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Weekly UpdatesThe new Democratic majority was anxious to begin its work in January, hoping to tackle many issues important to local and state governments. This Federal Focus article examines just how far Congress, now mid-way through its first year, has come in moving forward on issues important to the public sector.
FEDERAL BUDGET
Unlike last year, House and Senate leaders are insisting on working within the confines of the budget resolution passed this spring, and completing the 13 appropriation bills prior to the end of the fiscal year on September 30. The nonbinding budget resolution provides a blueprint for congressional action on the authorization and appropriation bills, and many hearings already have been held providing insight into Congress' priorities under the new leadership. Most importantly for state and local governments, Congress will likely reject proposals from the President to cut programs such as first responder homeland security grants, community development block grants, Amtrak and transportation funding, community policing grants, and water infrastructure funding. Final legislation on these programs for FY08 will not be completed until later this year.
3 PERCENT WITHHOLDING AND REPORTING REQUIREMENT ON GOVERNMENT PAYMENTS
Legislation has been introduced in the House and Senate to repeal Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (PL. 109-222), which requires state and local governments that spend more than $100 million on goods and services to withhold 3 percent of payments to all vendors, beginning in 2011.
In the House, Congressmen Kendrick Meek (D-FL) and Wally Herger (R-IL) introduced H.R. 1023 and in the Senate, Senator Larry Craig (R-ID) introduced S. 777. The GFOA and other state and local government associations (including the National Association of State Auditors, Comptrollers and Treasurers; the National League of Cities; and the National Association of Counties) support legislative efforts to eliminate this unfunded mandate that would cause significant administrative and financial burdens to governments across the country.
To assist with these efforts, GFOA members are encouraged to complete a survey that will enhance our ability to demonstrate to Congress the devastating impact this law will have on state and local governments. The survey for local and state governments may be found at http://www2.nasact.org/ withholdings/survey.htm.
In addition to the withholding provision, Section 511 also calls for annual reporting of all payments made by governments beginning in 2011. In his proposed FY08 budget, President Bush called for the implementation date of the reporting requirement to be moved up to January 1, 2008. The GFOA is monitoring whether this initiative gains traction in Congress, as there would be insufficient time as well as unfunded costs borne by state and local governments to adhere to such legislation.
HEALTH CARE
Legislative initiatives to address spiraling health care costs as well as lack of access to health care continue to circulate among the administration and congressional Republicans and Democrats alike.
President's Proposal. In his State of the Union address and again in his fiscal year 2008 budget proposal, the President presented his ideas for health care reform. Under current law, the value of health coverage provided by an employer-sponsored plan is exempt from income, Social Security, and other payroll taxes. The President's proposal would eliminate this exclusion and treat employer-sponsored health coverage as taxable income to employees and retirees. In its place, the President's proposal recommends a $15,000 annual tax deduction to married couples ($7,500 to singles), whether they purchase health insurance through their employer or on their own.
Many Democrats have expressed concern that the President's proposal would undermine the employer-based health system through which so many Americans receive health care benefits, and it is not likely to become a viable reform option.
State Initiatives. Another proposal articulated by the President includes shifting to the states as much as $40 billion a year that currently goes to reimburse hospitals and other providers for Medicare and Medicaid. States would then have the flexibility to create insurance pools or use other approaches to provide health care to the uninsured.
Several members of Congress have already taken measures to introduce legislation implementing this concept. S. 325, the Health Partnership Act and H.R. 5864, the Health Partnership through Creative Federalism Act, would allow for state initiatives that expand health care coverage. If this legislation becomes law, states can become eligible for federal grants if they commit to specific reductions in the number and percentages of uninsured.
Some members of Congress, particularly Democrats, remain concerned that funding for these state grants will involve reallocating resources from already pressed hospitals and other Medicare and Medicaid providers.
Drug Coverage Legislation. Congressional Democrats continue to pursue their own health care reform initiatives to address cost and access. In their first hundred legislative hours, the House approved legislation, H.R. 4, to require the Secretary of Health and Human Services to negotiate prices with Medicare's private drug companies, although the legislation did not specify how the Secretary would need to pursue such negotiations. The current Medicare Part D Act specifically prohibits negotiations with drug companies.
Supporters of H.R. 4 hope that the government would be able to save money through negotiations, which could then be used to offset costs for those seniors who currently fall into the Medicare Part D "donut hole" and are required to pay out-of-pocket all their drug costs between $2,250 and $5,100. However, the legislation does not have broad support in the Senate, and the President has promised to veto it.
Another legislative initiative to address health care costs is S. 316, the Preserve Access to Affordable Generics Act. This measure would prohibit pharmaceutical companies from entering into settlements to delay generic versions of drugs. According to the Federal Trade Commission, settlements in patent disputes between brand-name and generic drug companies often include agreements to delay generic versions of prescription drugs in exchange for payments from the brand-name company to the generics manufacturer. Many Democrats support S. 316 and maintain that it is necessary to begin addressing spiraling health care costs through expedited access to lower-priced generic drugs. The Senate Judiciary Committee has approved the legislation, but action by the full Senate is unlikely to take place without some changes to address concerns expressed by Republicans, which include the possibility of evaluating patent settlements on a case-by-case basis rather than enacting an outright ban.
Health Care IT. One health-related measure that had considerable momentum last year but has not returned for consideration in 2007 is health care information technology (IT) legislation. Last year's bills were approved by both the House and the Senate, but a conference committee to iron out the differences between the bills was never convened. Proponents of health care IT continue efforts to revive the legislation by maintaining that it is necessary to address mounting health administrative costs as well as patient safety.
PENSIONS
This year has brought less legislative movement on the pension front largely because of the recent enactment of large-scale pension reform in 2006, the Pension Protection Act (PPA) (Public Law #109-280). The public pension community continues to advocate for a technical corrections bill to the PPA. In particular, the public sector is advocating for language that would clarify that the PPA provision allowing eligible retired public safety officers to exclude up to $3,000 of their retirement benefits for health insurance and long-term care premiums from federal gross income is also applicable to self-insured plans. To the contrary, the Internal Revenue Service recently held in Notice 200 7-7 that this provision does not apply to self-insured health plans.
By contrast, a flurry of pension-related activity is occurring on the regulatory front, where the Departments of the Treasury and Labor continue to publish regulations interpreting the PPA that may be applicable to the public sector. (1)
COMMUNICATIONS
In a change of course from last year, the 110th Congress does not seem poised to pursue any large-scale communication reform initiatives. The national associations representing the local government community continue to monitor legislation that would preempt local taxing authority, such as the Permanent Internet Tax Freedom Act of 2007 (S. 156, H.R. 743), which would make permanent the current moratorium on Internet taxes (set to expire in November 2007), as well as the Cell Phone Tax Moratorium Act of 2007 (S.166, H.R. 436) banning new local and state taxes on cellular telephone.
However, significant action on the communications front is taking place before the Federal Communications Commissions (FCC) and in the courts. As expected, the FCC published final rules undermining local franchising authority leading to a reduction in the revenues received by local governments for use of their rights-of-way and creating a loss of cable services to many governmental buildings and schools. Specifically, the new FCC rule requires local cable franchising authorities to act on new applications from competitors that already have access to the local rights-of-way within 90 days and within six months for other new competitors. The new rule also prevents local governments from requiring new competitors to comply with build out requirements and to count certain costs normally requested of new carriers such as public, educational, and government (PEG) channels and Institutional Networks to be included as part of the 5 percent franchise fee they must pay. Several local government associations maintain that the FCC has overstepped its legal and regulatory authority in issuing the new rule and have challenged the order in court. The FCC rule and additional information regarding the legal challenge can be found at http://www.thetruthontelecomreform.
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