Assessing the Risk / Preparing for Consequences

Re: FederalRisk.le.utah.gov

Have you ever worried about what a federal government shutdown would mean to you, your family, and your neighbors? What if the U.S. Dollar no longer reigned supreme in global markets? What if Utah expanded Medicaid and all of the sudden the federal government left us footing the bill?

Recent events suggest that such scenarios aren’t as hypothetical as we once thought.

In 2013 – encouraged by a team of accountants, members of chambers of commerce, community leaders and educators – we started the Financial Ready Utah program. You remember this, right?

Today, we are excited to announce the latest step in our financial preparedness as a state, a tool that estimates the impact of fluctuations in federal funds at the state. Have a look.  These screenshots, attached, show sample outputs from a dollar crash scenario, including its county-level effects on federal jobs, and how the State of Utah might mitigate the impact.Assessing the Risk / Preparing for Consequences

Assessing the Risk / Preparing for Consequences

Why is this useful? It gives us the numbers. If the federal government makes cuts to Medicaid, we can see how many jobs we can expect to lose. If the dollar crashes, we can see how much revenue will be lost to the state.  We can estimate the impact in actual dollars, or jobs, or state Gross Domestic Product (GDP) with greater precision.  Knowing the magnitude of those risks, this new tool lets us test whether our plans for weathering them are sufficient. If not, we can make stronger plans.

In other words, we can mitigate the risk of these scenarios more effectively and efficiently because we will understand their actual, tangible impact.

But that’s not even the best part. The best part is that this tool is open to everyone.  It can be used at every level of government to help us prepare long before that rainy day comes– sometimes before dark clouds even appear on the horizon.

Let’s democratize our financial readiness.  Let’s bring fiscal responsibility right down to the citizen and community level.  Is it kind of nerdy? Yes. But we don’t mind standing just a little out of the crowd.


Want more?  Here’s the press release:

FOR IMMEDIATE RELEASE
September 24, 2015

UTAH CREATES ONLINE TOOL TO PREDICT EFFECTS OF POTENTIAL FEDERAL FUNDING CRISES
New dashboard to help legislators and citizens assess risk and prepare for downturn in federal revenue

SALT LAKE CITY – On Thursday, the Utah State Legislature’s Federal Funds Commission unveiled the state’s newly created Federal Funds Risk Model (FFRM) dashboard. Citizens can find the new tool at federalrisk.le.utah.gov.

Commission Co-Chair and State Representative Ken Ivory stated that “Utah, like most states, is increasingly dependent on federal funds at a time when the federal government finds itself in increasingly poor financial shape. For this reason the Utah Legislature formed the Federal Funds Commission to develop the model unveiled today. Its purpose is to assess the growing likelihood of diminished federal funding coming to Utah and how we can better respond to those risks and assure that we can meet the education, public safety and human service needs of our state, regardless of what transpires in D.C.”

Utah receives $3.8 billion in federal funds, which is 26 percent of the state’s operating and capital budget. Federal funding is now tied with income taxes as the state’s largest single revenue source.

Commission Member and CEO of the Utah Association of CPAs, Susan Speirs explained “This dashboard can be used to model the effects of the next federal government shutdown, fiscal cliff, or sequester. When the federal government contemplates changes to national fiscal policy, we can use the FFRM dashboard to assess potential impacts and prepare. The state could discuss those impacts with federal officials and elected leaders. The results could then be used by policymakers and their constituents to make better-informed decisions for the state.

In advance of any change in federal funding, the dashboard will be used to model potential loss scenarios and help the state develop strategies to mitigate such loss through expectation setting, debt capacity management, and contingency fund development.

The model shows the effects on Utah’s economy from potential losses of federal funds. It includes 18 risk scenarios, which can be used individually or in combination. These scenarios show the effects of direct federal funding (e.g., Medicaid, SNAP payments, Pell Grants), indirect federal funding (e.g., Medicare, Social Security, federal employment), and macroeconomic variables (e.g., interest rates, per capita income, and energy prices).

Taking into account these risk factors, the FFRM calculates economic impacts to the following:

  • Jobs – This measures the level of employment in Utah’s labor force.
  • State-specific Gross Domestic Product – This measures the size of Utah’s economy. It measures the total dollar value of all goods and services produced in Utah in a one-year-period.
  • State Revenues – This measures the direct impact in lost federal funding to the state, and the indirect impact on Utah’s ability to raise revenue through taxes and fees.

The FFRM shows how the State can respond to these risks through service level reductions, use of reserves or changes in taxes, among other possible options. Once risk response options are selected, the model calculates how the negative impacts of the selected scenario can be mitigated. The model also displays the current amounts of federal funding and the effects of funding losses by county, with an interactive map.

This dashboard was built in partnership with Alvarez & Marsal – Insurance and Risk Advisory Services (IRAS).

# # #

NOTES:

  1. The Federal Funds Commission was established by the Legislature through S.B. 70, Commission Relating to Federal Issues, which passed in the 2013 General Session. The commission is composed of legislators, gubernatorial appointees, and members of the public. The inaugural meeting of the commission was held May 14, 2013. In its first year, the commission studied the federal budget, received comments from entities negatively impacted by a reduction in federal funds, and identified risks for the state and local governments with receiving federal funds. The commission then sought and received an appropriation from the Legislature to create a tool that could assist state and local government entities in assessing and mitigating the risks associated with receiving federal funds.
  1. The Federal Funds Commission is tasked with studying and assessing the financial stability of the federal government, state and local dependency on federal funds, and the risk of a reduction in federal funds to state and local government. The commission also recommends methods to the Legislature and Governor to avoid or minimize the risk of a reduction in federal funds, reduce the dependency on federal funds, and prepare for and respond to a reduction in federal funds. In the course of their work, the commission sought an appropriation from the Legislature to create a tool that could assist state and local government entities in assessing and mitigating the risks associated with receiving federal funds.
  1. A public web interface to the model is available online at federalrisk.le.utah.gov. The screenshots, attached, show sample outputs from a dollar crash scenario, including its county-level effects on federal jobs, and how the State of Utah might mitigate the impact.

Originally posted at the Utah Senate. Reposted with permission

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