 10 East South Temple, 18th Floor, Founders Room
Please RSVP to Cameron Diehl at the Utah League of Cities and Towns by phone or email at 801-328-1601 or email@example.com.
The Urban Institute recently issued a policy briefing summarizing and rating the different spending provisions in the Federal stimulus bill. According to the Urban Institute this summary provides a grade for each project that “reflects how well these measures would boost the economy in the short run per dollar of budget cost.” To receive an A grade a “provision would have to begin quickly and go primarily to people who would most likely spend it or to businesses that would most likely use funds to retain workers or expand.”
So according to the Urban Institute how man provisions receive an A grade? — Zero. There are a lot of B’s and C’s with only a couple of D’s. You can ready their report card and summary of provisions here: Urban Institute Tax Stimulus Report Card.
Also, the State of Utah has received around $1.5 billion in economic stimulus money that is directed to different agencies and programs. You can view a breakdown of this money by agency and program here: American Recovery and Reinvestment Act — Utah Amounts
There are still a lot of questions about this stimulus money…we will do our best to keep you up to speed.