At a glance, the Fiscal Responsibility Act of 2023:
- Holds FY 2024 discretionary spending constant and provides 1% increase in spending for FY 2025;
- Does not rescind funds from the American Rescue Plan Act (ARPA) State and Local Fiscal Recovery Fund or the ARPA Capital Projects Fund;
- Changes requirements for SNAP and TANF, though it’s not yet clear how these changes impact Utah.
With the all-important “X-date” nearly upon us (the projected day when the federal government would no longer be able pay its bills), a default-avoiding deal to suspend the federal debt ceiling has been reached. Over the last week, negotiations were drafted into a bill which passed out of rules, received a majority of votes in the House, passed in the Senate, and now awaits a signature from the President. As written, the Fiscal Responsibility Act of 2023 would do several things beyond suspending the limit on federal borrowing, with a range of possible impacts for Utah.
First and foremost, the bill holds constant federal discretionary spending for fiscal year (FY) 2024 and provides a nominal 1% spending increase for FY 2025. The legislation does not prescribe specific reductions to discretionary programs that would be required to maintain ‘flat’ federal spending for FY 2024, or the 1% increase for FY 2025. Since the bill only addresses the issue of a spending limit, the question of which cuts will be made is yet to be legislated, later this year. As a result, the potential impact on the state’s budget could vary significantly, depending on what programs are targeted. As a failsafe, the legislation includes a sequestration clause. This comes in the form of a 1% blanket reduction to all discretionary spending categories, in the case that congress opts for a single omnibus spending bill instead of passing its twelve individual appropriations bills by the end of 2023. These bills would then outline the specific programmatic reductions to achieve the spending goals for FY 2024 and FY 2025. This penalty for inaction will likely be avoided, because of the impact it would have on defense programs which are currently exempt from the bill’s spending caps.
The bill also pulls back approximately $28 billion, in aggregate, of unobligated COVID-19 relief revenue. These funds were originally appropriated through the CARES Act, ARPA, and four other stimulus bills associated with the pandemic. This $28 billion is comprised of unobligated balances from specific sections of the stimulus bills, and funding will not be pulled back if it’s been obligated by a federal agency, but not fully spent by a state or local government. Notably, the ARPA State and Local Fiscal Recovery Fund and ARPA Capital Projects Fund were not included in the targeted list of claw-back funds. The state is currently reviewing the entire list and comparing it to pandemic stimulus grant awards made to the State of Utah along with reported federal obligations.
Two other components of the legislation with potential state budget impacts are the eligibility and work-requirement related changes to SNAP (Supplemental Nutrition Assistance Program) and TANF (Temporary Assistance for Needy Families).
The expansion of work requirements for SNAP eligibility would likely result in certain able-bodied people who are between 50- and 54-years-old, without dependents, becoming ineligible (assuming they do not work or volunteer at least 80 hours a month). However, the bill removes SNAP eligibility work requirements for former foster children, veterans, and unhoused individuals, which would likely increase the number of eligible beneficiaries. The net impact on the number of SNAP recipients in Utah is currently unclear. Because SNAP is solely federally funded, any reduction in eligibility may have indirect effects on food purchases but won’t directly impact state expenditures or revenues (SNAP purchases are tax exempt). However, there may be a marginal cost to administration of the program (which is split between federal and state) due to the changes in eligibility.
Another change in the bill without definitive impacts to Utah is the adjustment to TANF’s benchmark year for demonstrating caseload reduction. The current benchmark year is 2005; the Fiscal Responsibility Act proposes to change that year to 2015. To receive TANF funding, the state must meet a work-participation standard among program recipient families. However, by demonstrating a reduction in caseload (the number of recipients), the state receives ‘credit’ towards that work-participation standard. From 2005 to 2022, Utah’s credited caseload decline from 2005 to 2022 under TANF is 73.8 percent (down to roughly 2,000 from over 9,000). Because of this large decline in caseload, the current work-participation standard for recipient families in Utah has been reduced from 50% to 0%. It’s not currently clear how changing the benchmark year will impact the state’s budget or Utah’s eligibility. An outcome could be that federal block grants are reduced if the new benchmark increases the work-participation standard and current recipients do not meet that higher threshold, however this would only apply if the state could not comply with a corrective action plan. A blog post with more information on the TANF program will be released this month.
Other provisions of the bill are unlikely to have direct impacts on the state’s finances, including the reduction in the appropriation for the IRS, the permits for the Mountain Valley Pipeline, or the student loan payment resumption.