March 3, 2008

Budget Process Step-by-Step

Click here for this week's twenty-seven scheduled House Appropriations Subcommittee hearings

Click here for this week's eight scheduled Senate Appropriations Subcommittee hearings

March 5, 10am: House Budget Committee markup of FY 2009 Budget Resolution

March 5 or 6: Senate Budget Committee to markup FY 2009 Budget Resolution

Next Week: House and Senate Floor action on their respective committee-reported Budget Resolutions

March 15: Congress begins 2-week Easter recess.

Budget Committees to Mark-up FY 2009 Budget Resolutions

This week, the House and Senate Budget Committees are expected to mark-up their respective Concurrent Resolutions on the Budget for FY 2009.

[Context: In general, a "Budget Resolution" is a concurrent resolution of the Congress that establishes a general framework for subsequent congressional action on spending and revenue bills.

--The Budget Resolution does not require presidential signature and does not become law.

--The Budget Resolution includes spending and revenue totals, which are enforced through parliamentary rules, but the Budget Resolution does not set annual spending levels for specific programs; that authority belongs to the House and Senate Appropriations Committees.

--In order to calculate proposed spending and revenue totals, the Budget Resolution makes non-binding assumptions regarding levels of spending for specific programs, based on "views and estimates submitted by the authorizing committees" (see below) as well as fiscal policy and political judgments on realistic and appropriate levels.]

Democrats face a difficult task, because they will likely feel compelled to produce a budget plan aimed at achieving balance by 2012 or 2013, since the President's Budget claimed to achieve a balanced budget in both years.

[Context: However, as discussed in previous WBRs, the President's Budget is unrealistic in its balanced budget claim for a number of reasons: (1) it uses temporary Social Security surpluses to "mask" the ongoing or "structural deficit" in government operations; (2) it includes only partial war funding for FY 2009 and nothing thereafter ($70 billion, as opposed to $193 billion requested for FY 2008); (3) it assumes that nondefense funding would be frozen, receiving no inflation adjustments for the next five years--in effect causing a significant and unrealistic reduction in government services; (4) it would provide "Alternative Minimum Tax" (AMT) relief for tax year 2008 only; (5) it again includes the President's Social Security privatization proposals, but would not phase them in until 2013--a budgetary gimmick to avoid adding to deficits over 2009-2012; and (6) it gets an artificial boost from using rosy economic projections.]

Reconciliation? A major issue for the Democratic Leadership and Budget Committee Chairmen Spratt and Conrad, is whether to use the budget reconciliation process to overcome Senate filibusters on certain legislation. Under the budget reconciliation process, it is not necessary to garner 60 votes for cloture (to bring debate to an end) because debate time on a Reconciliation bill is limited by the Budget Act. Therefore, passage of Reconciliation legislation requires only 51 votes in the Senate, rather than the 60-vote threshold that has become typical in recent years with the plethora of threatened filibusters.

If Democratic leaders opt to use Reconciliation, it could be used for Alternative Minimum Tax (AMT) relief (which expired with tax year 2007), preventing scheduled cuts in Medicare physician payments, renewable energy tax incentives, and/or possible expansion of the State Children's Health Insurance Program (SCHIP)--together with provisions that would generate net deficit reduction. The difficulty, of course, is finding support for the offsets that are needed to generate net deficit reduction. Possible offsets, such as reducing Medicare payments to Medicare Advantage plans and closing various tax "loopholes" would attract strong opposition.

Economic Stimulus #2? It is also possible that Democrats may draft the budget plan to accommodate a second economic stimulus package that would expand unemployment, food stamp, and LIHEAP (low income home energy assistance) benefits, and possibly include some funding for infrastructure and renewable energy incentives. Put forth as "stimulus legislation," Democrats could establish a basis for waiving PAYGO rules since economic stimulus--by definition--is an infusion of (net) new spending or tax cuts.

More Reserve Funds? Last year's Budget Resolution attempted to reconcile tight budget limits with policy priorities by employing a large number of "reserve funds." Budget Resolution Reserve Funds state that a certain sum of money is made available for a specified purpose but only if the new spending (or the new tax relief) is fully offset by unspecified tax increases or spending cuts. In short, reserve funds don't actually provide any funds.

More Debate on Making the President's Tax Cuts Permanent. Certain to be prominent during the upcoming mark-ups and Floor debate will be Republican amendments to make the President's 2001 and 2003 tax cuts permanent. Context: Many of the tax cuts expire at the end of 2010 (due to the Senate's Byrd Rule that prevented making the tax cuts permanent when they were originally enacted). Expiring cuts include: reduced tax rates on dividends, capital gains, and ordinary income; a higher child tax credit; the elimination of the estate tax; and an expanded standard deduction and size of the 15% tax bracket for married couples. According to CBO extending these expiring provisions carries a price tag of $3.4 trillion from 2008 through 2018.

Medicare Funding Warning Response Act

Political rhetoric is escalating on the Administration's Medicare reform legislation, which the House may be required to consider later this year under a "trigger" included in the 2003 Medicare prescription drug bill.

Context: The percentage of total Medicare outlays covered by payroll taxes, premiums and other dedicated funding sources is shrinking, and the amount of general revenues required to keep the program afloat is rapidly increasing. As a consequence of this trend, the 2003 Medicare prescription drug legislation (known as the Medicare Modernization Act, or MMA) required the Trustees of the Medicare Trust Funds to report each year on the amount of general revenues required to finance Medicare; and if the percentage of general revenues was to exceed 45% of total Medicare outlays for two consecutive years, the Trustees are directed by the MMA to issue a "Medicare funding warning."

The Trustees made such a finding in 2006 and 2007 and issued the finding in their April 2007 Annual Report. Under the MMA, the President was required to submit to Congress, within 15 days after release of his FY 2009 Budget, proposed legislation to respond to the warning (with reforms that would eliminate the need to expend general revenues in excess of 45% of Medicare outlays). HHS Secretary Leavitt released the President's proposal on February 15, 2008, and House Majority Leader Steny Hoyer introduced the legislation, as required by the MMA. However, his office issued a statement making clear that "the act of introducing this legislation does not imply that Hoyer supports the bill."

The 3-part Administration measure includes: restrictions on medical malpractice lawsuits; increased prescription drug premiums for high-income seniors; and increased utilization of health information technology and electronic medical records.

While agreement can be reached on higher utilization of health information technology, there is considerable disagreement regarding capping medical malpractice awards with many Democrats opposing caps and many Republicans supporting caps.

It is unclear how the votes would break down on increasing Medicare prescription drug premiums on high income beneficiaries, although historically Democrats have tended to oppose income-relating Medicare premiums as contrary to the social insurance basis of the program.

Medicare Advantage is the elephant in the room. The major disagreement on Medicare between the two political parties is over the cost and viability of the Medicare Advantage (private managed care) subsidies. Context: People who are eligible for Medicare Part A and are enrolled in Part B have the option to receive all of their Medicare benefits through managed care plans such as health maintenance organizations (HMOs), preferred provider organizations (PPOs), and special needs plans (SNPs). The managed care alternatives are part of the "Medicare Advantage" (MA) program. Unlike traditional fee-for-service Medicare, in which medical providers are paid for each service, managed care providers in Medicare Advantage are paid a monthly per enrollee amount (known as a "capitation" payment) to provide benefits to enrollees. The total cost of MA in calendar year 2006 was $64 billion-funded about equally by Parts A and B. Although the objective of MA is to lower total Medicare costs through competition, payments to MA plans have been higher than costs per beneficiary in traditional fee-for-service Medicare--12% higher according to one recent study. As of January 2007, nearly 20% of all Medicare beneficiaries were enrolled in a Medicare Advantage plan.

Many congressional Republicans, and the Administration, see Medicare's salvation in expanding Medicare Advantage and generating competition between privately managed plans. Conversely, many Democrats assert that Medicare Advantage is already unfairly subsidized; they argue that Medicare savings could be realized by reducing Medicare Advantage subsidies.

General increase in health care costs: Others assert that the real culprit in the rapid rise of Medicare costs is the fact that overall health care costs are growing much faster than the economy. From this vantage point, any solution to the rapid growth of Medicare costs must entail more far-reaching reforms of American health care such as covering the uninsured to prevent cost-shifting, promoting preventive care, reducing medical error rates and hospital acquired infections, eliminating paperwork, and rewarding quality care.

Given the disagreements over Medicare Advantage, malpractice reform, and income-relating prescription drug premiums, it is unlikely that any agreement will reached on major Medicare reforms this year. Nevertheless, a debate will likely take place on the House Floor since the MMA allows the minority party to force a Floor debate in September.

Administration Medicare Transmittal Letter
Summary of Administration Medicare Legislation
Administration Legislation
Hoyer Statement

Views and Estimates on the FY 2009 Budget

As the first step in the congressional budget process, the authorizing committees of the House and Senate are required to submit to their respective Budget Committees, "views and estimates" with respect to the FY 2009 Budget. In this way, the authorizing committees have input into the upcoming Budget Committee deliberations on a Fiscal Year 2009 Budget Resolution. Views and Estimates are posted on the Budget Docspage of WashingtonBudgetReport.com as soon as they become available. Following is an overview of recent Views and Estimates submissions:

--The Senate Indian Affairs' letter expresses "concern about the potential impact of the proposed reductions in or elimination of funding for certain Indian programs" in the President's FY 2009 Budget, and proposes funding levels $909 million above the President's request.

-- Senate Homeland Security and Governmental Affairs Chairman Joe Lieberman, in a letter to the Budget Committee, finds that the President's Budget includes some "useful increases for targeted programs," but "shortchanges too many urgent homeland security needs," in particular, homeland security grants and funding to implement the 9-11 Commission Act and the Post-Katrina Act. With regard to grants, the letter expresses concern that the President's Budget would lead to "a 48% drop in overall grant funding -- seriously limiting the ability of state and local officials to prevent, prepare for, and respond to acts of terrorism and natural disasters." The letter also objects to the President's proposed 35% cut in the Emergency Food and Shelter Program funded through FEMA.

-- The Senate Small Business Committee, in a detailed submission, requests an additional $242 million for programs in its jurisdiction, as compared to the President's request. The bulk of these additional funds are requested for: 7(a) loans; 504 loans, small business development centers, microloan technical assistance, and PRIME technical assistance. In general, Chairman Kerry asserts that the President's proposed budget cuts ignore the "positive effect that the small business community (which in the past has created 93.5 percent of all net new jobs) could have on our troubled economy."

-- The Senate Veterans' Affairs Committee requests $2.6 billion over the President's Budget for VA medical services. The Committee states that "the VA health care system would be devastated should the Administration's budget for future years become a reality." The Committee also rejects the Administration's proposed increases in drug copayments and annual enrollment fees.

-- The House Agriculture Committee notes the Administration's request for additional funding for particular Farm Bill areas "including renewable fuels, the fruit and vegetable industry, the dairy farm industry, the Food Stamp program, and agricultural conservation programs," underscoring its agreement with the request for more conservation funding. The Committee also strongly urges the Budget Committee to discontinue the practice of including multiple "reserve funds" in the Budget Resolution, because it raises xpectations of additional funding without stakeholders understanding that the additional funds are entirely dependent on securing passage of offsetting tax increases or spending cuts.

-- The House Financial Services Committee calls for supplemental '08 funding and FY '09 funding for: refinancing opportunities to forestall foreclosures; grants and loans to purchase foreclosed or abandoned homes to stabilize home prices; a substantial expansion of FHA resources; increased funding for housing counseling grants; $30 million in increased funding for SEC enforcement; more FDIC, Federal Reserve, OCC, NCUA and OTS funding to combat unfair and deceptive practices; and the Administration's debt relief proposals for poor countries.

-- The House Homeland Security Committee has not released a "views and estimates" report, but in early February released a document setting forth "shortfalls" in the President's FY 2009 Budget. Highlighted shortfalls include: rail, mass transit, trucking and port security; Office of the Federal Coordinator for Gulf Coast Rebuilding; grants for firefighters; metropolitan medical response; state homeland security grants; emergency management performance grants; urban search and rescue; critical infrastructure protection; intelligence information sharing; the State Criminal Alien Assistance program; and funding for REAL ID.

-- The House Oversight and Government Reform Committee, in a detailed submission, criticizes the President's Budget for: failing to request funds to establish and operate the new Office of Government Information Services at the National Archives; failing to reverse the increasing use of no-bid contracts; renewing the proposal for sunset and results commissions; inadequate funding for energy management in Federal facilities; an inadequate civilian workforce pay increase; misplaced priorities in the Office of National Drug Control Policy budget; and inadequate funding for nuclear terrorism response.

-- The House Science and Technology Committee, in a detailed submission, urges the Budget Committee to use as guidelines the authorized funding levels in the America COMPETES Act (PL 110-69) and the Energy Independence and Security Act of 2007 (PL 110-140). Specifically, the Committee opposes cuts in math and science education at NSF, manufacturing and technology programs at NIST, and energy rograms include ARPA-E.

--The House Small Business Committee, in a detailed submission, severely criticizes the President's '09 Budget for cutting SBA funding by 15 percent and "failing to make SBA's access to capital programs more affordable" during the current credit crunch. The Committee also criticizes the President's Budget for consolidating agency funding in the general salary and expense line item, thereby reducing transparency "making it very difficult for Congress to analyze the agency's priorities." In addition, the Committee "remains concerned that the agency has not allocated any resources to implement recognized disaster readiness initiatives as recommended by GAO." The submission concludes that the President's Budget "represents the near culmination of the Administration's plan to dismantle the SBA."

-- The House Transportation and Infrastructure Committee, calls for increased funding above the President's request for "highways, transit, rail, and air transportation programs, as well as emergency preparedness, inland water transportation, and environmental infrastructure`` development." The Committee also called for funding FIRE Grants at the authorized level of $1billion.

-- The House Veterans' Affairs Committee, in a detailed submission, calls for $3.8 billion above the Administration's FY 2009 request of $44.8 billion (for discretionary spending accounts). This includes an increase for VA medical care of $2.5 billion above the President's Budget.

Recent Budget Docs

Estimated Revenue Effects of Tax Provisions Contained in H.R. 5351, the "Renewable Energy and Energy Conservation Tax Act of 2008"; Technical Explanation of HR 5351

Federal Reserve Chairman Ben Bernanke: Semiannual Monetary Policy Report to the Congress, February 27, 2008

GAO: The Federal Government's Financial Health: A Citizen's Guide to the 2007 Financial Report of the U.S. Government

America's Priorities: How the U.S. Government Raises and Spends $3 Trillion Per Year, by Charles S. Konigsberg, Editor and Publisher of Washington Budget Report.