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WEEKLY REPORT: JUNE 16, 2008
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BUDGET PROCESS: Step-by-Step Week of June 16: --House Appropriations Subcommittee Mark-ups: Click Here for Schedule --Senate Appropriations Subcommittee Mark-ups: Click Here for Schedule --House to consider Senate amendments to the FY 2008 Supplemental Appropriations Bill (HR 2642) (details below) --Baucus-Grassley negotiations continue on Medicare physician payment patch (details below) --Ways and Means to mark-up AMT (Alternative Minimum Tax) relief June 16: Senate cloture vote on tax extenders / renewable energy incentives / AMT patch bill June 18: House Appropriations Committee to approve 302(b) "suballocations" -- a key step in the budget process (explained below) June 19: Senate Appropriations Committee to approve 302(b) "suballocations" June 30: Deadline for House to
complete action on annual appropriations bills.
(Technically, the House cannot leave for the July 4th
Recess until completing all appropriations bills, but
this restriction is routinely waived.) House Appropriations Committee Releases Key Spending Allocations As reported last week, the House and Senate completed action June 5th on S.Con.Res. 70, the Congressional Budget Resolution for FY 2009 (the fiscal year beginning October 1, 2008). The most significant impact of the Budget Resolution is that it effectively caps the total amount of discretionary spending for the upcoming fiscal year. Based on the Budget Resolution, the House and Senate Budget Committees provided to their respective Appropriations Committees a lump-sum discretionary spending allocation (called a "302(a) allocation") for FY 2009. The total allocation was approximately $1,013 billion --about $21 billion higher than the President's $992 billion request. The next step in the congressional budget process is the House and Senate Appropriations Committees' allocation of total discretionary spending among their 12 respective subcommittees. This is a key priority-setting step in the budget process. These suballocations are called "302(b) allocations" and determine how much funding authority is available to the Agriculture subcommittee, the Commerce-Justice-Science Subcommittee, the Defense subcommittee, and the other 9 subcommittees. On June 13, the House Appropriations Committee released its proposed subcommittee allocations. The proposed suballocations, summarized below, will be voted on by the full Appropriations Committee on Wednesday, June 18. (The Senate Appropriations Committee will vote on its own 302(b) allocations on Thursday, June 19.) (discretionary budget authority rounded to nearest billion)
Highlights of the proposed House discretionary allocations: --As prescribed by the Budget Resolution, the House discretionary spending allocations total $21 billion more than the President's request (drawing a blanket veto threat from the White House). --The discretionary allocation for Labor, HHS, and Education programs is nearly $8 billion above the President's request. --The Defense allocation is $4 billion below the President's request, but the Military Construction-VA allocation is $3.4 billion above the President's request. (Important note: the Defense allocation does not include war funding. A $70 billion "bridge fund" for the first part of FY 2009 is included in the pending FY '07 Supplemental Appropriations legislation.) --Homeland Security funding
is $2.3 billion above the President's request. House to Consider Senate Amendments to '08 Supplemental; Veto Looms Status--House appropriators hope to bring a revised FY 2008 war supplemental (HR 2642) to the House Floor this week, aiming for final passage prior to the July 4th recess. Last week, House Speaker Pelosi said: "We want to pass a bill that will be signed by the president and that will happen before we leave for the Fourth of July." House Democratic leaders are working with their Senate counterparts and White House officials to negotiate a compromise version that can pass both chambers and be signed by the President. President Bush has promised to veto any measure sent to him that exceeds his funding requests or "ties the hands of our commanders or impose[s] artificial timelines for withdrawal." President's speech. Following is a summary of key issues that need to be resolved: War Funding.--The President has requested $108 billion for the remainder of FY 2008 and $70 billion for the first part of FY 2009. The House attempted to pass a total of $162.5 billion, but the measure failed due to opposition from war opponents, and opposition from Republicans who objected to the procedure that bypassed the Appropriations Committee. However, the Senate amended the bill with war funding of $165.4 billion-- which is now pending before the House. New GI Bill.--A new "GI Bill," based on a bill introduced by Senator Jim Webb (D-VA), would provide expanded veterans' education benefits to fully pay for a 4-year state university education. The House sought to pay for the provision last month through a new millionaires' surtax (applied to individual taxpayers earning over $500,000 and joint filers earning over $1 million.) The Senate passed the new GI Bill, but rejected the House surtax. House Blue Dogs (fiscally conservative Democrats) continue to press for budgetary offsets to pay for the new education benefits. However, the Administration strongly opposes enacting any revenue raisers to pay for the new benefit. House Defense Appropriations subcommittee Chairman John Murtha (D-PA) told Congressional Quarterly "we'll work it out....The Defense Department is already reaching out, trying to figure out what they would accept." Nondefense Domestic Funding.--The version passed by the Senate included about $10 billion in additional discretionary spending not requested by the President, which would almost certainly trigger a veto threat from the White House. Among other items, the Senate bill included $1 billion for the Low Income Home Energy Assistance Program (LIHEAP); $490 million for state and local law enforcement grants, $275 million to beef up FDA enforcement, and $451 million for emergency highway repairs. Negotiators are working to pare down non-war spending to a level the Administration will accept. Extended Unemployment Insurance Benefits.--The House and Senate bills include extension of unemployment insurance benefits beyond the usual 6 months. The Administration views the proposed extension as unnecessary, and expresses concern that "it would reduce the incentive for workers to find new employment." It is unclear whether that position might soften given the recent spike in unemployment from 5 percent to 5.5 percent. (Alternatively, the Senate may attempt this week to move a free-standing bill to extend unemployment benefits.) Delaying Medicaid Regs.--The
Senate amendment would delay implementation of 7
new Medicaid regulations that would reduce Federal
payments to States. The Administration strongly
opposes the delay arguing it "would turn back
progress that has already been made to stop waste,
fraud and abuse." Congressional
Quarterly reports the House may propose
delaying 4 of the 7 regulations until April 2009 (which
would give the new President time to address the
Medicaid regs.)
Statement of
Administration Policy: Senate Bill Last week, Senate Republicans blocked Floor consideration of a Medicare bill (S. 3101) designed to nullify scheduled cuts in payments to physicians. The bill, which was introduced the prior week by Senate Finance Committee Chairman Max Baucus (D-MT), would nullify an automatic cut of 10.6% scheduled to occur automatically on July 1st, as required by the Balanced Budget Act of 1997. The 1997 law set up a cost control mechanism called the "sustainable growth rate" (SGR) to trigger automatic reductions in physician reimbursements if payments exceed a benchmark level. The idea was to rein in out-of-control increases in Medicare payments to physicians and allow a growth rate that is "sustainable" from a budgetary perspective. However, after the first automatic cut went into effect in 2002, physicians demanded a reversal of the cuts. And since then, each time the SGR mechanism would have triggered a cut, Congress has nullified the cuts and substituted a modest increase. This is what the Baucus amendment proposes to do in the current fiscal year. (And the more time that passes without an SGR adjustment, the automatic cuts required by the 1997 law grow much larger and more unrealistic.) The Administration and many congressional Republicans oppose the Baucus plan because it would offset the 5-year $20 billion cost of the bill largely by cuts to privately run ("Medicare Advantage") plans. Many Democrats believe the private plans receive too much government support, while many Republicans believe the private sector managed care plans will reduce overall Medicare costs (though that has not yet been the experience). Senate Republicans blocked the Baucus bill last week by threatening a filibuster and denying Democrats the 60 votes needed to preclude a filibuster. Only 54 Senators voted to invoke "cloture" and bring the measure to a vote. In a May 22, 2008 letter to Congress, Health and Human Services Secretary Michael Leavitt said the President would veto any Medicare bill that cuts payments to Medicare Advantage plans. In addition to nullifying the automatic cuts, other provisions in the Baucus bill would: provide a payment increase of 1.1%; provide incentives for physicians who use electronic prescribing; offer more assistance to low-income participants in the Medicare prescription drug program; eliminate higher copayments for mental health services; and enhance services in rural areas. Outlook: Chairman Baucus and Ranking Republican Charles Grassley (R-IA) will meet this week to negotiate a slimmed down bill that enacts the Medicare patch but leaves out some of the proposed cuts to Medicare Advantage plans. From a fiscal perspective, legislation of this type--which annually tinkers around the edges of the Medicare program--reflects an ongoing stalemate between Democrats and Republicans over how to significantly rein in the rapid growth of Medicare costs. Senate Republicans Block Consideration of "Tax Extenders" & AMT Patch Due to Offsets Last week, Senate Republicans blocked consideration of HR 6049, a $55 billion tax extenders and energy incentives bill, and the measure Democrats had planned to use as the vehicle for a 2008 AMT (Alternative Minimum Tax) Patch. Democrats were 10 votes shy of the 60-vote cloture threshold needed to proceed with the bill. The House-passed bill did not include an AMT patch, but Senate Finance Chairman Baucus had hoped to attach an AMT patch to the extenders bill. Failure to extend Alternative Minimum Tax Relief through 2008 will result in the AMT boosting taxes for an additional 21 million taxpayers. Republicans oppose the House- passed extenders bill due to revenue-raising provisions included to offset the costs of the extenders. One offset in the bill would prevent executives and some hedge fund managers from deferring compensation by using offshore arrangements ($24 billion over 10 years). Another offset would delay rules that give multinational corporations more flexibility in how they allocate interest expenses ($30 billion over 10 years). Over 10 years, the bill spends about $27 billion on provisions to extend dozens of expired (and expiring) tax provisions. The bill also includes nearly $17 billion in energy tax incentives and about $10 billion in additional tax relief. The bill passed the House 263-160 on May 21. JCT Revenue Estimate
(summarizes the bill) President Bush has threatened to veto the bill due to the revenue raisers. Senate Republicans do not necessarily oppose the specific offsets included in the bill. Rather, many Republicans argue that extension of current tax laws should not require offsets. They point out that under current congressional budget rules, extension of expiring entitlement spending programs do not require offsets. However, Democrats argue that the failure to pay for the 2001 and 2003 tax cuts has led to large deficits and trillions in new debt. 41 Republican Senators (the number needed to successfully filibuster legislation) have signed a letter opposing the use of any offsets for extenders or AMT relief. (The letter was signed by the party leadership, Senator John McCain (R-AZ), and all Finance Committee Republicans except for Maine Senator Olympia Snowe.) Text of the Senate Letter Among the Items extended by the bill are: --the R&E tax credit (usually referred to as the
research and development credit) Among the energy tax incentives are: --$10 billion over 10 years for clean energy
production incentives Outlook: Another cloture vote is
scheduled for Monday, June 16. Negotiations Continue on Housing and Mortgage Relief Legislation Last month, the Senate Banking, Housing, and Urban Affairs Committee overwhelmingly (19-2) approved bipartisan legislation aimed at helping borrowers refinance home mortgages and overhauling the regulation of Fannie Mae and Freddie Mac. The Banking Committee, the House Financial Services Committee, and Administration officials are continuing negotiations in an effort to complete action before the July 4th recess. Key issues under negotiation include: --The Senate's proposal to use a new Affordable Housing Trust Fund to pay for an expansion of Federal mortgage guarantees. House Financial Services Chairman Barney Frank (D-MA) strongly opposes this use of Trust Fund resources for this purpose. --The Senate's proposed
"net operating loss carryback" provision
that would provide tax relief to homebuilders, real
estate companies, and financial institutions hit by the
downturn in the housing market. House Democrats
have raised concerns about the $25 billion 3-year cost
of the "NOL" provision. Following is a brief comparison
of the Senate Banking Committee and House-passed
measures:
The House also passed a
related measure HR
5818, that would authorize the Department of
Housing and Urban Development (HUD) to make $15
billion in loans to States for housing authorities and
nonprofits to purchase, renovate, and sell foreclosed
housing. The Bush Administration has
threatened to veto the bill, saying it
would "constitute a costly bailout for lenders and
speculators and would delay the economic recovery it
purports to advance." Recent Budget Docs "Taking Back Our
Fiscal Future" -- Brookings, AEI, Heritage, Urban
Institute, Concord Coalition, PPI CBO: The Costs and Benefits of Health Information Technology CBO: Sources of Projected Growth in Medicare and Medicaid CBO: Lieberman-Warner Climate Security Act of 2008 CBO: Issues and Options in Infrastructure Investment CBO: Policy Options for the Housing and Financial Markets CBO: Long-Term Effects
of Alternative Budget Policies GAO: The Nation's Long-Term Fiscal Outlook (Update) America's Priorities: How the U.S. Government Raises and Spends $3 Trillion Per Year, by Charles S. Konigsberg, Editor-in-Chief and Publisher, Washington Budget Report. * * * * * * * * * * * * * * * * *
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