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Between the Lines: Fiscal Cliff Averted, Grand Canyon Awaits

Jan 15

Written by: Grants Office, LLC
Tuesday, January 15, 2013  RssIcon

By Chris LaPage

"We've resolved the tax issue now. It's over. It's behind us. We were able to get permanent tax relief for 99% of American taxpayers and for 500,000 small businesses, so that's behind us... What's left to be dealt with is the spending. And it's a shame that the president doesn't embrace the effort to reduce spending. None of us like using situations like the sequester or the debt ceiling or the operation of government to try to engage the president to deal with this." - Mitch McConnell (R), Senate Minority Leader                                                                                                                                               

"...I believe that there’s further unnecessary spending in government that we can eliminate. But we can't simply cut our way to prosperity. Cutting spending has to go hand-in-hand with further reforms to our tax code so that the wealthiest corporations and individuals can't take advantage of loopholes and deductions that aren't available to most Americans. And we can't keep cutting things like basic research and new technology and still expect to succeed in a 21st century economy. So we're going to have to continue to move forward in deficit reduction, but we have to do it in a balanced way, making sure that we are growing even as we get a handle on our spending. - Barack Obama, President of the United States

As predicted, the federal government was able to bypass a complete catastrophe and avoided taking the United States down the fiscal cliff.  Unfortunately, when it comes to planning for grant programs likely to be available over the remainder of Fiscal Year 2013, we are left with the status quo of continued uncertainty.  In fact, besides extending and making permanent the Bush Era tax cuts for the majority of Americans, the fiscal cliff deal essentially punted every other major impending decision to March 2013.  Senate Minority Leader Mitch McConnell alludes to three major impending financial crises that converge in March: 

  1. Expiration of the FY 2013 continuing resolution, which is funding  government in the absence of a traditional federal budget.  If it expires, a federal government shutdown will ensue.
  2. Deadline for legislators to reach an agreement on the automatic spending cuts that will blindly cut funding across the federal budget, evenly divided across discretionary and defense spending.  Allowing  the sequester to occur will likely have a negative impact on our national security and could trigger another recession.
  3. According to Treasury Secretary Timothy Geithner, the debt limit has already been reached but some accounts were rearranged so that the government can continue to pay its bills until March.  If congress does not raise the debt ceiling, the United States will default on its obligations and world financial markets could collapse.

 

If the combination of sequester and tax hikes were enough to form a fiscal cliff, one could only describe the chasm at which the aforementioned fiscal events merge as a canyon.  Administrators at federal agencies were hopeful that the fiscal cliff deal would provide answers, but instead it only extended timeline for addressing the pertinent questions.  With the sequester cuts pending as part of the fiscal cliff crisis, federal agencies had delayed many of their annual grant programs.  It is a tough situation for federal grantmakers to properly plan and execute their programs when the amount of total funding available is an unknown variable.  That uncertainty is exacerbated by the expiring continuing budget resolution and the status of appropriations for the remainder of the year.  Congress must reach an agreement on funding for the remainder of FY 2013, at which time all options are on the table. 

 

Congress can do something as simple as extending appropriations at 2012 levels to passing a comprehensive budget.  At that point, they can roll back appropriations made as part of the continuing budget resolution or put entirely new expenditures on the table.  In other words, federal agencies remain in the dark on funding levels.  Agencies must juxtapose this uncertainty with the fact that the majority of its expenditures and programming must occur by the fourth quarter of the fiscal year (July 1 through September 30).  While some grant programs are released during this time frame, the agencies are usually preoccupied with wrapping up reporting on 2013 expenditures and planning for the following fiscal year.  Since federal agencies cannot continue to delay solicitations for grant funding, the likely impact on grant programming is that we will see requests for proposals that provide individual applicant award ceilings, but may not provide a planned number of awards or total funding levels.  Of course, this makes it extremely difficult for potential applicants to ascertain the competitiveness of certain grant programs in making decisions on their probability of success for pulling down funding.  More so than ever before, the onus is on potential applicants to be sure their projects are closely aligned with program priorities and offer a innovative approach to solving an important problem. 

 

In addition to uncertainty of funding levels, you have the political battles that will ultimately shape the federal grantmaking for the remainder of 2013.  Looking at these competing statements from a Democratic President and a Republican legislative leader, finding common ground appears difficult.  Republicans are staking out the position that they have done the revenue piece and are aiming for major spending cuts as part of the negotiations around these fiscal issues.  Democrats, as stated by President Obama, are going to require that any future deals will continue to incorporate taxes and revenue as part of the solution.  The aforementioned political statements have some pundits believing a deal will be impossible and that the government is headed for a stalemate that will result in a historic financial crisis.   

 

The truth is that there will be some spending cuts coming down the pipeline.  However, given the political stalemate, it is unlikely that they will be detrimental to grant programming overall.  Past history suggests that a grand bargain is not politically feasible, leading one to believe that the resolution will involve some tax reform (additional revenue) and a series of targeted cuts that are palatable to folks on both sides of the aisle.  Past history also suggests that a deal is not likely until all these elements converge in March and the United States is on the brink of falling... into the canyon .

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