(from Maine Townsman, October 1997)
By Geoff Hermann and Kate Dufour
The tax and budget "reconciliation" bill was enacted by Congress and signed by President Clinton on August 5, 1997. The legislation was designed to bring the federal budget into balance by the year 2002. Recent projections by the Congressional Budget Office suggest that the positive national economy will yield increased federal revenues that will bring about a balanced federal budget well before the year 2002, and that five years from now there will likely be a sizable budget surplus. If those projections hold true, it will be the first time the federal budget has been in the black in several decades.
In general terms, the two-part budget balancing act (HR 2014 and HR 2015) needed to obtain $350 billion in deficit reduction over the next five years, but this daunting task was made considerably easier by the projection of $225 billion in windfall tax revenues produced by the growing economy, $77 billion in the projected "economic dividend" from having a balanced budget and reduced interest costs, a certain required income from the auctioning off of chunks of the public airways, and $15 billion in Social Security savings and increased IRS revenues from a CPI (Consumer Price Index) recalculation.
The most publicized components of the reconciliation bill were the "tax expenditures" (i.e., tax breaks) enacted for individual taxpayers, including a $500 per-child tax credit, capital gains tax breaks, estate tax breaks, and education tax credits and breaks. The reconciliation bills effect on municipal government was more indirect and certainly less attention-getting.
The elements of the legislation that municipal officials should be aware of are listed below.
Welfare-to-Work Jobs Challenge. Funded at $3 billion over the next two years, this jobs challenge grant program provides an opportunity for local government to play an active role in welfare reform.
The bill gives $1.5 billion a year for FY 98 and FY 99 to the federal Department of Labor for "Welfare-to-Work" purposes.
Seventy-five percent of that appropriation is passed through to the states under a "formula grant" program. The distribution to the states is based on the states proportionate share of low-income citizens and recipients of TANF (formerly AFDC) benefits. In turn, states are required to pass 85% of the block grant through to the Private Industry Councils (PICs) within the state which are responsible for implementing programs that will help people receiving TANF benefits get into the workplace. In Maine, the federal grant to DHS and the Department of Labor would be approximately $5 million a year, which would have to be annually matched by $2.5 million of state money.
In order for Maine to participate in the formula grant program, the state plan must be submitted by a December 12th target date, and the grant awards to the states will be announced in early January, 1998.
The remaining 25% of the $3 billion federal appropriation must be used to provide competitive grants to local communities. These grant funds will be awarded directly to municipalities, PICs, and private organizations that apply in conjunction with municipalities or PICs. The federal Department of Labor is scheduled to be publishing a solicitation for grant applications on October 31st, and the grant application must be submitted by January 15th, 1998.
Through either grant program, the money can be used in a number of ways: job creation, placement, retention programs; wage subsidies to employers; transportation; or other support services. Welfare-to-work language guarantees minimum wage and FLSA (Fair Labor Standards Act) protection to welfare clients in job transition.
Health Insurance. $24 billion would be provided by this blue-print legislation over the next five years to provide health insurance to low income children. The funds will be block granted to the states, which can choose from a menu of five options to provide the health insurance coverage. The approximate size of the federal block grant to Maine will be $12.5 million a year, which will demand a state matching grant of $3.9 million. The states could enroll children in: (1) each states most commonly used HMO; (2) the state employees health plan; (3) the federal employees health plan; or (4) the Medicaid program. The state could also directly purchase the coverage.
Food Stamps. The federal welfare reform enacted in 1996 included a provision that effectively excluded non-disabled people from receiving Food Stamps except for a very short period if they were between the ages of 18 and 50, had no dependent children, and were not working or participating in a work program for at least 20 hours a week. This 1997 reconciliation bill softens that exclusion by adding $1.5 billion to the Food Stamp program to allow states to exempt 15% of the Food Stamp case load (able bodied adults without children) who would lose benefits under 1996 welfare reform. The 15% caseload waiver should alleviate the concerns of municipalities that might otherwise have to provide General Assistance to those Food Stamp recipients actively looking for work but having difficulty in getting a job.
The reconciliation bill also provides $560 million over the next five years for enhanced Food Stamp employment and training programs.
Welfare and Immigration. In another relaxation of some welfare rules established in the 1996, the reconciliation bill sets aside $12 billion to restore SSI (Supplemental Security Income) and Medicaid to 350,000 legal immigrants in the nation who lost these benefits in last years federal "welfare reform" package. The restoration of these federal benefits will take effect in the year 2002. Also in 2002, legal aliens who came into this country before August 22, 1996 (the effective date of last years federal welfare reform changes) but who subsequently become disabled will be eligible for SSI and Medicaid.
Finally, the period of eligibility for SSI and Medicaid for refugees and asylees (immigrants with a different welfare status than other legal aliens) has been extended from five years to seven years.
Additional Welfare Changes. Medicaid as been extended to 30,000 children who lost SSI benefits in 1996 due to a change in the regulatory definition of "disability".
Welfare officials should also be aware of a work opportunity tax credit that is embedded within the reconciliation bill. This tax credit rewards employers for hiring welfare recipients, high-risk youth, and others.
Education. The reconciliation bill increases the arbitrage rebate exception for government bonds used to finance education facilities. Federal law currently requires all public entities that issue bonds to undertake significant reporting requirements to verify that the public entity did not engage in arbitrage, which is the act of making an unfair profit by moving securities through different markets. Furthermore, any proceeds that are obtained through arbitrage must be rebated. Existing law provides an exception to these rebate and reporting requirements for "small issuers" which are entities that issue less than $5 million of bonds in a calendar year.
The reconciliation bill expands the threshold for exemption from the arbitrage rebate rules to allow "small issuers" to sell up to $10 million bonds provided at least $5 million of the aggregate amount issued during the calendar year was for school construction.
According to Bill Stockmeyer, an attorney with the Portland law firm of Dummond, Woodsum, and Plimpton, this change to the arbitrage rules is significant not because it will free up vast new sources of capital for school construction purposes, but because it will relieve municipalities from complex arbitrage reporting and rebate requirements.
Education officials should also be aware of a new tax deduction created in the reconciliation bill targeted to businesses which make contributions of computer equipment to local schools.
Brownfields and Empowerment Zones. The reconciliation bill provides a tax deduction for remedial work on property accomplished by landowners if the property in question is: (1) business property; (2) certified by DEP to be in a targeted "brownfield" area; and (3) contains a hazardous substance. This tax deduction should provide an incentive to rehabilitate and rejuvenate abandoned industrial sites that can cause blight in some of the most potentially productive areas in Maines urban and "service center" communities.
The reconciliation bill also provides for the creation of 20 more "Empowerment" or "Enterprise" zones throughout the nation. Once these zones are established according to the criteria set out in federal law and upon application by the state or local agencies, the employers within those zones are provided certain wage and other tax credits. There are presently no empowerment zones in Maine and it is not clear if the authorization to establish 20 more such zones throughout the United States will enable the creation of this kind of opportunity in Maine.
Spectrum. At the heart of this issue is whether local government public safety officials will have access to a sufficient "spectrum" of the public airways to operate their emergency call-in, response, and dispatch systems. As noted above, some of the budget balancing act was predicated on auctioning off some public airways for commercial use. As the blueprint of the reconciliation bill was being developed in the spring of this year, there was an initial agreement to provide 24 mhz within the TV analog channels 60-69 which would be dedicated for public safety purposes. The FCC responded by issuing a notice of proposed rulemaking in July of this year that would reallocate TV analog channels 63, 64, 68, and 69 back to the FCC for public safety purposes by December 31, 2006. The reconciliation bill, enacted a month later, reportedly contains some fine print that will lead to a much-delayed return. The fine print will allow a private broadcaster (who would otherwise have to give up those channels by the 2006 deadline) to retain his or her license to broadcast over those bands if: (1) one or more of the nations four major broadcasters is not broadcasting on digitalized signal; (2) digital-to-analog converter technology is not generally available; or (3) 15% or more of the television households in the local market do not subscribe to or have digitalized television service.
According to some reports, this exception to the general rule of a required set-aside of public spectrum could effectively render the set-aside meaningless. The issue of spectrum availability in Maine, and the impact of this recent federal legislation, is not entirely clear. Several public safety officials in Maine have indicated that there is a problem currently with narrowness of the frequency bands currently used by the various public safety agencies. When the width of the available band becomes too narrow, a cross-channeling effect occurs that interferes with a clear communication signal. Another concern is whether the federal government will ultimately move public safety spectrum into uncommon frequencies, which could result in expensive hardware and software transitions.
The tax and budget reconciliation bill of 1997 caused a great splash when it was enacted this summer, primarily for the tax breaks it provides to families with children, families with children going to college, and investors. For municipal government, the impacts of the reconciliation bill are more tangential. In the areas of welfare administration, public safety, school construction financing, and environmental remediation, however, there are elements of new tax law that could provide some tangible benefits to local government.
Meanwhile, with the budget balancing debate behind it, Congress is moving ahead on a variety of other issues. Upcoming congressional action on a number of fronts will be of particular interest to municipal governments in Maine. Included on this list are:
Federal transportation funding, which has reportedly stalled around a geographic power shift in Congress from north to south. The power shift has revealed itself in the failure of Congress to reauthorize ISTEA funding by the October 1st beginning of the new federal fiscal year.
Another "takings" bill in the House (HR 1534) which is now being joined by at least one companion bill in the Senate (S. 1256), which would allow developers to side-step state courts and push takings claims into the federal courts before they are "ripe" for federal review according to current law.
A series of legislative proposals regarding public housing reform. One of these proposals would shift 20% of the funds currently available for homeless programs to a competitive grant program for the states to build permanent housing. Because Maine may not be able to develop a competitive edge in that process, the change does not appear to be advantageous for Maine.
A change to the FLSA (Fair Labor Standards Act) that would clarify the legitimacy of overtime compensation claims filed by high level/high salaried employees.
As these and other matters undergo further deliberation by Congress, MMA will make every attempt to keep municipal officials informed through the Townsman, Legislative Bulletin, or specific-issue action alerts.