Never-Ending “Fiscal Cliff” Drama Set to Continue

After many weeks of negotiations over how to avoid going over the “fiscal cliff,” Congress approved a short-term solution after a last-ditch effort by Vice President Joe Biden and Senate Minority Leader Mitch McConnell (R-KY). Many people thought that a solution would not be agreed upon before the fiscal cliff deadlines, while others remained confident that policymakers would be able to work together. Ironically, both schools of thought were correct – Congress did not vote on the American Taxpayer Relief Act until January 1st, and President Obama did not sign it into law until January 2nd. Therefore, technically the country did roll over the “cliff” whilst still hanging on by a fingernail – the deadline for decisions on the tax cuts was December 31st, but the federal spending sequester was not scheduled for implementation until January 2nd. Essentially, the American Taxpayer Relief Act allowed the country to let go from that January cliff edge and drop relatively unscathed to a newly discovered ledge below only to teeter on the edge of another cliff.

The resulting solution to the “cliff” really was a compromise with legislators from both sides expressing concern and dissatisfaction over the deal, but the bottom line is that a perceived major economic meltdown was averted for the time being. The January 2013 “fiscal cliff” was comprised of potential increases in taxes, the automatic federal funding cuts associated with sequestration, and the need to address the nation’s debt ceiling again (the instigating factor that set the nation on a course towards the fiscal cliff). The “solution,” called the American Taxpayer Relief Act, is true to its name because it really only addressed the most pressing tax issue (expiring tax cuts) component of the January 2012 “fiscal cliff” – sequestration is still scheduled to occur (delayed two months) and the debt ceiling is still a topic of debate. Therefore, any relief from the “fiscal cliff” drama will be short-lived because many of the same problems persist without answers, only to be tackled in February and March of 2013.

With the implementation of sequestration cuts in federal funding pushed back until March 1st, Congress and the Obama Administration will have more time to hammer out a more permanent solution. Even though the sequestration cuts will be less than before (new revenues from the American Taxpayer Relief Act must be accounted for), they still involve larger systemic questions that have been recent sources of tremendous political posturing. While the end result could be characterized as bi-partisan, the preceding process was coupled with constant partisan rhetoric that played out via a consistent stream of press releases and announcements by those involved (as well as those who weren’t).

Brinkmanship has continued to get worse over the past few years. Will going over the “fiscal cliff” in January 2013 lead to tumbling off in a free fall in March? The next 49 days will surely be interesting…

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Federal Funding: A Delicate Balance between Flexibility and Effectiveness

During the 2012 campaign season, there was renewed focus on a topic that has arisen in recent legislation that would affect workforce development, youth development, and education systems. The idea of sending more federal money straight to states has been mentioned in presidential debates, campaign speeches, bills to reauthorize the Workforce Investment Act, etc. Often this strategy takes the form of distributing block grants with little to no stipulations to state authorities, who then decide how best to spend those dollars.

The obvious benefit to this type of funding model is that it provides states with maximum flexibility, so they can focus on the most relevant issues in their regions. However, there is also an inherent detriment in that many of the guidelines, concerning how such funding should be used, are stripped. Many of these rules were created as the result of a specific need. For example, populations that are most in need, such as low-income youth and young adults, are generally (1) more difficult to serve or (2) they require different types of services or a different structure of service provision. When funding decisions are made only at the state level without any targeted provisions, such groups often receive ineffective/insufficient services or not at all, even though they need the services just as much as other individuals.

It difficult to try to choose between flexibility and ensuring that everyone has access to services, as there are clear benefits to both outcomes. Therefore the question becomes what is an effective combination of these two concepts.