As the end-of-the-year fiscal cliff looms, the December 2010 “Moment of Truth” (MOT) report from co-chairs of the National Commission on Fiscal Responsibility and Reform, known as Simpson-Bowles, is once again getting attention.
A bipartisan group of eight senators is trying fashion a comprehensive deficit-reduction plan and is considering Simpson-Bowles among other proposals.
So, what was Simpson-Bowles and how would it affect counties? The report offered a comprehensive eight-year deficit-reduction plan for FY13–20 that included spending cuts, tax reform and congressional budget process changes.
Some of the proposals that affect counties the most include:
Mandatory State and Local Employee Social Security Coverage: As part of its proposal to reform Social Security, all state and local employees hired after 2020 would be covered under Social Security. NACo policy states that state and local employee Social Security coverage should be optional.
State and Local Bonds: While the report would not make any specific changes to the tax treatment of state and local bonds, its illustrative chart of possible changes to individual taxes makes the interest on newly issued bonds taxable.
Medicaid and Entitlement Changes: While the report does not recommend a block grant for Medicaid and doesn’t cut other low-income entitlement programs, it does propose several changes that would affect counties. The most significant one is further restricting and eliminating the ability to use provider taxes to draw down federal Medicaid funds. This provision would represent a cut of $5 billion in 2015, and $44 billion through 2020.
A second provision would eliminate Medicaid administrative cost payments that could be assigned to the Temporary Assistance to Needy Family (TANF) Block Grant. This provision would cut $260 million in 2015 and $2 billion through 2020. This provision saves money because Medicaid funding is open-ended and TANF is a capped block grant. A similar provision was used in the past in the food stamp program to pay for restoring eligibility to legal immigrants.
Funding Limits: Simpson-Bowles proposed discretionary spending caps that would amount to $1.6 trillion through 2020. Some of these savings have already been achieved because the report used a baseline from two years ago. It would also include budget and appropriations enforcement measures such as across-the-board cuts and would bring back the firewalls that had existed between security and non-security discretionary — also known as domestic discretionary — spending.
Under the firewall system, increases to domestic discretionary programs could not be offset by cuts in defense programs and vice versa. The Department of Homeland Security (DHS) did not exist the last time the firewalls were in place. Under Simpson-Bowles, DHS and veterans’ programs would fall under the security category.
An earlier illustrative draft proposed specific program eliminations and cuts. While these changes didn’t appear in the MOT report, the proposals could still be in play as the deficit-reduction conversations continue. They are:
- Eliminate funding for the Economic Development Administration and grants to large and medium-sized airports. Grants to small-sized airports would remain.
- Change the Community Development Block Grant formula to target needier communities and reducing the program by 20 percent, which would cut $500 million by 2015.
- Eliminate the Army Corps of Engineers’ Water and Wastewater Treatment program, but similar programs under the Department of Agriculture and the Environmental Protection Agency would remain.
- Consolidate and eliminate duplicative programs. The draft cites a recent Government Accountability Office report to highlight government funding for 44 job-training programs across nine different federal agencies. It makes no distinction between job-training programs operated by the Department of Labor and those operated at different federal agencies.
- Cut the Department of Justice funding $1.6 billion in FY15; while the draft doesn’t specify which programs, it does suggest that the cut could be partly achieved by reducing grants.
- Reduce land acquisition under the Land and Water Conservation Fund, noting that the federal government has trouble maintaining the acreage it already owns.
- Reduce funding for the National Park Service and offset any cuts by an increase in visitor fees; and
- Eliminate a number of unspecified USDA rural development programs, which would save $500 million in 2015.
Six of the eight senators involved in the negotiations, Saxby Chambliss (R-Ga.), Tom Coburn (R-Okla.), Kent Conrad (D-N.D.), Michael Crapo (R-Idaho), Richard Durbin (D-Ill.) and Mark Warner (D-Va.), suggested adopting the MOT proposal in the summer of 2011, but that went nowhere. Since then, this Gang of Six has been expanded to the Gang of Eight by the addition of Sens. Michael Bennet (D-Colo.) and Mike Johanns (R-Neb.).
President Barack Obama appointed the 16-member commission, which was chaired by former Sen. Alan Simpson (R-Wyo.) and Erskine Bowles, President Bill Clinton’s chief of staff. It included three of the “Gang of Eight” senators, plus Coburn, Conrad and Durbin.