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Six Things Contractors Should Know About the Federal Shutdown

As industry observers, we've been somewhat trained over the last several budget cycles to expect to be taken to the edge of the fiscal cliff, only to be jerked back at the very last moment. Not this time.  We're in Day 2 of the first shutdown since 1995, and with the debt ceiling debate coming within the next 2 weeks, it seems unlikely that government operations will resume before then.  Contractors are caught in the cross-hairs, so we've assumed some of the most important things to know about government shutdowns, and recommendations for what to do now.

1.    Agencies cannot incur obligations unless it’s otherwise authorized by law; but  they have  permission to incur obligations (but not payments) necessary for  the “orderly termination of an agency’s functions,” and to perform “essential” duties. This includes:
          •   Medical care – Inpatient and emergency outpatient
          •   Activities to ensure continued public health and safety
          •   Continuance of air traffic control and other transportation safety functions
          •   Border and coastal protection and surveillance
          •   Protection of federal lands, buildings, waterways, and other property
          •   Care of prisoners
          •   Law enforcement and criminal investigation
          •   Emergency and disaster assistance
          •   Activities essential to the preservation of the money and banking system
          •   Ensure the production of power
          •   Maintain protection of research property1

2.    Agencies are allowed to spend funds that DO NOT originate from annual appropriations. 
Agencies such as GSA, which funds much of its operations with user fees, have funds to continuing running - at least for now. Obligations made from FY 2013 dollars, and programs funded with multi-year dollars can also continue to operate, however, they may be impacted by the lack of federal employees around to manage them if they are not considered essential services.

3.    A government shutdown impacts everyone, but the scope of the impact depends on who you are. A federal hiatus impacts anyone relying on or providing federal services.

    Non-exempt federal employees:

    •   Depending on the length of the shutdown, they would be furloughed with benefits intact
    •   Based on past shutdowns, Congress often comes back later and provides backpay

    Agencies (depends on the length of the shutdown):
    •   Increased backlogs for transaction and process-heavy agencies like SSA, VA, and State
    •   Ripple effect from delayed programs
    •   Lost revenue from user fees collected for various services across government. Many agencies rely heavily   on user fees and collections. The losses for lost revenue in the 1995 shutdown was the hundreds of millions when accounting for the ripple effect of lost revenue for states and small businesses  that dovetail on some government services.
    •   Administrative costs associated with shutting down and ramping up – this was estimated in the millions for some agencies in 1996.
    •   Additional costs and penalties related to late payments to various entities, including contractors. Contractors can receive reimbursement for some  costs incurred due to the shutdown.
    •   Lost productivity
    •   Loss of disillusioned employees who leave public sector employment

    Federal Contractors:
    •   The ability to continue to work depends on the nature of the contract and where the work is performed.  Information and communications systems that support historically-defined “essential functions” will likely be operational (e.g. supporting defense communication networks, information security, systems related to critical infrastructure protection, etc.)
    •   Implications:
        •   Incrementally funded contracts not funded
        •   Delays in program solicitations and awards
        •   Part of contracts may be essential while others aren’t
        •   Delayed payments - vendors with products paid for in advance are likely unaffected but services not yet rendered will be halted
        •   Direct and indirect expenses due to the shutdown may or may not be recouped
        •   Impact on schedule and milestone-based performance metrics
        •   Potential need for employee layoffs – depends on length of the shutdown

    Citizens:
    •   Services are limited – call centers not staffed; applications for visas, social security and veteran’s benefits are delayed; museums and national parks are closed.

4.    Federal employees supporting essential functions will get paid after appropriations are passed.
However, it’s up to Congress to decide to pay non-essential furloughed employees once the shutdown is over.  In past shutdowns, employees did receive backpay.

5.    The number of essential employees can vary and may be more than you think.
It’s highly likely that more employees will be exempt than furloughed. During the 1996 shutdown:
    •   Roughly 64% of employees of agencies funded through the Commerce, Justice, State and Judiciary appropriations bill were NOT subject to furlough
    •   53% of Interior’s employees were exempt
    •   78% of employees under VA, HUD and the “Independent  Agency” category were exempt.

6.    Mandatory programs are exempt but will still be affected.
For example, Social Security payments will continue and field offices will be open, but they cannot issue or replace Social Security cards.

What Should Contractors Do?
Regardless of whether this shutdown lasts 10 days or 100 days, contractors should have a shutdown plan, because it’s likely that 2013 will not be last year that this occurs.  Contractors should treat like its shutdown plan like a real project with a project owner, and resources assigned to identify and document how schedules, costs, employee status would be affected.  Contractors should:

    •   Review contracts (funding, period and place of performance, statement of work, etc.)
    •   Classify contracts
        •   Essential
        •   Stop work order
        •   Not essential but can be performed
        •   No stop work order but can’t be performed
    •   Separately document costs incurred specifically due to the shutdown
    •   Analyze the impact of:
        •   Award delays
        •   Task orders/Modifications being delayed
        •   Options not being exercised
        •   Work deadlines NOT being extended
    •   If your contracting officers have not been furloughed, talk to them NOW about the potential impact and solutions to mitigate impact once operations resume
    •   Identify possible reassignments for affected employees
    •   Develop contingency plans for subcontractors
    •   Collect outstanding receivables ASAP (if possible)
    •   Reevaluate/slim down your BD pipeline and Bid & Proposal (B&P) costs

The best thing contractors can do now is arm themselves with information about their customer’s plans and positions, and develop internal strategies to mitigate the impact of a prolonged shutdown.

 

Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWin FIA. Follow me on Twitter @GovWinPeterson.

Surviving Sequestration: The 2nd Half of FY 2013 Could See $300 Billion in Federal Contract Dollars

Increasingly, we hear from companies in the federal marketplace that they struggle to plan and forecast their business prospects. There have been so many delays, false starts, and misaligned priorities that it is sometimes hard to know what opportunities are real and how to position your firm to compete. Now, the impacts of sequestration are beginning to ripple through an already skittish market, adding to the uncertainty. Yet, there are some things to consider that might indicate the contracting potential for the rest of fiscal 2013 and beyond.
Whenever things get unbearably uncertain it is important to have access to good data and information, plus a little creative thinking. It is the only way I know how to keep from making reactionary decisions and to get into proactive mode. So when it comes to thinking about the business prospects for the remainder of fiscal year (FY) 2013 it helps to build some historical context.
To get a sense of the historical pace and relative magnitude of federal spending for the remaining two fiscal quarters of 2013 I looked at the reported quarterly contract obligations across the federal government for the last five years. As I have noted in the past, we have seen a shift in federal spending to later and later in the fiscal year. Spending in Q1 and Q2 (in varying degrees) has shifted to Q3 and Q4. Even with some yearly fluctuation, the trend has been fairly stable. (See chart below.)
These shifts have occurred during a period where we have seen increasing use of continuing resolutions (CR), omnibus appropriations and other delays to funding federal agencies. FY 2013 is not particularly unique in this respect, so it does not seem unreasonable to conclude that the trend will hold this year as well. 
Projected Spending for the Rest of FY 2013 – a Possible Scenario
Now that we have received data for the first two quarters of FY 2013 it becomes possible to perform some rough projections of what might be still on the table for Q3 and Q4. I used FY 2012 data as a basis to make these projections. For FY 2012, adding together Q1 and Q2 departmental obligations and then dividing that sum by the department’s total obligations gave me the relative percentage of total obligations that occurred in Q1 and Q2. (See the table below for the top 20 federal departments and agencies.)
Assuming that agency contracted spending in FY 2013 will be at least 90% of what it was in FY 2012 (sequestration may represent about a 7% cut, so this 10% difference seemed reasonable to me) I followed a similar approach to calculate estimates for Q1 and Q2 percentages and potential remaining obligations for the remainder of FY 2013. 
For example, in the table below the Army had combined FY 2012 Q1 and Q2 obligations of $41.6 billion, which was 38% of their total FY 2012 obligations. The Army had a total of $17.8 billion in contract obligations for Q1 and Q2 of FY 2013, which represents 18% of the projected potential total FY 2013 spend, using my 90% of FY’12 assumption. Applying the percentage left over (i.e. 82%) to my total FY 2013 estimate results in a potential remaining obligation balance for Q3 and Q4 of $79.6 billion for the Army.
 
Granted, performing estimates at this macro level has its limitations and it requires certain broad assumptions for consistency, like a comparable year-over-year obligation rate and that, to some degree, these expenditures are for recurring needs. Some departments have a measure of cyclicality that is underrepresented in a chart covering just a few years. For example, Energy tends to run cyclically between 40% and 68% for Q1 and Q2 every other year or so like a pendulum. Further analysis into the specific contracts is needed to understand why.
Implications
Comparing the 2012 and 2013 percentages reveals that nearly all of the top 20 departments are behind in obligating funds, even with an assumed 10% reduction in spending from FY 2012. While the one-two punch of delayed budgets and sequestration might explain much of this it still remains that these agencies will need to obligate their remaining budgets by the end of the fiscal year. Even (or especially) in this uncertain budgetary environment, agencies will not likely leave money unspent. It is still a “use it or lose it” world out there. So there may likely be some significant pent-up demand that we could see play out in the remaining two quarters.

If this simple analysis holds even close to reality the potential remaining total contract obligations across all federal departments and agencies could be over $300 billion in Q3 and Q4, or 70% of total FY 2013 contract obligations. The second half of fiscal 2013 could potentially see federal contract dollars really flow.

Sequestration Threatens to Slow Army Network Modernization Efforts

The Government Accountability Office (GAO) released a report recently on Army network modernization entitled Army Networks: Size and Scope of Modernization Investment Merit Increased Oversight. According to the report, the GAO conducted the study because “for nearly 20 years” the Army has had limited success with its information network efforts and, more importantly, because in its fiscal 2013 budget request the Army asked for $3.8 billion to fund network-enabled mission command efforts. This funding breaks down into roughly $1 billion for research and development (RDT&E) and $2.8 billion for procurement (See Table 1).
 
Table 1: Network-Enabled Mission Command Requested Funding
Notice that these investments cover only those programs contained within the Mission Command portfolio. They do not necessarily include funding required for transforming CONUS posts, bases, and installations into “docking stations,” an objective that the Army CIO/G6 has called a priority. Presumably funding for that effort, as well as for modernizing Army transport networks will come from the Installation Information Infrastructure Modernization Program (I3MP) budget in the fiscal 2013 RDT&E request. Requested fiscal 2013 funding for those efforts totals $83 million, ramping up significantly in fiscal 2014 to approximately $370 million.
Also worth noting from the report is the fact that the Army estimates the programs listed above will require funding in excess of $3 billion annually for a period of undetermined length. As the GAO notes, “this level of effort could total in excess of $60 billion over a 20-year period.” Staying with the short-term outlook, assuming the requested $3.8 billion for the network-enabled mission command portfolio continues into next year, and is combined with the budgeted request of $370 million for I3MP, it means that overall funding for Army network modernization efforts alone will be no less than $4.17 billion in fiscal 2014. Fitting this spending into the larger Army budgetary perspective, FIA forecasts that the Army’s fiscal 2014 IT budget will total $17.4 billion (See Table 2). This means that Army spending on network modernization will take up 24% of the Army IT dollars spent next year. That is a big chunk of change!
Table 2: Forecast Army IT Budget for FY 2012-2017 
A final consideration in all of this is the potential impact of sequestration. If enacted, sequestration cuts $954 million (10.7%), from the total fiscal 2013 Army RDT&E budget request of $8.9 billion. This total amounts to the entire R&D requested funding for the mission command portfolio examined by the GAO. I do not expect that this portfolio alone would be subject to cuts, but I bring it up so we can see the magnitude of the threat. Then there are the cuts to the procurement budget to consider. Sequestration would bite this portion of the budget less deeply, but the potential for massive program cuts still looms large. The data provided to the GAO shows that requested fiscal 2013 procurement funding for the mission command portfolio totals approximately $2.8 billion. Compare this to the approximately $2.4 billion of the Army’s requested fiscal 2013 procurement budget that is subject to sequestration. Again, I would not expect to see this portfolio bear the entire brunt of the sequester, but the potential is there for cuts to be broad and deep. Plan accordingly.

 

Deltek's straight dope on state budgets: Part 1 - 2013 expenditures set to improve

The National Association of State Budget Officers (NASBO) and the National Governor’s Association (NGA) recently published their annual spring report outlining the fiscal condition of the states. Often, media outlets present conflicting information from these national reports. This is a continuation of a Deltek analysis series started last year that examines the NASBO data. This year, the series will examine NASBO numbers in black and white, comparing them to Deltek’s own budget data and analyzing related business implications. As always, Deltek believes in presenting the straight dope.

Deltek finished its annual state budget project in April and began publishing analysis in May. The Deltek state budget analysis is always ahead of the curve and includes all funds (AF) spending, departmental totals, IT departmental totals, and IT line items through FY 2013 for all states and 2014 for some. NASBO’s current publication covers general funds (GF) only out to 2013. NASBO won’t publish all funds budget totals for 2012 until December 2012, and those totals will not include departmental or IT spending. Other state budget data sources are neither as current, nor as detailed as Deltek’s. As a result, Deltek customers are able to leverage our advanced spending data and related market intelligence to deploy forward looking business development strategies.

The great news from the latest NASBO report is that “state fiscal conditions continue to improve into fiscal 2013.” This NASBO analysis is right on track with Deltek’s recent article, showing improved financial conditions for 2013. As highlighted by NASBO, overall state GF expenditures are set to increase $14.6 billion, or 2.2 percent from FY 2012 to 2013. NASBO indicates that while GF expenditures are rising, they are still not back to pre-recessionary levels.

Digging deeper into NASBO’s GF expenditures, the states’ financial improvement becomes more apparent. 38 states had higher GF spending in FY 2011, compared to 2010; 43 states had higher GF spending in FY 2012, compared to 2011; and 39 states had higher GF spending in FY 2013, compared to 2012. Of the 11 states that didn’t grow their budget in 2012, 6 either showed no change or had a loss of $39 million or less. Overall GF expenditures increased 3.76 percent from FY 2010 to 2011, 3.29 percent from FY 2011 to 2012, and 2.19 percent from 2012 to 2013. While the rates of growth have slowed a bit, states have still experienced three solid years of improved financials and GF expenditure growth. Most notably, expenditures have not outpaced revenue growth (see next week’s article in the series on revenue). See Figure 1, below, for graphical representations of the state GF expenditure data.

Figure 1: State General Fund Expenditure Changes 2009-2013

Click on image above for full-sized version

Subscribers have access to the full article here, including expanded analysis and recommendations for contractors.

Subscribers also have access to a extended state budget analysis, here.

Follow Chris Cotner on twitter @govwinccotner

 

Indianapolis’ possible public safety budget woes

The current economic crisis has had a major impact on public safety agencies across the country, and many departments are racing to find innovative ways to reduce costs while maintaining current operations. One major concern is the cost of maintaining personnel, and cities need to determine whether they can afford to keep staffing requirements up or reduce officer count needed for crime control.
 
The city of Indianapolis, Ind., has been plagued with a growing budget deficit and has estimated about a $30 million budget gap for the upcoming fiscal year. The mayor has forecasted major cut backs over the next year, which could directly impact public safety departments. The city has expressed a need to cut tens of millions of dollars from public safety agencies, which would lead to possible hiring freezes and reductions in new recruitment classes. The cuts could also lead to a reduction in the amount of patrol officers in the field, which could then lead to an upsurge in crime. This is a gamble the city may not want to take since current crime statistics report an overall upward trend in both violent and property crimes within the past 10 years.
 
At the wake of FY 2012, Indianapolis was presented with a challenge to mitigate a downturn in revenues, including a steep income tax decline. According to the Indianapolis 2012 Budget Book, income tax revenues are down about $85 million from a peak in 2010, which calculates to a drop of more than 30 percent. The proposed FY 2012 public safety budget was down about $8 million from FY 11. The 2013 budget is expected to be introduced on August 13, but estimates reveal it is likely that departments, including public safety, may have to continue to reduce costs.
 
The city has proposed tapping into its rainy-day fund along with obtaining possible grant funds to alleviate some financial woes and prevent cutting too deep into departments, but this may only be deterring tough decisions for the years to come. Some options presented have been to cut a 3 percent cost-of-living raise for officers, which has raised concerns around the stagnation of officers’ ranks. A lack of promotions may jeopardize the ability of the department to obtain grant funding. Departments may also require some officers to pay for some of their gas and cell phone use. Other cost-cutting options include the consolidation of HR staff for sheriff, prosecutor and courts departments, and the merger of law enforcement training academies.
 
Analyst’s Take
In a new budget cycle for most states and localities, it is not uncommon for agencies to forecast major reductions as departments determine how to best allocate their money and implement better planning practices. Cities like Indianapolis, with a growing budget deficit, may be more cautious with IT spending and may only focus on projects that they have an immediate need for. Indianapolis may also be waiting on an upcoming grant cycle to determine what type of funds to request before they finalize any major cuts to public safety.
 
In addition, the procurement process can be long and expensive for agencies to endure. Many are now looking to partner and/or consolidate with neighboring jurisdictions for public safety projects, as well as developing plans to build out their own systems in house.
 
As always, agencies need to fully assess needs in order to not waste money on technology that will not be utilized. Further, the need to reduce personnel costs may actually lead to an increase in public safety IT projects. Vendors should work closely with agencies and departments to determine how to curb costs. They should also make sure all needs are addressed and make recommendations for certain grant programs that may be of assistance.

 

Rainy-day funds grow: State decisions and strategies

Just a few days ago, the New York Times reported on how state governments are going to be forced to make tough decisions regarding their budgets. Some states, like Maryland, have actually increased their income tax on high earners in order “to preserve services and spending on its well-regarded schools.” Other states have taken a different approach, like Kansas, which has cut income taxes in order to try and boost its economy. These types of decisions have come out of states that have different political affiliations. Maryland has a Democrat-controlled state house, while Kansas is controlled by Republicans. As we move forward, it will be interesting to see how states among the parties will handle these budgetary decisions.
 
Another way in which states can move forward with tough budget decisions is to look at using rainy-day funds. These funds dried up during the heart of the recession a little more than four years ago, when the market crashed and the U.S. (along with most of the world) was left with significantly less tax revenue and budgets in the red. States across the country raced to slash budgets, lay off workers, and cut several programs, many of which benefited low-income families. Fortunately, over the past few cycles, conditions have improved in some states, and while everything isn’t A-okay, those states are sitting on replenished rainy-day funds. The question now is: What do states do with that money?

See the images below for a graphic representation of the states' improved rainy-day funds.
 
 
Analyst’s Take
 
As vendors in all areas look to do business with states moving forward, they should consider looking at states that have large rainy-day funds and are looking to bring back previously-cut services. Additionally, looking toward states with high credit ratings is likely safer in that projects are less likely to be stalled or put on hold the minute the economy experiences a hiccup. Moving forward, Deltek will be analyzing the overall market and providing vendors with information to help determine which states have the most-promising spending climate.
 
On the other side of the coin, states that opt not to restore cut services and hiring may seek more technology to do the work previously done by employees. Using technology to their advantage might be a way to use what funding is available more efficiently. Of course, this is not always the case, as many agencies with available funds also purchase IT-related products, but it will be interesting to see how states that opt to keep cuts intact move ahead with new or improved technology.
 
Subscribers can click here for the entire article, with expanded analysis of the impact of growing state rainy-day funds.

 

Effects of budget cuts on police operations

In the wake of a financial crisis, many public safety departments are grappling with reduced budgets while still trying to uphold current operations. The reliance on new and innovative technology has greatly assisted in these efforts by improving crime prevention and lowering operation costs. The heavy dependence on more proactive measures to identify and prevent crime, such as predictive analytics, has allowed departments to allocate resources more efficiently and thus find ways to supplement the number of personnel needed.
 
Personnel costs can be extremely difficult for departments to maintain, especially when budgets are being cut. In the last 20 to 30 years, governments across the United States years have increased overall spending on policing, which has left many localities wondering how they are going to pay for a rise in costs. Therefore, trying to achieve the same or better results with fewer resources remains a challenge.
 
As predictive policing remains a relatively new phenomenon to the public safety arena, not much hard data has been published to determine the overall impact on officer count. According to the United States Census’ state employment data, there are 68,083 full-time police officers employed nationwide. This number has seen a considerable drop from the 103,133 officers employed in 2010. The decline in numbers nationwide indicates that state public safety departments, both large and small, have been hit hard by the economic recession.
 
 
Analyst’s Take
 
Maintaining public safety remains an important issue for many states and localities, thus many are reluctant to cut costs.. As inflated costs per officer continue to trouble some agencies, the need for more innovative technology solutions remains a priority. Vendors should continue to work with and partner with agencies to offer cost-effective solutions that provide the ability to better respond to and forecast criminal activity.
 
For additional information on this topic, go here.

 

 

American Bar Association’s 2012 Spring Meeting and 7th Annual State and Local Procurement Symposium

Last week, Deltek attended the American Bar Association’s (ABA) 7th Annual State and Local Procurement Symposium, which highlighted current trends in the state and local government market. The event featured many sessions with panels of knowledgeable procurement professionals who discussed key drivers in today’s market. The overall message of the day was that some state and local governments are still struggling with financial setbacks and budget cuts, and are looking for ways to cut costs wherever possible. This report recaps key sessions and major take-aways from each panel Deltek attended.
 
State and Local Government Hot Topics
 
In this session, nine panelists analyzed the many trends in state and local government. Ron Bell, Commonwealth of Virginia, Department of General Services, discussed the erosion and complexity of the Model Procurement Code and how there is variability among the states in interpreting its rules. He argued that this variability of rules among the states from not following the Model Procurement Code is resulting in less competition and higher costs to governments. The variability of state and local government procurement rules and not following the Model Procurement Code continues today, and states' terms and conditions often do not comply with its guidelines. The impact that this has on state and local governments is that it creates an imbalance between different entities, which increases costs for governments, reduces competition and flexibility, and limits leveraged buying power. All entities are in basic agreement that the law should be written in simpler terms. Bell concluded that while the Model Procurement Code is eroding over time, governments need to work with vendors and educate them on the importance of following this code, and the harm that could result in using different rules.
 
To read the complete recap of all sessions Deltek attended, please go here.

 

Could government IT be the silver lining to GAO's grey cloud forecast for state and local finances?

In recent years the federal Government Accountability Office (GAO) has released an annual report, State and Local Governments’ Fiscal Outlook. The most recent April 2012 update declares that “base case simulations show that the fiscal position of the sector will steadily decline through 2060 absent any policy changes.” Of course, we all know when we drive our cars that we are destined to crash absent any use of the steering wheel. Unfortunately, this 60 year projection leads to many breathless headlines in the major media, such as this one from Reuters: “Outlook still grim for US state, local budgets-GAO
 
That’s not to say the GAO report is not of value. However, it must be understood within its context. It is a long-range planning document based on the Congressional Budget Office’s (CBO) projections. The GAO report justifies its projection as follows:
 
We calculated that closing the fiscal gap (2013 to 2062) would require action to be taken today and maintained for each year equivalent to a 12.7 percent reduction in state and local government current expenditures.Closing the fiscal gap through revenue increases would require action on that side of a similar magnitude.
 
Such adjustments are not out of the realm of possibility. Significant economic growth, a war, or the implementation of value-added taxation (VAT)—to name just a few examples—could spur dramatic changes in state and local fiscal conditions over the next 50 years.
 
The report points to health care costs as the primary driver of its baseline scenario:
 
The model’s simulations show that the sector’s health-related costs will be about 3.9 percent of GDP in 2012 and 7.1 percent of GDP in 2060. In contrast, our model shows that other types of state and local government expenditures—such as wages and salaries of state and local workers—are expected to decline as a percentage of GDP. The model projects that the sector’s non-health-related costs will be about 10.4 percent of GDP in 2012 and 7.8 percent of GDP in 2060. (emphasis added)
 
The good news for government IT vendors here is that GAO's projected 25% decline in non-health-related costs (e.g., wages and salaries of state and local workers), considering continued population growth and service demand, would have to be due in large part to the implementation of technological automation.  Moreover, regardless of the fate of the Obama administration’s health care reforms, that legislation is only the beginning of a major national effort to reign in GAO's projected 82% increase in health-related costs through public and private action in coming decades. Government IT will have a growing role in that effort as well via health insurance exchanges, health IT, and MMIS modernization.
 
Analysts Take:
  • Long-term projections are good food for thought; however, long-term projections about government and policy are pinned to human nature, which can vary widely over the long run. Deltek will continue to monitor state and local fiscal conditions. You can find our free 2011 white paper on the subject here.
  • State and local spending on government IT could benefit within such a dire fiscal environment. While I don’t believe the state and local fiscal situation will be as bad as the GAO’s forecast, Deltek is confident that technology goods and services will increasingly be a contributor to solving long-term fiscal problems.
  • State and local policy leaders are not unaware of the challenges they face. Deltek research has found many governors and some local leaders beginning to focus on a wide range of government streamlining and performance-based management initiatives. This is only the tip of the iceberg. Fundamental reengineering of state and local government will be incremental and ongoing over the next decade or two.

 

Breaking down President Obama's FY 2013 budget: Health and human services

While most people were occupied with last-minute Valentine’s Day preparations earlier this week, President Obama was busy announcing the FY 2013 budget. Rest assured that Deltek will be analyzing every inch of the data to uncover key trends and opportunities for our member network. This analysis will focus on funds trickling down to the states from the health and human services vertical. The Department of Health and Human Services’ (DHHS) Deputy Secretary Bill Corr spoke to the public on Feb. 13 and highlighted the health objectives the budget package addressed. DHHS plans to strengthen the nation’s health care, continuing on the Affordable Care Act (ACA) of 2010. Initiatives include health insurance exchange development, expanding community health programs, and increasing the health care workforce. Fighting fraud, waste, and abuse continues to be priority number 1 – the department collected almost $4 billion last year in improper payment recoveries. Corr also stated the FY 2013 budget and, specifically, Medicaid reform will help reduce the federal deficit by $366 billion over 10 years.
 
Following the same trend as last year, discretionary spending (Table 1, below) is set at $30 billion, which is down nearly 3.5 percent from FY 2011. Programs seeing major cuts include the public health and social services emergency fund and low-income home energy assistance (LIHEAP). The Distance Learning, Telemedicine, and Broadband Program saw a 68 percent increase to $42 million, following through on DHHS’ promise to strengthen health care, especially in rural areas. Mandatory spending (Table 2) also corresponded with DHHS goals and saw an 82 percent increase in funding for health insurance exchange establishment, totaling $868 million. Grant funding to states for Medicaid totals $269 billion. Stay tuned for FY 2014 numbers as eligibility enrollment is estimated to increase by nearly 16 million Americans. 

Table 1: Federal Grants to State and Local Governments, Discretionary (in millions of dollars)

 Click on image above for full-sized version

 

Table 2: Federal Grants to State and Local Governments, Mandatory  (in millions of dollars)

Click on image above for full-sized version

Other areas of the budget proposal include:

  • Temporary Assistance for Needy Families (TANF): TANF funding rises nominally to $17 billion in FY 2013.
  • Supplemental Nutrition Assistance Program (SNAP): The budget includes $7 billion in SNAP benefits, a 5 percent increase from FY 2011. Although states are seeing record food stamp numbers, the Department of Agriculture (USDA) transferred $400 million to support the Women, Infants, and Children (WIC) Program for FY 2012.
  • WIC: Program funds increased by 14 percent to $7 billion, which includes $14 million for infrastructure funding and $30 million for management information systems.
  • Child Support Enforcement: Funding took a 7 percent dip to $3.8 billion. The budget request includes new investments of $305 million in FY 2012 and $2.4 billion over ten years for the Child Support and Fatherhood Initiative.
  • Child Care: Proposes $6 billion for child care, which includes $2.6 billion for the Child Care and Development Block Grant to supplement assistance for low-income families; and entitlement to states is $3.4 billion.
  • Child Welfare: Requests $7.2 billion for foster care and permanency services including adoption and guardianship assistance, foster care, and independent living.
Overall, the FY 2013 budget produced minimal funding changes for health and social services programs. Vendors playing in the health care field will see the most benefit in those pocket areas of increased funding, especially surrounding health insurance exchange implementation, Medicaid system reform, and eligibility redetermination. Those thinking that the ruling on the ACA later this summer will stem exchange development should think again. Many states are planning to continue developing systems whether the act holds or not. With the major push to cut down on federal spending and fight abuse in the human services arena, vendors need to keep reporting systems up to date with all required mandates and regulations. As health information exchanges start to be rolled out this year, it should be interesting to see which states will find success in transferring electronic medical records, and which will not. It seems that health care will continue to be the hot topic of FY 2012 and FY 2013.

 

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