The Election

1. Key Players, Status of Education Funding, and Sequestration The Election Julia Martin, Esq. jmartin@bruman.com Brustein & Manasevit, PLLC Fall Forum 2012

2. Agenda Effect of Fiscal Issues on Education Funding Battles So Far Sequestration The “Fiscal Cliff” Where the Parties Stand on Policy The Election and What it Means Brustein & Manasevit, PLLC

3. Effect of Fiscal Issues on Education Brustein & Manasevit, PLLC

4. Why it Matters • How do federal fiscal issues affect education? • Control funding levels • Congressional appropriations determine support for federal programs • Part of policy debate • Size/involvement of federal government is still an open question • Distract from other debate • Take time/momentum away from policy Brustein & Manasevit, PLLC

5. Funding Battles So Far Brustein & Manasevit, PLLC

6. The 112th Congress • Politically divided • Along party lines and within parties • Huge nationwide fiscal and debt issues • Lack of action on policy legislation • Lack of substantive policy debate on any issues • Focus on party-line votes, attacks • Large turnover predicted for November 2012 election • Result: little motivation to address critical issues Brustein & Manasevit, PLLC

7. Brustein & Manasevit, PLLC

8. FY 2012 Budget • Not a real budget – full-year Continuing Resolution • Completed almost three months late in December 2011 • Narrowly avoided government shutdown • Cut ED funding by $233 million in total • All programs subjected to 0.189% across-the-board cut • Some increases: IDEA, Title I • Includes funding for President’s priorities • E.g. Race to the Top Brustein & Manasevit, PLLC

9. FY 2013 Budget • Bipartisan agreement to pass temporary spending measure • 6-month continuing resolution (CR) keeps federal government running through March 2013 • Extends current funding levels, plus 0.612% across-the-board spending increase • Spending increase now means cuts later? • Remainder of FY 2013 budget will not be finalized until spring 2013 Brustein & Manasevit, PLLC

10. Budget Control Act • Passed August 2011 • Temporarily raised Debt Ceiling • Reduced Congressional appropriations spending caps by $891 billion over the next ten years • Created Congressional debt Supercommittee Brustein & Manasevit, PLLC

11. The Supercommittee: Not So Super • Tasked with cutting $1.5 trillion in spending over next decade by Thanksgiving 2011 • If at least $1.2 trillion in cuts not agreed to by November 23, 2011, automatic cuts triggered • Total failure to come to an agreement • Conflict over how to reduce debt – raising taxes/revenues versus lowering spending • Failure of Supercommittee means automatic cuts through “sequestration” Brustein & Manasevit, PLLC

12. Sequestration Brustein & Manasevit, PLLC

13. Sequestration • Only intended as a threat – never meant to happen • Cuts take effect January 2, 2013 • Automatic, across-the-board cuts for FY 2013 • Little discretion for appropriators, agencies • Apply to FY 2013 federal spending numbers • Could exacerbate effect of any cuts made in FY 2013 Brustein & Manasevit, PLLC

14. Sequestration Step by Step • Adjust total for interest to reflect lesser debt principal • $1.2 trillion  $984 billion • Divide by year from 2013 through 2021  $109 billion • Split function between defense and non-defense spending (about $54.5 billion each per year) • Take exempt programs out of the equation • Spread cuts equally among remaining programs in 2013 • Cuts accomplished by reducing spending caps in 2014 and beyond • OMB estimates cuts for “non-defense discretionary” funding including most education programs at 8.2% Brustein & Manasevit, PLLC

15. The Impact of Sequestration Brustein & Manasevit, PLLC

16. Sequestration Exemptions • What’s exempt? • Some low income assistance programs: • Social Security • Medicaid • TANF • SNAP • Most child nutrition and commodity food programs • Veterans benefits • Pell grants, in first year • What’s not exempt? • Most ED programs, defense spending, among other items Brustein & Manasevit, PLLC

17. When Will Sequestration Happen? • President Obama must issue a sequestration order no later than January 2, 2013 • Funds received by States July 2012 and earlier are NOT subject to sequestration • Advance funding received in October of 2012 will not be subject to sequestration when allocated • BUT cuts will be calculated and applied to July 2013 funds • Funding received in July of 2013 will be subject to cuts • After July 2013, cuts will be incorporated into annual appropriations Brustein & Manasevit, PLLC

18. Guidance on Sequestration • Overall: focus on repeal, not implementation • Pres. Obama in debate: sequester “won’t happen” • Business as usual • Why? • Practical/legal concerns • Political strategy Brustein & Manasevit, PLLC

19. Guidance on Sequestration - Agencies • May 2012 report from GAO: No workarounds for federal agencies • Antideficiency Act: agencies can’t overspend in anticipation of cuts • Impoundment Control Act: agencies can’t hold back on Congressionally appropriated funds in anticipation of cuts  • “Agencies must carry out their appropriations … regardless of the possibility of spending reductions beginning in the second quarter of fiscal year 2013.” • September 2012 memo from OMB to federal agencies: business as usual for first half of fiscal year (“continue normal spending and operations”) Brustein & Manasevit, PLLC

20. Guidance on Sequestration - States • States sent out guidance in summer 2012 on how to prepare • Texas: State will withhold 10% of funds • Missouri: prepare two budgets • July 20 memo from ED to State chiefs: “there is no reason to believe that a sequestration would affect funding for the 2012-2013 school year…“[T]he potential for sequestration should not upset planning and hiring decisions for the immediately upcoming 2012-13 school year…there is little reason to delay hiring.” Brustein & Manasevit, PLLC

21. The Search for Plan B • Congress must explicitly act to avoid sequestration • Debate influencers • Defense industry pushes back against cuts, exerts political pressure • “NDD” organizations rally against cuts • Numerous suggestions from lawmakers • Delay impact for a year? • Exempt defense spending? • Any alternative likely to include significant cuts to federal spending Brustein & Manasevit, PLLC

22. Potential Alternatives and Proposals • Maybe it’s not so bad? • OMB Watch releases report in November saying administration can take actions to lessen the effect in the short term, impact of temporary sequester will not be as severe as projected • lessens urgency to address sequester in lame duck? • A “bridge” over the fiscal cliff? • On November 7th, Speaker of the House John Boehner (R-OH) suggests that Congress delay the impact of “fiscal cliff” items until the start of the next Congress to allow more time for debate • Senate Majority Leader Harry Reid (D-NV) also ok with short-term fix? Brustein & Manasevit, PLLC

23. Potential Alternatives and Proposals • A cautionary tale: the SGR “Doc Fix” • Congress passed automatic 25% cuts for Medicare provider reimbursements into law • Must vote each year to avoid cuts to provider payments • Increased opportunities for last-minute deal angling, acrimony, politics • Give false picture of budget • Not a real long-term solution • A “sequester fix” would need a yearly patch to stave off massive cuts – hard for agencies and private business to budget Brustein & Manasevit, PLLC

24. Up Next: the Fiscal Cliff Brustein & Manasevit, PLLC

25. The Fiscal Cliff • Term for anticipated economic effect when a number of fiscal and budget-related deadlines all happen at once • Contributors: • Expiration of Bush-Era tax cuts • Expiration of payroll tax holiday • Implementation of sequestration • Decrease in Medicare physician reimbursement rate (SGR) Brustein & Manasevit, PLLC

26. The Fiscal Cliff • What would it do? • Congressional Budget Office predicts (in November 2012): • Nation’s GDP would decrease by 0.5% • Economy would contract • Unemployment would rise to 9.1% • Loss of 2 million jobs • BUT expiration of tax cuts, sequestration would trim $487 billion from federal budget in FY 2013 • Compared with $91 billion if current policies extended Brustein & Manasevit, PLLC

27. The Fiscal Cliff • What’s the solution? • Extension of current policies and tax cuts increases federal debt to “unsustainable levels” per CBO • Debt to GDP ratio potentially approaching 90% in 2013, which many say is sign of impending Greek-style financial crisis • But would also increase economic growth, decrease unemployment in the short term • Allowing current policies to expire means economic stagnation but better long-term economic health • CBO: “policymakers will need … to adopt policies that require people to pay significantly more in taxes, accept substantially less in government benefits and services, or both” Brustein & Manasevit, PLLC

28. What’s left for the Lame Duck session? • Decisions on: • Bush-era tax cuts • Emergency unemployment benefits • The Farm Bill • Emergency agricultural aid • Sandy relief • FY 2013 spending • Sequestration or alternative spending plan • Debt ceiling? Brustein & Manasevit, PLLC

29. Education Spending Brustein & Manasevit, PLLC

30. Spending Generally • Overall, pressure to cut federal spending in all sectors including education • Recession and stimulus put pressure on federal treasury • Need for unemployment and other benefits puts pressure on those programs • Less tax revenue means less money to go around Brustein & Manasevit, PLLC

31. Education Funding Policy Trends • Move to cut education spending (mostly Congressional Republicans) • Belief that spending on K-12 education has not produced meaningful results • 2012 GOP Platform: “[s]ince 1965 the federal government has spent $2 trillion on elementary and secondary education with no substantial improvement in academic achievement or high school graduation rates…[c]learly, if money were the solution, our schools would be problem-free” • Concern that federal spending drives costs up • Attempt to scale back size of federal footprint in education – greater autonomy at State level • Movement to consolidate funding streams Brustein & Manasevit, PLLC

32. Why it Matters, Part 2 • Potential for huge economic consequences overall • With or without sequestration: • Strong likelihood of significant budget cuts, including education • Budget and sequestration become priorities • Hotly contested issues mean there’s no time/energy for anything else • As a result: delay in sequestration debate until after election; delay of ESEA reauthorization and other policy debates until 113th Congress Brustein & Manasevit, PLLC

33. Where the Parties Stand Brustein & Manasevit, PLLC

34. Republican Priorities • Less federal control (more local responsibility) • Less federal money • “Clearly, if money were the solution, our schools would be problem-free” • Promotion of “school choice” through: • Vouchers • Charters • Parent triggers • Endorses “rigorous academic standards” • “rejects the crippling bigotry of low expectations” • But not Common Core Brustein & Manasevit, PLLC

35. Republican Priorities • Critical of HQT requirements • Support teacher evaluations with student achievement playing a “significant part” • Critical of teachers’ unions • Mitt Romney on September 2012 Chicago strike: “Teachers unions have too often made plain that their interests conflict with those of our children, and today we are seeing one of the clearest examples yet” Brustein & Manasevit, PLLC

36. Democratic Priorities • Education as a means of economic success for individuals and the country as a whole • Importance of keeping teachers and school employees on the job, through additional federal spending if necessary • Defend place of government in education • As driver of accountability, source of funds • But quick to note that government is not the only actor Brustein & Manasevit, PLLC

37. Democratic Priorities • Promote “flexibility” and “career- and college-ready standards” in party platform • Read: Waivers and Common Core • Have supported Common Core and linked assessments • Largely supportive of teachers’ unions in general • But also pushing for teacher evaluations • Supportive of some “school choice” elements • Charters, parent triggers Brustein & Manasevit, PLLC

38. Universal Trends in Education Policy • Moving away from AYP/AMOs • Greater autonomy on accountability and standards at State and local levels • Consolidation of smaller programs into larger funding streams • Focus on improving lowest-performing schools through restructuring and re-staffing • Increased focus on charter schools • Increasing “parental choice” options through charters, parent triggers, vouchers, etc. • Teacher/principal evaluations which include student achievement as a factor Brustein & Manasevit, PLLC

39. What the Election Means Brustein & Manasevit, PLLC

40. The White House • President Obama reelected for a second term • Likely effects: • Waivers continue to be the de facto “law of the land” unless Congress acts to reauthorize ESEA • Existence of waivers mean administration may turn to other topics,including higher education and upcoming Pell shortfall • Secretary Duncan almost certain to stay on for second term Brustein & Manasevit, PLLC

41. The Senate • Democrats keep control of the Senate, increase majority by narrow margin • Despite some retirements, committee of jurisdiction for education remain largely the same • Exception: Senator Mike Enzi (R-WY), HELP Committee Ranking Member, will lose that position due to term limits • Senator Lamar Alexander (R-TN) is the likely replacement Brustein & Manasevit, PLLC

42. The House of Representatives • Republicans maintain control of the House of Representatives, though Democrats gain a few seats • Rep. John Kline (R-MN) will remain Chairman of Education and Workforce Committee • Some changes to Committee membership: • Rep. Judy Biggert (R-IL) defeated • Reps. Jason Altmire(D-PA) and Dennis Kucinich (D-OH) defeated in primary • Rep. MazieHirono (D-HI) elected to Senate • Reps. Dale Kildee (D-MI), Lynn Woolsey (D-CA) retiring • Departing members means loss of experience, staff, institutional knowledge • Especially on early education, equity, poverty issues Brustein & Manasevit, PLLC

43. How does the Election Affect Education? • No change in political control/dynamic means that negotiating positions are unchanged. • May force compromise, but may also increase acrimony. • Kline has said Committee will continue work on ESEA • More hearings in 112th? • More oversight on ESEA waivers, especially accountability • House must take lead: Harkin has said he will wait to push his bill until House takes action Brustein & Manasevit, PLLC

44. Overall Predictions • Continued focus on fiscal issues, including sequestration, draws attention away from any other issues • Likely to have sequester/budget deal – or at least stopgap measure/ “bridge” at last possible minute in 112th Congress • 113th Congress will open with continued debate on fiscal issues, with education possibly making an appearance in spring Brustein & Manasevit, PLLC

45. Disclaimer This presentation is intended solely to provide general information and does not constitute legal advice.  Attendance at the presentation or later review of these printed materials does not create an attorney-client relationship with Brustein & Manasevit, PLLC.  You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances. Brustein & Manasevit, PLLC