Alaska Watchdog: Federal funding rules foil smart budget cuts

By Kirsten Adams

As long as Alaska receives Federal funding for education and transportation, “maintenance of effort” (MOE) stipulations would prevent the State from making budget cuts in those areas.

MOE stipulations are rules attached to Federal funding intended to force a State to spend a minimum amount on a program as a condition for receiving the funds.

Legislative Fiscal Analyst David Teale said the federal MOE requirements are meant to ensure Federal funding is used to supplement state money, not replace it. The State is given the option of forfeiting Federal funds or maintaining current spending for MOE programs.

“The Federal government might say, we’ll give you $100,000, but what they tell us is, we want to make sure you use this money to supplement your spending; you’ve got to maintain it,” Teale said. “They want to supplement State funding, not supplant it.”

Former State Senator and Budget Committee Chairman Dave Donley said the rules make many budget cuts nearly impossible for the Legislature. Matching fund programs indicate the Federal government would match State funding at a specific ratio, Donley said, but MOE rules mean all Federal funding would be rescinded if the State made even the smallest cut to a program.

“As a budget person, trying to reduce state spending, you’re just really stuck; it’s blackmail,” said Donley, also former Co-Chairman of the Finance Committee. “You can’t get out of these things once you’ve got into it. Time after time the Finance Committee would want to cut something, and you can’t.”

Jeff Ottesen, Director of Program Development for the Department of Transportation and Public Facilities, said MOE requirements are meant to ensure Federal dollars are spent stimulating State economies rather than replacing budgeted money.

“Just because you have new money in one pocket doesn’t mean you can stop spending out of the other,” Ottesen said.

The State does not differentiate between Federal matching grants and funding with MOE requirements attached, Teale said; many programs remain intact rather than run the risk of losing Federal dollars.

“We just call it match and let it go,” Teale said. “It’s the Federal government essentially giving you a bribe and saying, don’t cut this money. The State certainly has a choice, but it’s not an attractive one.”

Donley said he believed the only way to trim the budget without losing huge chunks of Federal funding would involve sorting through State programs to determine which items received Federal matches and which were subject to MOE guidelines. Until then, Donley said prospects for budget cuts would be almost non-existent.

“The first thing I would call for would be that OMB produce a report that lists all the matches and the MOE requirements and then go to Congress and ask for relief,” Donley said. “We need a moratorium on this.”

Kirsten Adams is an investigative reporter with the Alaska Watchdog. She can be reached at kadams@alaskapolicyforum.org.