Trusted performance.  Lasting value.

President’s 2014 Budget Cuts State, Local Grants

GFOA News Letter

April 18, 2013

On April 10,  2013, the White House sent to Congress a $3.78 trillion budget proposal  for fiscal 2014, which included a combination of revenue raisers and  spending cuts designed to reduce the federal budget deficit by $1.8  trillion by 2023. The largest revenue increase proposed in the budget  would come from a reduction in the value of certain tax benefits,  including tax-exempt interest on municipal bonds.  Under the proposal a 28% limit would be imposed on the tax value of  specified deductions and exclusions from adjusted gross income earners  in the 33%, 35%, and 39.6% tax brackets. The administration estimates  that this policy would generate $529.5 billion over the next ten years.  The GFOA has consistently opposed any limitations on these provisions in  the tax code because of their potential costs to state and local  governments, and is encouraging our members to contact the White House  and discuss their opposition and concerns with this proposal. Our  Federal Liaison Center is providing a draft letter that members can use to send to the president on this issue.
Beyond  these harmful provisions, the proposal also reintroduces a new America  Fast Forward bonds program, which would provide 28% subsidies for  governmental financing. The bonds could be used for all purposes for  which tax-exempt bonds are currently eligible, including working  capital, refundings, and eligible 501(c)(3) and other private-activity  bond uses, subject to current state volume caps. New-money AFF bonds  issues in 2014 and 2015 for school and university construction projects  would be eligible for a 50% subsidy rate.
Regarding retirement  savings, the budget proposal would limit the total amount an individual  can accumulate for retirement in tax-favored accounts. In particular,  the president’s budget would cap such accumulated savings at the amount  necessary to provide the maximum annuity permitted for a tax-qualified  defined benefit plan under current law – currently an annual benefit of  $205,000 at age 62. The cap would apply to individual accounts such as  IRAs, 401(k)s, 403(b)s, and 457(b)s, as well as to defined benefit  accruals.
In other areas of note to state and local governments, the proposal would:

  • Exclude private activity bonds for water infrastructure from state volume caps.
  • Permanently extend the New Markets Tax Credit.
  • Reduce  funding for the b program, which supports housing and community  facility improvements in low income neighborhoods, from $2.8 billion in  the current fiscal year to $2.7 billion in fiscal 2014.
  • Reduce funding for Clean Water and Drinking Water State Revolving Loan Funds,  which provide low-interest loans to communities to finance water  projects, from $2.2 billion in the current fiscal year to $1.9 billion  in fiscal 2014.
  • Reduce funding for the Low Income Home Energy Assistance Program,  which assists low income families and individuals with heating and  cooling bills, from $3.2 billion in the current fiscal year to $2.9  billion in fiscal 2014.
  •  Changes to funding for federal programs designed to support state and local public safety. These programs include:
    • The Community Oriented Policing Service grant program, which enables state and local governments to hire additional police officers. Under the White House proposal, the COPS program would be increased by $241 million over current funding levels, for a total of $439.5 million in fiscal 2014.
    • Part of the COPS program, the $150 million new Comprehensive School Safety will develop school safety plans, improve equipment and systems needed to provide for enhanced school safety, and hire school safety personnel.
    • The Byrne Justice Assistance Grants, which provides states and localities with funding to support state and local law enforcement equipment, prosecution and courts, crime prevention, drug treatment, and other similar initiatives. The White House’s fiscal 2014 budget proposal would provide a $25 million increase over current year funding levels, for a total of $395 million in fiscal 2014.
    • The Staffing for Adequate Fire and Emergency Response grant program, which provides funds to state and local governments to hire firefighters, as well as the Assistance to Firefighter grants program, which provide funding to state and local governments for equipment, protective gear, emergency vehicles, and training. Under the administration’s proposal, each of these programs would experience a slight decrease from $338 million in the current fiscal year to $335 million in fiscal 2014.
  • Eliminate the State Homeland Security Grant Program,  which provides resources to state and law enforcement and emergency  response agencies to help fund equipment, training, and other needs to  respond to acts of terrorism. The proposal would also eliminate the Urban Areas Security Initiative,  which provides funding to address similar needs of first responders in  high-density population areas. These programs would be replaced by a new  National Preparedness Grant Program.
  • Reduce funding for Airport Improvement Grants  by $450 million to $2.9 billion in fiscal 2014, by eliminating formula  grants to large airports but allowing them to increase their own  passenger facility charges.
  • Provide $50 billion in new funding  for infrastructure repair and maintenance of existing roads, bridges,  transit systems, border crossings, railways, and runways. The proposal  also supports the funding levels included in the 14-month transportation  reauthorization law (MAP-21), which was enacted in  July 2012. In fiscal 2014, the budget would provide $53 billion for  highway, transit, and highway safety programs.

Managing an investment portfolio in today’s volatile financial markets requires sophisticated financial tools.