Balanced budget agreement reached

in photo at right:
President Bill Clinton signs the historic balanced budget agreement during ceremonies on the South Lawn of the White House, Aug. 5.
Photo by Larry Naake.

As Congress headed toward its summer recess, there was much fanfare and euphoria on both sides of the political aisle as the White House and Republican congressional leadership reached a historic reconciliation conference agreement to balance the budget by 2002.

The agreement implements the bipartisan budget agreement reached in May and balances the federal budget for the first time in 30 years. The tax and spending bills associates with the budget agreement passed overwhelmingly in both the House and the Senate.

The celebratory mood reflected a sense of relief by the negotiators who struggled over the last two-and-a-half through political showdowns, and government shutdowns to craft a deal that lets both sides claim victory. The victory was fueled greatly by a strong economy that has boosted tax revenues dramatically, which reduces the deficit faster and makes it possible to provide tax breaks for businesses and individuals while increasing social spending.

The package of tax and spending bills contained in the five-year budget reconciliation measure includes net tax cuts of $95 billion for families, education and investors; $115 billion in net Medicare savings over five years, primarily by reducing payments to hospitals and physicians; and almost $13 billion in Medicaid savings achieved primarily through reducing disproportionate share payments to hospitals.

Under the agreement, spending cuts of about $140 billion are projected over the next five years. This represents about a 10 percent real reduction in defense and domestic discretionary spending.

However, in the first year of the budget agreement, spending will actually increase for some programs, including funding for an uninsured children's health program which will total $24 billion over five years. The unspecified future reductions in spending will need to be absorbed in the latter years of the five year budget deal.

NACo priorities
Overall, a number of NACo legislative priorities fared well, including restoration of most benefits lost by legal immigrants under last year's welfare reform law; a $3 billion welfare-to work jobs initiative targeted to high poverty areas, and providing Brownfields and Empowerment Zones tax initiatives for distressed areas.

Major set backs to NACo's legislative agenda included no set asides of broadcast spectrum for public emergency channels and cuts in Medicaid disproportionate share payments.

While Congress and the Administration have made significant progress in reaching the bipartisan budget agreement, much remains to be done when Congress returns after Labor Day. Only one month will remain to complete action on FY98 appropriations bills before funding expires Oct. 1, the beginning the new fiscal year. (See story, page ) Action is also pending on several authorization bills affecting county programs before the scheduled Nov. 14 adjournment date.

Immigration
In a departure from last year's welfare reform act, Congress has restored Supplemental Security Income (SSI) eligibility for most legal immigrants in the country as of Aug. 22. The provisions approved by the budget reconciliation conference committee include those individuals who were lawfully residing in the United States as of that date and were receiving SSI, as well as current residents who are or become blind or disabled.

This was one of the major changes to last year's welfare reform law that were supported by NACo, and among our top legislative priorities. Unfortunately, Congress did not take similar action regarding the denial of food stamps to this population.

The bill also clarified that Cuban and Haitian entrants, as well as Amerasian immigrants, qualify for the exemptions afforded to refugees. This is particularly important for future immigrants who would otherwise have been made ineligible for most federal programs for a period of five years.

Two other provisions that were included in the Senate bill, which would have eased the restrictions on future immigrants were not accepted as part of the final package. They were Medicaid coverage for children and SSI coverage for those too disabled to naturalize.

Welfare-to-Work legislation
The budget reconciliation bill also includes a $3 billion welfare-to-work entitlement program. The funds are equally divided between FY98 and FY99, but grantees have up to three years to expend the funds.

Seventy-five percent of the funds would be distributed to the states. There is a one-third matching requirement. The interstate formula is poverty and adults receiving Temporary Assistance for Needy Families (TANF), which was supported by NACo.

The governor must in turn distribute 85 percent of these funds to service delivery areas. Half of the intrastate formula must be based on poverty levels. The governor has the discretion to determine the weight given to the other two components, which are individuals receiving TANF and the unemployment rate.

Funds will be distributed by the Department of Labor (DOL). As previously mentioned, the funds will go to service delivery areas (SDAs), but there is language requiring that the expenditures be coordinated with the TANF expenditures. There is also language that would allow governors to seek a waiver to have the program administered by an alternative agency in one or more SDAs.

The remaining of the federal funds are for competitive grants, which include political subdivisions of the state as eligible applicants. The 75 percent/ 25 percent formula split is a compromise with the administration, which wanted an equal split between the two. NACo supported the version passed by the House Education and the Workforce Committee, which would have provided 95 percent of the funds through formula.

At one point, the bills had very specific language that the competitive grant funds must be used in the 100 cities with the highest concentrations of poor, as well as rural areas with similar characteristics. The final language only states that the department must consider the needs of these areas.

Funds may be used for a number of activities, including job creation through private and public sector wage subsidies, community service or work experience, on-the-job training and support services. There is also language that would allow funds to be used to help those individuals who have exceeded the five-year limit.

At least 70 percent of funds must be targeted to TANF recipients or non-custodial parents who have multiple barriers to employment. Funds to TANF recipients are targeted even further to those who have received assistance for at least 30 months or are within 12 months of becoming ineligible due to time limits.

(l-r) NACo President-elect Betty Lou Ward; National League of Cities President Mark Schwartz, councilmember, New Orleans, La.; Marc Morial, mayor, New Orleans, La; and NACo First Vice President C. Vernon Gray were among the dignateries attending the balanced budget signing ceremony, Aug. 5.
Photo by Larry Naake.

Other welfare changes
The bill also makes some changes to the work requirements regarding vocational education. One of the changes is more limiting than current law. The bill would limit those who can meet the TANF work requirement through vocational education to 30 percent of the population required to participate. Under current law it is 20 percent, but of the full caseload. The bill does, however, exclude custodial teen parents from this 30 percent limitation in FY98 and FY99, which is more flexible than current law.

Two other changes have to do with the requirement that unemployed single able-bodied adults can only receive food stamps for three months out of a 36-month period. The bill allows states to waive this requirement for up to 15 percent of those individuals. It also adds $599 million over five years to create additional work slots within the food stamp job training program.

Counties hit by health cuts
County health facilities will face the challenge of doing more with less federal assistance under the balanced budget bill. As part of the budget reconciliation bill, there are a number of reimbursement mechanisms which will be repealed or limited. Chief among them are the federal payments to health facilities serving large numbers of Medicaid or uninsured individuals. The disproportionate share program (DSH), originally created to assist public and other safety net hospitals, is slated for cuts of about $13 billion over the next five years. If the program had been allowed to continue under current law, payments would have totaled $60 billion during that time.

The DSH cuts affect each state differently, depending on their past dependence on DSH or their use of the funds to finance state psychiatric hospitals. Congress took steps to limit the over-reliance on DSH and the financing of state mental facilities. Because it is a complicated formula, and there were political pressures from some states, the legislation details the amount of funds each state will receive, per year.

The NACo-supported measure in the Senate version to require states to prioritize a portion of the remaining funds to hospitals serving the most poor was weakened slightly in the final bill. States will be required to report annually to the U.S. Department of Health and Human Services on the method they used to distribute DSH funds, using the proportion of low-income patients served as the basis for distribution. The amount each facility received would also be reported.

NACo had joined with the National Association of Public Hospitals and Health Systems and the National Association of Children's Hospitals to urge that there be a federally-proscribed benchmark defining which facilities would have priority in receiving DSH.

The Boren amendment was also a casualty in the bill. This provision in the Medicaid law was used successfully by many providers to sue states to increase reimbursement for their services. However the measure was repealed effective Oct. 1.

The repeal affects long-term care facilities most, but also hits hospitals. In its place is a public notice and comment process states must follow when proposing reimbursement rates.

The third reimbursement mechanism being curtailed is the cost-based reimbursement given to health clinics. Community health centers and some county facilities currently receive 100 percent reimbursement for the reasonable costs of providing care to Medicaid beneficiaries. Those rates are typically higher that the state pays for similar care provided by other facilities.

Under the new law, reimbursement to community health centers will phase down to 70 percent of costs by 2003. Further analysis is needed, but it appears that other public facilities owned by another entity, including a county or city, would no longer be eligible for this enhanced reimbursement.

The budget bill also make it easier for states to operate Medicaid managed care programs. States will no longer need to apply to the federal government for a waiver to place Medicaid beneficiaries in managed care. There are a number of federal guidelines states will have to follow to operate these systems, including enrollment and consumer safeguards.

Child health expansion adopted
A five-year, $24 billion initiative to cover uninsured children was adopted by the reconciliation conferees. The measure would cover families with incomes up to 200 percent of poverty. States will have considerable flexibility in spending the funds, including expanding Medicaid, enrolling children in private plans, providing services directly.

States would have to cover, through a number of options outlined in the bill, a range of health benefits. A state match would be required in order to participate.

Governments dealt spectrum set back
After the Federal Communications Commission (FCC) issued a July 10 proposed rule to reallocate channels for public safety, Congress inserted language in the budget reconciliation agreement making it very easy for a broadcaster to obtain a waiver of requirements that compelled the return of spectrum prior to the year 2007.

Without added spectrum, the FCC will not be able to commit frequencies for public safety and emergency management. There are few immediate legislative remedies for this problem. NACo will meet soon with a coalition of 40 national organizations to develop a revised stategy.

Budget drops Section 8 fix
A NACo-supported provision was dropped from the reconciliation bill which would have addressed the problem of FHA-insured multifamily developments with rental subsidies above market rate. The Sec. 8 project-based contracts for these units are expiring. The Senate proposed a system to restructure the mortgages and reduce rents accordingly.

However, this issue is also addressed by the Senate addresses in its Department of Housing and Urban Development (HUD) FY98 appropriations bill, thereby raising the possibility of resolving the crisis this year. NACo will urge HUD appropriations conferees to include the Senate provision.

Counties tally victories in tax bill
The final tax reconciliation bill contains a number of provisions affecting counties. Twenty new empowerment zones (15 urban and 5 rural) would be authorized. Congress approved nine empowerment zones and 90 enterprise communities in 1993. The new empowerment zones will be eligible for a "brownfields" tax incentive; enable special expensing of business assets; and qualify for private-activity tax exempt bonds. (Brownfields is the term used to denote abandoned, undeveloped industrial sites.) Tax incentives will be provided to reduce the cost of cleaning up abandoned brownfield sites in economically distressed areas by granting an immediate tax deduction. The tax deduction will be available for three years.

A welfare-to-work tax credit would give employers an added incentive to hire long term welfare recipients by providing a credit equal to 35 percent of the first $10,000 in wages during the first year of employment. It would increase to 50 percent in the second year.

On tax exempt bonds, the bill increases the cap on small issue bonds for education facilities from $5 million to $10 million. The $150 million cap on 501(c)(3) non-hospital bonds is eliminated. This affects 36 universities that have reached their ceiling. The expenditure limit for capital improvements on facilities financed with IDBs (Industrial development bonds) is increased from $10 million to $20 million.

NACo also won significant victories in blocking provisions from being included in the final bill. Despite a strong push by the House and the Administration, the proposed restriction on the two percent de minimis rule for corporate holdings of tax-exempt bonds was dropped. There is also no provision restricting the use of municipal bonds to finance sports stadiums. Finally, there is no provision to eliminate low-income housing tax credits.

Gas, aviation taxes modified
As part of the tax reconciliation bill, 4.3 cents of the gasoline tax that now goes into the general fund was shifted to the Highway Trust Fund. This was a high priority issue for NACo, though the $5­$6 billion in new revenue this shift will generate does not translate into new spending authority. Efforts to require these funds to be spent were not successful, however. These additional funds, like all other gas tax revenue coming into the Trust Fund, will be subject to the annual appropriations process.

On the aviation side, the current 10 percent ticket tax was reduced to 7.5 percent over three years and a new flight segment fee was created.

(NACo lobbyists provided the information on the specific issues contained in this article.)