1997 Federal Issues Paper

The 1997 Federal Issues Paper is a publication of the Maine Municipal Association. Publishing of this newsletter coincides with the National League of Cities' Congressional-City Conference held each March in Washington, D.C. The purpose of the newsletter is to highlight federal issues that are of most concern to Maine municipal officials, and to reflect the policy positions adopted by the MMA Executive Committee. Articles in the newsletter were written by MMA staff members Kate Dufour, Geoff Herman, Bob Devlin, Michael Starn, Charles Jackson and Chris Lockwood.

FEDERAL BUDGET AND DEFICIT REDUCTION

Maine Municipal Association applauds the President and Congress for their cooperative spirit and commitment to balancing the federal budget and restoring fiscal accountability in Washington.

The federal deficit is projected to increase by 17% between 1996-97, and to decrease every year thereafter, until 2002 when a $17 billion surplus is anticipated. This deficit reduction coupled with Congressional and citizen calls for fiscal accountability will undoubtedly result in the need for tough funding decisions. To achieve a balanced budget by 2002, over the next five years $410 billion of spending cuts are needed, and an additional $100 billion will be needed if Congress enacts any new tax breaks.

President Clinton and the Republicans in Congress will both offer plans to balance the federal budget.

The major elements of the President’s plan will include:

• a proposed $16 billion increase in welfare related spending;

• a $138 billion cut in Medicare;

• a $20 billion cut in Medicaid;

• a $180 billion cut in domestic discretionary spending;

• a $5 billion cut in defense; and

• up to $100 billion in new federal tax expenditures over the next five years.

The welfare increases would restore food stamp benefits and other cuts to legal immigrants. A $3 billion set aside over the five-year period would be used by states and local governments to provide job training for welfare recipients. Although the plan will likely propose cuts in municipal priority programs, these cuts would not occur until the last two years. The President has not provided specifics on which programs would be cut or eliminated under his balanced budget proposal.

The GOP budget proposes to balance the budget by:

• freezing domestic discretionary programs at currents levels (a $190 billion savings over the next five years);

• cutting $160 billion in Medicare;

• saving $125 billion through a "fiscal dividend" - based on assumptions about economic gains and increased federal revenue achieved while moving to a balanced budget; and

• cutting $20 billion in Medicaid.

The GOP budget also includes proposals to enact $190 billion of tax breaks and expenditures.

Regardless of which proposal is ultimately enacted, states and municipal officials must be involved in solutions that will balance the federal budget over time, stabilize the nation’s fiscal well-being, and ensure that the nation’s social, physical and economic infrastructure is not eroded in the process. To achieve a balanced budget, sacrifices will have to be made by all levels of government. State and municipal officials will also need to work together to find alternative revenue sources and establish program priorities without placing the burden completely on one level of government.

Guiding Principles

Maine municipal officials support a balanced budget plan that:

• shares the burden of balancing the budget on all parts of the federal budget;

• provides for a reasonable transition period for states and local governments to prepare for any significant shifts of liability and responsibility from the federal to state and local levels of government;

• does not enact tax cuts or new tax expenditures unless legislation to achieve a long-term balanced federal budget has been enacted and implemented; and

• promotes a genuine partnership among federal, state and local governments in rethinking the appropriate roles for all three levels in addressing the economic, social, physical infrastructure and environmental needs of the nation.

SECTION 8 HOUSING

A large budgetary shortfall in the Section 8 subsidized housing program for low income people, under the Department of Housing and Urban Development (HUD), has created a number of concerns for municipal officials.

According to the National League of Cities, Section 8 has a projected budget gap, created by expiring Section 8 contracts, of $4.5 billion in FY 97; $13.5 billion in FY 98; and rising to $21 billion in 2002. The current, entire HUD budget is about $19 billion.

Viewed by some as the big "Section 8 squeeze," municipal officials are apprehensive about what will happen not only to subsidized housing, but to other HUD programs as well. In Maine, they are most concerned about the future of Community Development Block Grants (CDBG). If Section 8 renewals gobble up all the available funds for HUD, other programs, like CDBG, will be short-shrifted.

The Section 8 program is administered through the Maine State Housing Authority. It is currently a $50 million program in Maine with demand about twice the supply. In other words, for every occupied low income housing unit, there is an eligible, low income family waiting for that, or some other, unit to become available.

Our Major Concerns

• Maine municipal officials are concerned about what will happen to the low income people currently being served by the Section 8 program if tenants are forced out of their units because contracts are not renewed and they can no longer afford to live there. Many of these low income people may be forced to turn to their local General Assistance program for housing assistance. The GA program in Maine does not have the ability to support housing needs of this magnitude.

• Connected to the Section 8 budgetary shortfall is the current debate in Washington over whether housing assistance should be "project based" or "tenant based." Presently, the Section 8 program is balanced; some of the funds go to contractors who build or substantially rehabilitate housing for low income tenants and some goes directly to the tenant. The current political sentiment in Washington appears to be leaning toward "tenant based" assistance, i.e., vouchers are given to eligible tenants who find their own housing.

Maine municipal officials have expressed frustration over the HUD requirement that any voucher made available when a family leaves a subsidized unit has to be held for 90 days before re-issuing.

Maine Municipal Association has other concerns about moving solely to a "tenant based" program. As stated earlier, a major concern is the effect such a move would have on local general assistance programs. Another concern is the likelihood that, if contracts are not renewed, some of these subsidized housing projects will be forced into foreclosure. The State of Maine and its communities need flexibility in dealing with low income housing. Depending on their unique housing needs, communities must have the ability to choose the type of housing assistance that works best for them.

ELECTRIC UTILITY DEREGULATION

The move away from controlling the provision of electric utility service as a regulated monopoly toward competition in the marketplace began in earnest with the adoption of the Energy Policy Act of 1992 and the adoption in 1996 of a FERC order instituting deregulation of the wholesale market. The extent to which deregulation impacts on the retail aspect of utility service is subject to Congressional authority and to the action of the state legislatures regarding implementation and restructuring. The interaction between deregulation policies of the federal government and those of the states is critical.

Recommendations:

Maine Municipal Association believes that Congress should ensure that deregulation of the electric utility industry, as it is implemented at the state level, results in efficient access to reliable, safe and reasonably priced electric service for all customers (including municipal customers), and that restructuring of the industry does not result in diminished environmental quality, or compromise energy efficiency.

We believe that the following are important elements that must be preserved as electric utility deregulation moves forward:

• The right for municipalities to aggregate for the purchase of power both for themselves and on behalf of their residents must be preserved in as broad a fashion as possible in order for all citizens to be assured of benefiting from the price competition of deregulation. It is critical that the ability of municipalities to aggregate on a municipal and regional basis be preserved in as flexible and unfettered a fashion as possible to ensure that municipal and residential customers receive the greatest benefits possible from competition in the electric industry.

• Existing municipal and consumer-owned utilities should not be required to separate or divest generation assets as may be required of investor-owned utilities.

• The ability of local government to administer local land use ordinances and local permitting processes for location of all utilities, including electrical utilities, should remain unimpaired.

• Local control concerning location, repairs and use of highways and rights of way should be preserved.

• The status of all utility property, as directed under state laws regulating the taxation of real and personal property, remain unaffected by federal involvement in deregulation of the utility industry.

• The deregulation of the industry should not be allowed to result in the degradation of a state or regional power system’s reliability. Congress should ensure that all power providers be required to conform to appropriate regional reliability standards.

• All power providers should be required to meet common emission and pollution control standards so that price benefit advantages in a competitive market that may attend certain low cost/high emission power products, such as coal plants, not result in degradation of air quality or other environmental damage.

REAUTHORIZATION OF INTERMODAL SURFACE TRANSPORTATION EFFICIENCY ACT (ISTEA)

Two critical federal transportation funding issues of concern to municipal officials are the reauthorization of Intermodal Surface Transportation Efficiency Act, and the use of the federal motor fuel (gasoline and diesel) tax revenue to reduce the federal deficit.

Competition in the global economy will require an integrated transportation system linking Maine businesses to customers here and around the world. The Intermodal Surface Transportation Efficiency Act (ISTEA) signed into law in December 1991, is a tool that helps Maine, and other states, maintain just such a coordinated transportation system.

The Act authorized $155 billion for highways, highway safety and mass transportation for federal fiscal years 1992 through 1997. The purpose of the Act is to develop a National Intermodal Transportation System that is economically efficient, environmentally sound, and provides a foundation for the nation's competition in the global economy.

This year Congress must decide whether to: (1) reauthorize the Act as is; (2) reauthorize with changes regarding the distribution formula; or (3) not reauthorize ISTEA and to return to the states complete financial and policy responsibility for transportation.

Reauthorization, No Changes. For 1996 and 1997, under the current program, Maine will receive $202.8 million in federal transportation funds, with the State and municipalities matching $80 million and $12 million, respectively. Through ISTEA, the Maine Department of Transportation has made funding available to enhance and improve air, highway, intermodal, ports and marine, and rail transportation, as well as to aid in federal/state highway and bridge maintenance and repair.

Under the current administration of ISTEA, the federal role in transportation has been to set priorities to achieve national goals, while state and local governments have formed partnerships to implement those goals to meet local needs. State and local government are given more flexibility in determining transportation solutions.

Reauthorization, Changes in Distribution Formula. Changes to the distribution formula come under the guise of the STEP 21 proposal. STEP 21 is the initiative of state departments of transportation in states that are generally "donor" states. "Donor" states provide more money to the federal government in gas tax receipts than they receive from the federal government in transportation dollars. Their goal for ISTEA reauthorization is to assure that each state receives 95 percent of the funds it gives to the federal government. This change in the formula would not directly impact Maine; however, its adverse effect on other Northeastern states (especially Massachusetts and New York) would indirectly impact the manner in which Maine businesses transport products, and people travel.

Dissolve Federal Transportation Program. If Congress chooses not to reauthorize ISTEA, federal involvement in transportation would cease, eliminating most of the federal fuel taxes and leaving all transportation taxing and funding responsibilities to each state. The federal government would have no role in transportation policy. Municipalities would be faced with state transportation policy objectives without the assurance of local government involvement. This reduction in funds would force the Maine Department of Transportation to make difficult financing decisions that would affect municipal transportation funding and policy.

Federal Motor Fuels Taxes. Uncertainty with respect to the reauthorization of ISTEA is only one of our federal transportation policy concerns. Municipal officials are concerned about any proposal that would divert funds generated by federal fuels taxes to reduce the federal deficit. In 1997, the federal gas tax is projected to generate $26 billion dollars in revenue, while the Federal Highway fund is budgeted at $18.1 billion. Currently, the federal gasoline tax is 18.3 cents per gallon, with 4.3 cents dedicated to reducing the federal deficit, while the federal tax on diesel fuel is 24.3 cents per gallon, with 4.3 cents dedicated to reducing the federal deficit. We need to reinstate the nation’s long-standing policy of dedicating federal transportation taxes exclusively for transportation purposes.

Recommended Action:

• Support the reauthorization of the Intermodal Surface Transportation Efficiency Act in order to maintain a federal-state-municipal partnership in transportation policy.

• Urge Congress to find other resources for balancing the budget, rather than relying upon federal motor fuels taxes to reduce the federal deficit.

SAFE DRINKING WATER

MMA applauds the changes enacted to the Safe Drinking Water Act (SDWA) in the last session of Congress. Capping four years of intensive activity, the revised SDWA will focus both new federal and existing local resources on contaminants that pose real threats to public health.

Although no action is needed this session, MMA believes it is important to understand and highlight the following key provisions which are now in effect.

Selection of Contaminants for Regulation. The revised drinking water law replaced the requirement for EPA to regulate 25 new contaminants every three years with a more rational process requiring EPA to determine whether to regulate a minimum of 5 contaminants "known or anticipated to occur" in drinking water supplies every five years.

Setting Standards for New Contaminants. In setting standards for new contaminants, EPA is authorized to consider benefits and costs, as well as the risk trade-offs, of new requirements on other contaminants, treatment techniques or processes used to comply with existing regulations.

Monitoring Flexibility. The law temporarily (for 3 years) codifies monitoring flexibility for small water supply systems (those serving communities with populations under 10,000) for all but microbial contaminants or indicators. Monitoring flexibility would be expanded to all systems upon completion of a state "source water assessment."

Compliance Time Frames. The revised measure extends compliance with new drinking water regulations from 18 months to three years, with an additional two years available, at the discretion of EPA for all systems, and the state for individual systems.

Source Water Protection Program. This measure establishes a source water protection program involving identification by the state of areas from which drinking water supplies are drawn, as well as the origins and susceptibility of water supplies to contaminants found in the area. Local water suppliers can petition the state to establish a voluntary program to address such contaminants.

State Revolving Loan Fund. A new drinking water lending program is established to provide loans to local water suppliers for compliance with the federal drinking water law. After the first year, up to 33% of the drinking water loan fund can be transferred to wastewater purposes. A comparable amount from the Clean Water Act loan fund can be transferred to drinking water purposes, as well. The transferability provision will sunset after 5 years. Up to 20% of the funds can be made available as grants for economically disadvantaged communities (to be defined by the individual states). Similar to requirements of the Clean Water Act, the State Revolving Loan Fund will require a 20% state match beginning in 1999. Ten million dollars will be set aside annually from the revolving loan fund for health effects research.

Operator Training and Certification. States will be required to implement operator training and certification programs based on EPA-developed guidelines. States will receive funds from EPA to defray the costs of operator training and certification of personnel from systems serving fewer than 3,300 persons. Failure to implement the program would result in a 20% reduction in the grants from the State Revolving Loan Fund.

WELFARE REFORM

The sweeping changes to the federal welfare system enacted in 1996 are just beginning to be felt on the local level. It remains to be seen how far-reaching the consequences will be. We hope that the federal changes will achieve the goal of breaking the welfare cycle, and not just shift the financial and administrative responsibilities to the smaller units of government.

Maine municipal government can certainly appreciate many of the changes Congress enacted. The focus on work, and the development of meaningful participation requirements that apply to recipients of public assistance in accordance with their abilities, brings federal welfare policy more in line with municipal General Assistance philosophy. After calling for change for so long, we are not about to complain. Instead, we are determined to work with the positive changes associated with welfare reform, and build on those changes to develop a better public assistance system.

The short-term issues municipal welfare directors are most concerned about are: 1) the threat of discontinuing the $50 AFDC pass-through; 2) the discontinuation of SSI benefits to recipients whose primary disability is substance abuse; 3) the threat of discontinuing federal/state public assistance to legal immigrants; and 4) the discontinuation of Food Stamp benefits to recipients between the ages of 18 and 50 who have no dependents and are not working or participating in a work program of some kind at least 20 hours a week.

The long-term issue of concern is the 5-year time limit on Temporary Assistance to Needy Families (TANF), reformed version of AFDC.

AFDC Pass-Through. There are many good reasons to continue the $50 pass-through. It is often pointed out that the incentives for absentee parents to make their child support payments drop away when none of the child support payment actually goes to the household it is supposed to support. From the General Assistance perspective, any household receiving $50 less a month will be potentially eligible for $50 more in GA benefits, resulting in a shift from federal support to the local property tax.

SSI and Substance Abuse Disability. It is certainly the case that anyone discontinued from the SSI program due to this change in federal law will be potentially eligible for General Assistance at the local level. A potentially serious side effect of the SSI disqualification is that these individuals are automatically receiving Medicaid while on SSI and may lose that medical coverage when they are disqualified from SSI. Medical services are a defined basic need in General Assistance law, and when such services are performed outside of a hospital, municipalities can be directly exposed to the costs.

Discontinuation of Federal/State Benefits to Certain Legal Aliens. The immigrant households that may be disqualified from receiving federal/state assistance are 1) refugees or asylees who have been in the United States over 5 years and have not yet attained citizenship status; 2) refugees/asylees who enter the United States after the effective date of federal welfare reform during their first 5 years in the United States; and 3) qualified aliens who are not refugees/asylees and who have not been working in the United States for 10 years. The pure federal programs (SSI, Food Stamps) will not be available for this vulnerable population. Whether the Maine Legislature will take this option to provide state-funded AFDC and Medicaid to this immigrant population will be decided in the current session. The immediate impact on General Assistance of these federal immigration changes is not entirely known, and the impact over time is harder to predict.

Food Stamps. The Food Stamp changes will likely have the greatest impact on General Assistance, at least over the short-term. People without dependent children who are not disabled will have to be working or participating in a work program at least 20 hours a week in order to retain their food stamp eligibility. This participation requirement clearly has positive public policy implications, provided there are jobs available to these people, or work programs. The Department of Human Services does not appear to have any plans at the moment to create work programs for this population, although programs of this nature would be a natural extension of the work programs developed for AFDC households. If the state does not develop these work options, municipal workfare will become the safety net Food Stamp work program.

5-Year Time Limits. A time limit, by its very nature, provides an arbitrary cap on the delivery of public assistance. Individuals who will hit this time limit, by definition, will be families in need who have been actively compliant with the many participation requirements applied to them. It makes no sense to say to these families, in effect, "You have done all we have asked you, you have tried as best you can, and now you are forever denied federal benefits from this program." Time limits are an admission of programmatic failure (i.e., if the program is really working, time limits are unnecessary).

Long-term projections are very difficult, but based on our best information, MMA projects a 100% increase to the General Assistance program by the year 2005 as a result of time limits, with every other variable held constant. This level of cost shift from the federal to local level, obviously, would not be an acceptable burden to add to the property tax.

Recommendation

True welfare reform will result in a public assistance delivery system that is rational, appropriately funded, and accountable to the taxpayers who support it. Such a system will not rely on arbitrary rules that determine a family to be ineligible for basic need benefits even when that family is trying as hard as it can to be productive and contribute to society. As the welfare system is reformed, municipal officials urge members of Congress and the Maine Legislature to keep in mind that the arbitrary denial of federal or state subsistence benefits to certain categories of people in need will immediately be felt at the local level. "Need" does not simply go away.