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President’s 2014 Budget Cuts State, Local Grants

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.