Bond Buyer: What the budget deal means for states, localities

Bond Buyer: What the budget deal means for states, localities

By Brian Tumulty

Published February 09 2018, 10∶06am EST

More in Infrastructure, Washington DC

WASHINGTON – Friday morning’s brief federal government shutdown highlighted the unpredictability of federal funding that state and local governments say they want to end in order to help them plan their own budgets.

“The big issue we want is regular order,” said Fred Wong, spokesman for the National Association of Counties. “We haven’t had a regular budgeting process for several years. Counties need regular funding. Certainty is a fundamental need right now.”

The Senate voted 71-28 shortly before 2 a.m. and the House followed suit with a 240-186 vote at 5∶32 a.m. to approve a package that keeps federal agencies running through March 23 while House and Senate appropriators work on final 2018 spending bills.

The package suspends the debt ceiling through March 1, 2019, provides $89.3 billion in disaster aid and extends a number of expired tax provisions including a Jan. 1, 2022 extension of the rum cover-over for Puerto Rico and the U.S. Virgin Islands that will generate an estimated $900 million for the two U.S. territories. Another tax provision calls for all low- income communities in Puerto Rico to be treated as qualified opportunity zones.

The disaster aid includes $4.9 billion to provide 100% federal funding for Medicaid health services for low-income residents of Puerto Rico and U.S. Virgin Islands for two years and $11 billion of Community Development Block Grants for the two territories, including $2 billion of CDBG money to rebuild Puerto Rico’s electrical grid.

In total, $16.55 billion of the disaster aid is earmarked for Puerto Rico, according to Resident Commissioner Jennifer Gonzalez, the island’s nonvoting representative in the House.

Despite the new budget deal, which includes a bipartisan congressional commitment to increase federal infrastructure spending by $20 billion over two years, a broad coalition of state and local government groups say that enacting legislation to provide long-term solvency for the Highway Trust Fund remains a 2018 federal priority for them.

Mayor Stephen Benjamin of Columbia, S.C. and chair of the Municipal Bonds for America coalition outside the U.S. Capitol on June 7, 2017


Governors and local government officials also are looking for certainty in getting federal funding for a variety of programs which the budget deal may provide through 2019.

The ailing Highway Trust Fund, which is backed by fuel taxes and provides grants to state and local governments for highway and mass transit projects, is only one source of funding.

Congress has enacted four short-term continuing resolutions since the Oct. 1, the start of the 2018 fiscal year. That’s put a strain on state and local budgets.

Wong said county governments support about 1,000 hospitals, 1,900 local health departments, 750 behavioral health centers and nine out of 10 local jails. One third of the nation’s public transit systems and airports are operated at the county level.

NACo has eight federal priorities for 2018 included increasing federal support for mental health and substance abuse, protecting the federal-state partnership funding Medicaid, and support for federal payments in lieu of taxes to local governments for federal facilities that are exempt from property taxes.

Federal Medicaid funding appeared to be in jeopardy last year until Senate Republicans failed in their effort to join House Republicans in repealing the Affordable Care Act that had expanded the Medicaid program with a more generous federal share of the cost.

Some states earlier this year ran short on funding for the Children’s Health Insurance Program until Congress finally reauthorized it in January.

A similar problem has beset community health centers. The federal Community Health Center Fund, which provides about 70% of their funding expired on Sept. 30, 2017 and was extended by Congress only through March 31. The Kaiser Family Foundation reported Feb.1 that 20% of health centers it surveyed had instituted a hiring freeze, 4% had laid-off staff and another 45% were considering a hiring freeze.

The latest short-term continuing resolution could be the final one this year. House and Senate appropriators would have a March 23 deadline to finish the 2018 spending bills using the spending increases of $80 billion for defense $63 billion for non-defense discretionary programs.

And later this spring, those House and Senate appropriators will be able to tackle fiscal 2019 spending bills with an additional $85 billion for defense and $68 billion for non-defense discretionary programs.

An outline of the budget deal released Thursday by Senate Democratic Minority Leader Chuck Schumer of New York says infrastructure spending would increase $10 billion in the current fiscal year and another $10 billion in the 2019 fiscal year that begins Oct. 1.

Schumer said in a Senate floor speech Wednesday the $20 billion would “augment our existing infrastructure programs, including surface transportation, rural water and wastewater, clean and safe drinking water, rural broadband so desperately needed in large parts of rural America, and energy infrastructure.”

The details of how that money would be apportioned are being left to the House and Senate appropriations committees.

The budget deal would provide an additional $190 billion in federal infrastructure spending over 10 years, which is nearly the $200 billion the Trump administration has said it wants to leverage for $1.5 trillion in new investment with the help of state and local governments.

Details of Trump’s infrastructure plan are scheduled for release Monday, but a leaked outline showed the plan reverses the traditional formula for certain competitive grants with a 20% rather than 80% federal share awarded to governments.

That’s problematic for many state and local officials who are accustomed to having the federal government pay 75% to 80%.

“Dropping the federal share is short-sighted and doesn’t make sense,” said Mayor Steve Benjamin of Columbia, S.C. and vice president of the U.S. Conference of Mayors.

“We are carrying our fair share,” said Benjamin, who also chairs the Municipal Bonds for America coalition. “Seventy-five percent of all infrastructure investment now is coming from local and state governments primarily using tax exempt muni bonds.”

In 2014 state and local governments spent $106 billion on water and sewer systems alone, while the federal government only spent $2.5 billion on loans, Benjamin said.

A coalition of 13 groups issued a joint statement Thursday urging Washington officials “to secure the long-term solvency of the Highway Trust Fund.”

The group includes the National Governors Association, U.S. Conference of Mayors, National League of Cities, National Conference of State Legislatures and American Association of State Highway Transportation Officials.

“We welcome President Trump’s and Congress’ focus on infrastructure,” the group said. “A strong federal-state-local partnership will be critical to delivering a bipartisan infrastructure package that invests in every community.”

The group said they are seeking “the correct balance between federal, state and local investments and private sector partnerships.”

Last month the U.S. Chamber of Commerce came out in favor of a 25 cent per gallon increase in the federal gas tax to provide additional revenue to the Highway Trust Fund.

Although the National Governors Association hasn’t endorsed a gas tax increase, 26 states and the District of Columbia have increased their own gas taxes since 2013, according to NGA.

“Getting governors to agree on an issue like that is difficult, but a number have raised gas taxes,” said Scott Pattison, executive director and CEO of NGA. “Given the anti-tax sentiment, I think that’s a remarkable fact.”

The governors as a group aren’t making infrastructure a top priority unless there’s an expectation that that major legislation has a good chance of enactment, Pattison said.

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