IFF report: Idaho budget vulnerable in event of a reduction in federal funding

IFF report: Idaho budget vulnerable in event of a reduction in federal funding

by
Idaho Freedom Foundation staff
February 19, 2014
Idaho Freedom Foundation staff
Author Image
February 19, 2014
[post_thumbnail] Gov Butch Otter in 2012 asked state agencies to prepare for a possible reduction in federal funds flowing into the state.

In the spring of 2012 Gov. Butch Otter called on state government agencies to plan for a 20 percent reduction in the amount of federal funding they receive. At the time, dramatic across-the-board federal spending cuts were a very real possibility because of the so-called “sequester” mechanism built in to federal spending legislation. Otter estimated roughly one-third of state agency budgets came from federal government funding sources.

The governor was correct. In general dollar figures, some 36 percent of the state’s annual budget is composed of federal funds. In the past 10 years, the federal dollar figure has grown from $1.2 billion to $2.3 billion, an increase of 82 percent.

The feared federal spending cuts never came to full fruition, nor did a 20 percent reduction in state agency expenditures. But now, almost two years later, a new research report demonstrates that Idaho’s reliance on federal funding sources has doubled in the past decade.

In “Unprepared Idaho: Why D.C.’s next budget crisis is our problem,” researchers at the Idaho Freedom Foundation make the case that the Gem State is vulnerable to disruptions in government services upon which Idahoans rely because the supply of federal funds itself is vulnerable to disruption.

“That reality came into focus in January, when lawmakers learned that thousands of Idaho schoolchildren risk losing access to distance learning services through the Idaho Education Network, because the federal government is withholding $14.5 million to keep the system running,” the report notes.

Since Otter’s 2012 call to prepare for federal funding cuts, Idaho decision makers have at times acknowledged the threat of such cuts, while at other times ignoring it.

For example, in March of 2013, faced with an even more imminent threat of federal revenue constraints, the Idaho Department of Health and Welfare told IdahoReporter.com that a prolonged government funding cut could place a burden on Idaho taxpayers with respect to the state’s food stamps program. “Our best estimate on the impact of the sequestration is $6,635,600 for our agency,” department spokesperson Niki Forbing-Orr, said.

“This is a very large amount,” said Forbing-Orr “but it’s less than one-half of 1 percent of our total budget. We think we can carefully manage our budget to make it through this fiscal year OK, but we may have to ask for state funds to backfill any critical needs once Congress sets a budget for next year.”

On the other hand, later in that same month, Otter’s appointed task force on Medicaid expansion unanimously recommended that the federal welfare program should be expanded in the state. Without acknowledging the dangers of a cut in federal dollars, the task force instead asserted that if Idaho refused the extra funds offered by the federal government to pay for the first few years of expansion it would in effect be “leaving money on the table.”

Despite the outlook on Medicaid expansion among the governor’s task force, “Unprepared Idaho” spells out the costs of Medicaid expansion in more vivid detail. While noting that federal funds are currently being offered to state governments if they will expand Medicaid eligibility and bolster their Medicaid recipients’ rosters, the states are still left with additional expenses over time.

“Medicaid clients added under the expanded system are covered with full funding through the federal government through 2016, and then up to 90 percent thereafter,” the report notes. “This funding, however, does not cover additional administrative costs.”

“Unprepared Idaho” also notes that state government employment could be made vulnerable in the face of disruptions in federal funding. Noting that among the 44 state government agencies in Idaho, more than one-half of them—27 to be exact—fund portions of their personnel budgets with federal tax revenues, the report also demonstrates the difficulty in determining which state employees are reliant on those federal funds for their paychecks.

“No one knows the number of state employees who receive all or part of their salaries through federal grants” the report states, adding that “once the federal grants are gone, state taxpayers will still be obligated for accrued pension costs during the lifetime of the employees who earned their pay in part using federal assistance.”

The report also cites troubling details about the state’s government employment retirement program, known as the Public Employees’ Retirement System of Idaho (PERSI). According to “Unprepared Idaho,” retirement benefits are paid out to former employees long after the federal grant money that funded the state employees’ salaries has been spent,” and “it is up to taxpayers and employees to keep the pension system solvent with their contributions to PERSI.”

Other issues the report addresses include:

(A) The fact that Idaho law gives state agencies broad powers to apply for and accept federal grants;

(B) the reality that about a third of the federal money received in the state gets no state legislative scrutiny at all;

(C) an unknown amount of money avoids legislative appropriation, although the money is utilized by state agencies, schools and state programs.; and

(D) the Legislature has little say regarding federal grants received outside the legislative session.

To remedy the Gem State’s vulnerabilities, “Unprepared Idaho” recommends several changes to the way in which the state conducts its business. Among the roster of proposals, the suggestions include the implementation of new accounting practices so federal dollars are clearly identified in the state budget, the strengthening of legislative oversight with federal grants and for the state to get serious about creating contingency plans.

The report also cites IFF polling data showing broad support among the state’s electorate for reducing Idaho’s federal government dependency. According to the report, in a poll of 500 registered voters conducted Jan. 20-22, 2014, some 91 percent of respondents said it is somewhat or very important for Idaho to be prepared for the possibility that federal money coming to Idaho will decline.

Note: IdahoReporter.com is published by the Idaho Freedom Foundation.

To read the full report click HERE.

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