How Raising the Debt Limit Impacts Local Government
The Fiscal Responsibility Act (FRA) of 2023 was signed into law on Saturday, June 3rd. It suspends the debt ceiling allowing the federal government to continue borrowing to fund federal programs through January 1, 2025. The FRA also caps discretionary spending (the money Congress appropriates each year to fund federal agencies and programs, exempting mandatory programs like Medicare and Social Security) for two years.
In addition, the FRA rescinds approximately $28 billion in unobligated COVID-19 funding, including funds provided through the American Rescue Plan Act (ARPA), Coronavirus Aid, Relief and Economic Security (CARES) Act, and other pandemic-related spending bills. However, ARPA’s State and Local Fiscal Recovery Fund (SLFRF) and Local Assistance and Tribal Consistency Fund (LATCF), are not affected by this legislation.
Non-defense discretionary spending caps are set just one percent below current FY23 levels. Non-defense discretionary programs are a small part of the total budget, but include important programs such as environmental protection, transportation, public housing, food safety, and aging. With a current five percent annual inflation rate, these federal government programs face significant reductions. Congress will determine funding levels for individual agencies and programs over the next several months.
Defense spending will also decrease, since the 3.3 percent increase provided by the agreement is still less than the inflation rate. In 2015, both non-defense and defense discretionary spending will receive a one percent increase.
The FRA contains provisions that encourage Congress to complete the annual appropriations process in a timely manner. Congress must pass legislation funding the government (appropriations bills) by January first to avoid triggering an automatic one percent cut to spending.
The FRA also enacts policy changes to both the Supplemental Nutrition Assistance Program (SNAP), which provides grocery benefits to low-income households, as well as the Temporary Assistance for Needy Families (TANF) program, which offers flexible funding to states for anti-poverty programs serving families with children, including direct cash assistance. In North Carolina, counties must implement these changes, which include new eligibility restrictions and additional data gathering requirements. Counties must also perform outreach to impacted participants.
Other changes enacted by the FRA include permit streamlining provisions for infrastructure projects, cuts to funding of the Internal Revenue Service (IRS), and reinstatement of student loan payments. An excellent analysis prepared by the National Association of Counties can be found here.
For more information on the FRA or other federal issues, contact Centralina’s federal advocates, Leslie Mozingo (leslie@strategics.consulting) or Shirley Speidell (shirley@strategics.consulting).
