Administration Wants Agencies’ Plans for 30% Cuts in Federal Funding

Memo from Department of Finance and Administration Commissioner Mark Emkes; August 18, 2011: 

TO: All Agency Heads and Budget Officers

FROM: Mark A. Emkes, Commissioner of Finance and Administration

SUBJECT: Federal Program Reductions — Please Respond by Wednesday, August 24

Because about 40 percent of the state budget is funded by federal aid and because of the recent federal law that will reduce federal spending, the state is developing contingency plans for significant federal aid reductions that most certainly will affect state fiscal year 2012-2013 services and possibly 2011-2012.

The bond rating agencies have advised that, in the not too distant future, all states will be receiving fewer federal dollars. They would like to know how the State of Tennessee would respond. We have to provide a very quick turn around to them and, for that, we would like to apologize up front. However, we need your help in developing a plan to be submitted to the Budget Office by August 24th.

The U.S. Budget Control Act of 2011 (U.S. Public Law 112-25) establishes mechanisms to restrain federal spending and decrease the projected federal deficit through the year 2021. The law places limits on federal spending and establishes a committee of Congress, which by November 23 is directed to submit recommendations and legislation to Congress on program reductions. The act requires a vote by Congress by December 23, with no amendments permitted. If the committee fails to report or Congress fails to endorse the legislation, then automatic across-the-board reductions would be applied to programs.

While it is not possible for the state to know now what specific program reductions will be implemented by the federal government, we must plan. In order to assist us in understanding the impact of potential federal reductions and in developing contingency plans, I am requesting that all state agencies submit contingency budget reduction plans for 15 and 30 percent reductions in federal aid. The reductions are to be submitted in two tiers, the first 15 percent and an additional 15 percent of recurring federal aid in the current-year work program. The Budget Office today is providing a template for development of the plans and the estimate of recurring federal revenues in the first draft of the work program. The reduction plans should be developed from those recurring federal revenue estimates, identify by state program the reduction amount, describe what programs and services are being reduced, and describe the impact.

All agencies receiving federal aid and agencies receiving interdepartmental or other departmental revenues which are derived from federal aid should submit the reduction plans. In developing the plans, you must assume that state revenues will not be used to maintain federal programs at the current funding level. That is, you are not to supplant federal funds with state revenues as a funding source for continuing services. In the reduction plan template, you are to identify the matching state funds that would be no longer required to match the reduced federal sources. This will enable the Administration to recommend priorities for the use of the unmatched state funds for continuing services.

Thank you for your attention to this priority matter and for your continuing extraordinary efforts.