‘Thumbs down’: NACo verdict on Bush FY08 budget proposal

By the NACo legislative staff

President George W. Bush’s FY08 budget, at best, can be characterized as not “county-friendly.”

Many programs affecting county budgets have been slashed and NACo will work hard to maintain current funding levels. As of this writing, the FY07 continuing resolution has not been signed into law, so it is difficult to fully assess the complete impact of these proposed cuts. Here is a quick review of the budget lowlights.

Agriculture and Rural Affair

HIGHLIGHTS
• Decreases Distance Learning and Telemedicine grants $36 million below FY06 funding
• Reduces broadband deployment direct loans by $200 million

The U.S. Department of Agriculture released an $89-billion FY08 budget request, which is approximately the same level as 2007. Of the total, 75 percent or $67 billion is made up of mandatory spending, such as nutrition assistance and commodity support payments. The remaining $22 billion is discretionary spending for programs such as research, rural development and conservation. Within the Rural Development section, the FY08 budget discontinues the Rural Community Advancement Program (RCAP) umbrella program and separately breaks down the three program areas: rural utilities service, rural business cooperative service and community facilities. Under the Rural Utilities Service, the administration is requesting $349 million for water and sewer grants and $153 million for direct loans for
the program.

The administration is requesting $25 million for the Distance Learning and Telemedicine grants, which represents level funding from the current continuing resolution but a decrease of $36 million in FY06. For broadband deployment, the administration is requesting $300 million in direct loans, which is a $200 million reduction in program level from FY07. USDA zeroes out the $42 million Rural Business Enterprise Grant and the $3 million Rural Business Opportunity Grant within the Rural Business-Cooperative Service. The department stated that these programs benefited a small number of communities and that they will be shifting their focus to programs that encourage greater private sector investments. USDA requested $25 million to support a program level of $302 million of direct community facility loans and $210 million guaranteed community facility loans. The administration zeroed out the $51 million grant portion of the community facility program.

Community and Economic Development

HIGHLIGHTS
• Increases Homeless Assistance Grants $1.6 billion
• Cuts CDBG program $663 million from proposed FY07 funding
• Eliminates HOPE VI funding

The administration’s FY08 budget proposal for the U.S. Department of Housing and Urban Development (HUD) continues themes from previous years with respect to housing and community development. Overall, the president proposed to fund HUD at $35.2 billion in FY08, $1.6 billion more than the FY07 budget request.

The president proposed to slash the Community Development Block Grant Program (CDBG) to $3.037 billion, with $2.968 billion for formula grants. The FY07 funding level for CDBG is $3.7 billion, contained in the budget resolution passed by the House last week.

Budget documents called for advancing a “reform agenda” for CDBG that “will distribute resources more equitably and promote efficiency.” Budget documents further stated that the current CDBG formula allocates a disproportionate amount of resources to areas with relatively few critical development needs while other, needier areas go underserved. Moreover, budget documents include a proposal to establish an incentive-based, $200-million Challenge Fund from CDBG dollars as part of the administration’s CDBG reform package. A CDBG reform proposal crafted by the administration last year was never introduced on Capitol Hill.

The FY08 budget proposal continues focus on homeownership, ending chronic homelessness, Section 8 reform and oversight of the Government-Sponsored Enterprises (GSE) as policy priorities. The administration proposed $1.9 billion for the HOME Investment Partnerships Program (HOME); the program received $1.8 billion on FY06. The administration also proposed $50 million for the American Dream Downpayment Initiative (ADDI), which received $25 million in FY06.

The FY08 budget eliminates HOPE VI, the Office of Rural Housing and Economic Development, Section 108 Loan Guarantees, and Brownfields Programs at HUD. In FY06, HOPE VI received $99 million, the Office of Rural Housing and Economic Development received $16 million, Section 108 Loan Guarantees received $137.5 million and brownfields received $10 million.

Funding for Homeless Assistance Grants increased to $1.58 billion, up from the amount of $1.44 billion currently passed by the House. The administration’s budget proposal also includes increases for the Section 8 program, including $16 billion for Tenant-Based Rental Assistance and $5.8 billion for Project-Based Rental Assistance. These programs received $15.9 billion and $5.9 billion, respectively. This budget is the continuing resolution that will fund the federal government through Sept. 30, 2007. Passed by the U.S. House of Representatives on Jan. 31, it has yet to be taken up by the Senate.

Environment, Energy and Land Use

HIGHLIGHTS
• Cuts EPA funding 6.6 percent compared to current FY07 proposal
• Includes $204 million for Air State and Local Assistance grants
• Designates $89.3 for brownfields environmental projects

Overall, under the president’s proposed FY08 budget, the Environmental Protection Agency would receive a total of $7.2 billion in funding. That is a 6.6 percent cut under the FY07 budget the Senate is expected to approve with the House-passed continuing resolution.

One of the largest proposed cuts is to the Clean Water State Revolving Loan Fund (CWSRF) funded at $688 million. The CWSRF funds projects dealing with non-point source, storm water, estuary and sewer overflow projects.

The administration proposes funding the Drinking Water State Revolving Loan Fund (DWSRF) at $842 million. One of the more interesting proposals centers around Private Activities Bonds (PAB). PABs are state or municipality tax-exempt bonds. Under the president’s proposal, PABs that are used to finance drinking water and wastewater infrastructure would be exempt under the private activity bond unified state volume cap. The administration believes by exempting these bonds from the cap, there will be greater usage of PABs to pay for infrastructure needs.

The president’s 2008 request includes $204.2 million for Air State and Local Assistance grants for state, local, and tribal air programs, including radon programs. These funds pay for a variety of programs ranging from development, implementation, prevention and control of air pollution along with implementation of national ambient air standards.

In the brownsfields realm, $89.3 million was allotted for brownfields environmental projects. For the Superfund program, $1.24 billion was allocated, 1 percent less than the expected FY07 enactment.

The wetlands grants program received $16.8 million. The Wetlands Program provides financial assistance to states, local governments and tribes to protect, restore and enhance wetlands.

Finance and Intergovernmental Affairs

HIGHLIGHTS
• Makes permanent temporary 2001 and 2003 tax cuts
• Exempts bonds for water/sewer infrastructure from state private activity bond volume cap

The president’s FY08 budget proposes to permanently extend the temporary tax cuts enacted in 2001 and 2003 at a cost of $1.7 trillion over the upcoming decade (roughly half of this cost is attributable to retaining existing marginal rates; another $440 billion is attributable to permanent repeal of the estate tax). It would provide a one-year, $36-billion increase in the Alternative Minimum Tax exemption level and extend the current ability to deduct personal credits (such as the child credit, the dependent care credit and education credits) even under the AMT. Another high-dollar item, a permanent extension of the Research and Experimentation Tax Credit, has a 10-year cost of more than $117 billion.

The budget would raise $29 billion in revenue over the next decade through a set of proposals to improve compliance with the U.S. tax system. Most of the revenue is attributed to a series of information reporting requirements that would all take effect on Jan. 1, 2008.

These include accelerating from Jan. 1, 2011 to Jan.1, 2008 the current requirement for state and local governments to provide information reporting on nearly every vendor payment for a product or service regardless of transaction amount. The budget does not accelerate the additional requirement, which will take effect in 2011, for state and local governments to withhold and remit to the federal treasury 3 percent of the gross amount of these transactions (repeal of this requirement is a key legislative priority for NACo).

Other information reporting and withholding requirements detailed in the budget only explicitly apply to “businesses,” although some of them would likely also apply to state and local governments.

The budget would also require businesses to obtain the federal Taxpayer Identification Number from contractors that are paid more than $600 per year for services rendered and to verify this TIN with the IRS. If the number cannot be verified the business would be required to withhold a flat-rate percentage of payments to the vendor. In addition, it would create a new option for a contractor to require the business to which it is rendering services to withhold between 15 and 35 percent of payments. Finally, credit card merchants would be required to provide information reporting on the total amounts paid to merchants in a calendar year. Each of these requirements would apply to payments made on or after Jan. 1, 2008.

On the positive side of the ledger for county governments, the budget contains a proposal to exempt bonds for water and sewer infrastructure from the state private activity bond volume cap. Currently, each state has a set limit of tax-exempt bonds that it may issue for projects for which at least 10 percent of the proceeds are for private business use. The proposal would be effective for bonds issued after Dec. 31.

Homeland Security

HIGHLIGHTS
• Increases total DHS budget by 8.4 percent over FY07 to $43.6 billion
• Reduces key grants to state and local governments approximately $1.1 billion compared to FY07
• Cuts funding for Metropolitan Medical Response Systems to zero

The total FY08 budget request for the Department of Homeland Security is $43.6 billion; an increase of 8.4 percent (compared to the FY07 level enacted by Congress). However, overall key DHS grants to state and local governments are proposed to receive a total of $1.7 billion, a proposed reduction of $1.08 billion less than what Congress provided for these programs in FY07. 

Specifically, the budget proposes the following amounts for some of DHS’ key grant programs to state and local governments:

• $187 million for the State Homeland Security Grant Program ($509 million enacted in FY07)
• $600 million for the Urban Area Security Initiative (UASI) Program ($747 million enacted in FY07)
• $263 million for the Law Enforcement Terrorism Prevention Grant Program ($364 million enacted in FY07)
• $287 million for FIRE Grants ($642 million enacted in FY07)
• $200 million for Emergency Management Performance Grant Program ($194 million enacted in FY07)
• $151 million for state and local training programs ($276 million enacted in FY07), and
• $15 million for Citizen Corp ($15 million enacted in FY07).

According to the budget request, UASI funding would continue to be allocated based on DHS’ assessments of risk and vulnerability; and state and local needs identified in statewide homeland security plans. Also, the budget request makes no change to the funding formula for allocating DHS’ State Homeland Security Grant Program (SHSGP). States would be eligible for a minimum of 0.25 percent of the total funds appropriated for this program, and remaining awards would be distributed competitively to communities based on risk and threat.

Justice and Public Safety

HIGHLIGHTS
• Eliminates Byrne Justice Assistance Grants (JAG) program
• Priority setting shifts from local to federal level

The Department of Justice budget request for FY08 again calls for the elimination of several popular state and local justice programs including the Byrne JAG program, the State Criminal Alien Assistance Program (SCAAP) and the Juvenile Accountability Block Grant program. In their place, the administration has proposed a new $200-million discretionary grant program — the Violent Crime Reduction Partnership — which has a strong law enforcement and prosecution focus and a new $350-million Byrne Public Safety and Protection Program which consolidates many existing grant programs into a single, discretionary competitive grant program. 

The first program gives priority to proposals from state and local task forces and requires an ongoing partnership with at least one federal law enforcement agency. The second program eliminates direct block grant funding altogether as featured in Byrne JAG and also eliminates its systematic focus.  Finally, the third administration proposal, consolidates all juvenile justice programs into a single $280-million Child Safety and Juvenile Justice Program.

The bottom line is that overall funding is cut by half under all of the administration’s proposals while priority setting shifts significantly from the local level to the federal government.

Labor and Employment Highlights

HIGHLIGHTS
• Cuts discretionary budget 10 percent for FY08
• Proposes Career Advance Accounts Initiative
• Proposes eliminating Migrant and Seasonal Farmworkers program

The Bush administration proposes to cut the Department of Labor discretionary budget by 10 percent to $10.6 billion for FY08. The administration again proposes consolidating the basic adults, dislocated workers, youth employment and training funding with Employment Service funding in a block grant to states. This Career Advancement Accounts Initiative would be funded at $3.4 billion.  Specific allotments for these programs under the consolidation include $712 million for Adults training, $1.12 billion for the Dislocated Workers program, $841 million for Youth activities and $745 million for Employment Service. The FY08 budget includes $150 million for the Community-Based Job Training program, and $40 million for the Prisoner Reentry Initiative and Reintegration of Youthful Offenders programs combined. The administration continues to propose elimination of the Migrant and Seasonal Farmworkers program.

  The Career Advancement Accounts (CAA) Initiative also proposed in the FY07 budget would provide individuals — primarily out-of-school youth, low-income adults and dislocated workers — with up to $6,000 over two years in vouchers to receive education and training. States would be required to use 75 percent of funding directly for the CAAs and be limited to a 15 percent administrative costs cap. States would also have the option to continue to work with and/or eliminate local workforce areas.

Public Lands

Highlights
• Cuts PILT program 18 percent
• Reduces Refuge Revenue Sharing by 13 percent

The president’s FY08 budget request for the Department of the Interior and the USDA Forest Service held little for the public lands counties to cheer. If the president has his way, vital Payments in Lieu of Taxes (PILT) will be cut by 18 percent, from $233 million in 2006 and 2007 to a $190 million. Refuge Revenue Sharing is also on the chopping block with a proposed 13 percent reduction from $23 million to $20 million.

The White House did not request a one-year extension of the Forest County Safety Net (PL 106-393) on an emergency basis for the current fiscal year. Instead the Forest Service offered a legislative proposal, The National Forest Land Adjustment for Rural Communities Act, which would authorize funding for a four-year extension of the Safety Net, paid for by selling a limited number of acres of National Forest System lands around the nation. Funding levels would be slashed (about $400 million for four years as opposed to nearly $500 million per year under the original PL 106-393) and would not likely be available until 2009. Unlike last year’s land sale proposal, this year’s directs that 50 percent of land sale receipts remain within the state where they were collected, to be used for the acquisition of land and access for the NFS system, conservation education, and wildlife and fish habitat restoration.

Telecommunications

Highlights
• Proposes $1.5 million Digital TV education campaign
• Includes spectrum license user fees

The FCC asked Congress for $1.5 million in its 2008 budget for a Digital Television (DTV) education campaign. Congress mandated that all television be broadcast in digital format by February 2009.

  The FCC says it plans to produce Public Service Announcements (PSAs), Web site material and publications. It also plans to participate in forums and to work with the National Association of Broadcasters and the Association of Public Television Stations to air the PSAs.

The campaign will include expanding its “DTV Deputy” campaign educating kids about the transition by encouraging those kids to educate their parents and caregivers.

  The FCC plans to use the money to distribute the information to low-income and minority consumers and translate the information into Spanish, Chinese, Korean and Vietnamese.

  It will coordinate with the National Telecommunications & Information Administration, which has been given $5 million from Congress for a DTV education campaign about the DTV-to-analog converter box program NTIA is overseeing.

  The FCC budget also includes a “spectrum license user fee” inserted by the administration, that is meant to collect $3.6 million over 10 years. It says it applies to “un-auction spectrum licenses,” which would appear to include broadcasters. A more specific broadcaster-targeted fee has been included in the budget for years but has gotten cut every year.

Transportation

Highlights
• Cuts funding less than 1 percent overall compared to FY07
• Reduces funding for airports by $765 million and Amtrak
• Increases highway and transit money

The FY08 transportation budget provides overall spending for the U.S. Department of Transportation at $66.9 billion, less than 1 percent lower than the FY07 level. Highways and transit receive increases in the president’s proposed new budget while airports and Amtrak get cut. This has been the pattern for the last several years.

The highway program, whose funding level is guaranteed under the Transportation Efficiency Act for the 21st Century (TEA-21), is funded at $39.6 billion, about $400 million above the current-year funding.  This funds programs such as the Surface Transportation Program, the Bridge Program and the CMAQ program that provide federal dollars for county projects. Transit funding, also guaranteed under TEA-21, is increased to $9.42 billion from $8.97. This includes the formula program that provides $7.87 billion for large and small urbanized areas, the bus program and the fixed-guideway modernization program, a $447 million increase, and $1.4 billion for new and small starts, about a $166 million cut.

The Airport Improvement Program, which provides funds for infrastructure projects at local government-owned airports, is cut from $3.51 billion to $2.75 billion, a $765-million reduction. The budget refers to proposed changes in the way the aviation and airport programs are funded and indicates that the administration’s aviation and airport reauthorization legislation will be available shortly. Essential Air Service, which subsidizes air service to about 150 small and rural communities, is proposed to be funded at $50 million, a substantial decrease from the FY07 level of $109 million.

In an expected major cut, funding for Amtrak is proposed at $800 million, a cut from the current Amtrak funding of $1.29 billion, along with an additional $100 million in a new program for grants to states for improvements to passenger rail.