The Fiscal Cliff and State Arts Agencies

November 9, 2012
From: Isaac Brown, Legislative Counsel
Vol. 12:14

The Fiscal Cliff and State Arts Agencies

Earlier this week, in a sweeping victory, President Barack Obama was elected to serve another four-year term. In our analysis below, we lay out what awaits Congress when it returns to session next week.

Looking Ahead
President Obama did not have much time to savor Tuesday night’s victory, as a series of major tax and spending policy changes that are scheduled to occur on January 1 and 2, 2013, unless Congress acts, necessitated his quick return to Washington.

According to news reports, some of the first calls he made after being pronounced the winner were to Senate Majority Leader Harry Reid (D-NV) and House Speaker John Boehner (R-OH), imploring them to begin negotiations to resolve the upcoming “fiscal cliff” when Congress begins its lame duck session on November 13.

Among the provisions making up the fiscal cliff are:

  • Sequestration, a provision in the Budget Control Act of 2011, which will require across-the-board cuts totaling $1.5 trillion over the next 10 years
  • Expiration of the 2001 and 2003 tax cuts, often referred to as the “Bush tax cuts” ($281 billion)
  • Expiration of payroll tax deduction ($115 billion)
  • Tax extenders—including the charitable deduction for donations ($75 billion)
  • Alternative minimum tax expansion ($40 billion)
  • Unemployment insurance expiration ($34 billion)
  • Expiration of Medicare reimbursement rates for physicians ($14 billion)

Despite this accelerated timeline, both Speaker John Boehner and Senate Majority Leader Harry Reid offered sharply different interpretations of Tuesday’s elections and what they mean for taxes and deficits, underscoring the significant barriers to finding common ground. Speaking shortly after Democratic control of the Senate had been assured, Reid said that he wants to increase revenue into the federal government by raising taxes on the wealthy. Boehner, on the other hand, said he is willing to raise revenue, but only by eliminating tax loopholes and not by raising rates. The comments by both are not surprising, particularly since negotiations haven’t even begun yet, but aides from both sides say privately that if progress is not made in the next few weeks, it will make reaching a compromise very difficult.

Implications for the Arts
Because Congress is still trying to establish how it will deal with the fiscal cliff, state arts agencies must prepare for various scenarios.

The least desirable outcome would be for Congress to not reach an agreement and for the sequester to begin. Should the sequester be triggered, federal agencies, including the National Endowment for the Arts (NEA), will have to reduce spending by 8.2% for fiscal year 2013. This scenario would reduce Partnership Agreement funds available to state arts agencies drawn from the NEA’s FY2013 budget to support states’ FY2014 activities. (See for more information on NEA funding and reporting cycles.)

However, leaders from both parties have already stated that they view the enactment of the sequester as devastating for the economy, so there is clearly an incentive on both sides of the aisle to try to reach an agreement. It is too early to know exactly what a compromise might entail, but we expect it to include substantial cuts in discretionary domestic spending, coupled with an increase in tax rates, at least on high-income earners, as well as the elimination of some tax deductions (though I think the charitable deduction will be spared). Should this scenario play out, a cut to NEA funding is likely, though it is far too early to speculate as to extent.

Another possibility is that members of Congress are able to agree only that they need more time, and rather than allowing sequestration to begin, they pass legislation delaying the start of the process. Doing this would allow newly elected members to be sworn in and would allow the president to name his cabinet appointments for the next term. It is widely believed that several key agency heads, including Secretary of the Treasury Tim Geithner and Secretary of State Hillary Clinton, will announce their resignations shortly, and other cabinet officers may decide to step down as well. Since it is the agency heads that will be charged with implementing the cuts, the president may ask for more time to ensure that this process is done as smoothly as possible.

In addition to dealing with the sequester in the short term, what Congress decides will have a significant impact on the FY2014 budget process. If Congress is still dealing with the sequester next year, it is very likely it would not have the time to conduct a normal budget process and would pass another short-term funding bill when current funding expires in March. In that event, the involvement of the House and Senate Interior Appropriations subcommittees—which typically have purview over NEA budget recommendations—is difficult to predict. So during the winter it will be important for arts advocates to be in good contact with not only committee leadership but also overall party leadership on both sides of the aisle to emphasize the return on investment that Congress and the states receive from the arts.

Leadership Elections
When Congress returns to session next week, House Republican leadership will hold its elections. Given the successful retention of its majority, it is unlikely that we will see a major shake-up in Republican leadership. John Boehner will, once again, lead the chamber, with the rest of his leadership team remaining intact.

Things are less clear on the Democratic side of the aisle. Nancy Pelosi, currently the highest-ranking Democrat in the House, has chosen to postpone her caucus’s election until after the Thanksgiving holiday. This has been interpreted by many to indicate that she is strongly considering stepping down from her post, and wants to give other Democrats the opportunity to wage a campaign for the top spot. If she does decide to step down, Steny Hoyer of Maryland, the second-ranking Democrat in the House, will certainly vie for the top post; but he and Pelosi have never been close allies, and it is quite possible that Pelosi will support the candidacy of one of her top lieutenants for the job.

With the retirement of Representative Todd Platz (R-PA), leadership of the Congressional Arts Caucus also will change. Representative Louise Slaughter (D-NY) will remain the Democratic cochair of the Caucus, and it is incumbent upon her to invite a Republican colleague to fill Platz’s position. If you know of Republican House members who would make a strong leader for this Caucus, please let us know.

While this memo focuses on near-term issues, know that NASAA is laying the groundwork for long-term work with the new Congress over the next year. In addition to advocating for NEA resources, we’ll be looking at policy opportunities in education and other realms that affect the work of state arts agencies and their constituents. Look for more information from NASAA on those subjects in the months ahead.