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WEEKLY REPORT: JULY 8, 2008
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BUDGET PROCESS: Step-by-Step Week of July 8: --House Appropriations schedule: Click here for schedule --Senate Appropriations schedule: Click here for schedule
In the week prior to the July 4th recess, the House Appropriations Committee adopted key spending allocations -- known as "302(b)" allocations. The committee action allocated more than $1 trillion in discretionary spending among the 12 appropriations subcommittees -- and in so doing, prioritized Federal discretionary (non-entitlement) spending. In total, the House discretionary allocations--like the Senate allocations adopted the previous week--are more than $21 billion above the President's requests for FY 2009--prompting White House veto threats. However, Democratic leaders are likely to avoid a pre-election clash over spending levels by enacting a stop-gap "continuing resolution" to fund the government into early 2009--hoping that an Obama victory will result in a White House more in sync with the '09 allocations. Background.--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. Following adoption of 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. After receiving their 302(a) allocation, the House and Senate Appropriations Committees allocate 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 each of the other 9 subcommittees. The Senate Appropriations Committee approved its 302(b) subcommittee allocations on June 19. The House Appropriations Committee approved its suballocations the week of June 24. (discretionary budget authority rounded to nearest billion)
*Note, the Congressional Budget Resolution actually allows for $24.5 billlion more than the President's request when advance appropriations and special adjustments (for enforcement initiatives) are included. Highlights of the discretionary allocations: --As prescribed by the Budget Resolution, the Senate and 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 $3.7 billion above the President's request. (Important note: the Defense allocation does not include war funding. A $66 billion "bridge fund" for the first part of FY 2009 was included in the FY '08 Supplemental Appropriations legislation.) --Homeland Security funding is $2.5 billion above the President's request.
After many weeks of negotiations and legislative "ping-pong" between the House and Senate, the two chambers completed action on the FY '08 Supplemental Appropriations Bill before leaving for the July 4th recess. The Senate passed the measure 92-6 on June 26th, and the President signed the measure on June 30, 2008 (P.L. 110-252). The supplemental appropriations legislation includes: --$162 billion in war funding without any timetables;
Following is a summary of key issues and how they were resolved: War Funding.--The President requested $100 billion for the remainder of FY 2008 and $66 billion for the first part of FY 2009. The House had attempted to pass $162.5 billion, but the measure initially failed due to opposition from war opponents, and opposition from Republicans who objected to the procedure that bypassed the Appropriations Committee. However, the Senate later passed the bill with war funding of $165.4 billion, and the House got the last word with with war funding of $162 billion. New GI Bill.--A new "GI Bill," based on a bill introduced by Senator Jim Webb (D-VA), provides expanded veterans' education benefits to fully pay for any 4-year state university education in a recipient's state. The House had sought to offset the $63 billion 10-year cost of the provision through a new millionaires' surtax. The Senate passed the new GI Bill, but rejected the House surtax. House Blue Dogs (fiscally conservative Democrats) continued to press for budgetary offsets to pay for the new education benefits. However, the Administration and congressional Republicans strongly opposed enacting any revenue raisers to pay for the new benefit. In the end, the House passed the new GI Bill without offsets--reflecting the inherent weakness of the current pay-as-you-go (PAYGO) rules. [The PAYGO requirement in the 1990s was much stronger because it was backed up by automatic budget cuts implemented by OMB; the current requirement is simply a rule of the House and Senate which can be easily waived.] Nondefense Funding.--The final measure includes increases over the President's request for: international food aid; VA hospitals; midwest disaster relief; funding to cover shortfalls in a number of programs--FDA, Bureau of Prisons, the census, and science programs. The final measure does not include additional funding the Senate had sought for the Low Income Home Energy Assistance Program (LIHEAP), Byrne law enforcement grants, and emergency highway relief. These and other domestic spending needs could be addressed in a second FY '08 supplemental or a second "stimulus bill," although getting White House agreement to another supplemental this year is doubtful. Extended Unemployment Insurance Benefits.--The House and Senate bills include an extension of unemployment insurance benefits beyond the usual 6 months. The Administration had opposed the extension as unnecessary, and expressed concern that "it would reduce the incentive for workers to find new employment." However, their opposition softened with the recent spike in unemployment from 5 percent to 5.5 percent. Delaying Medicaid Regs.--The Senate included a provision to delay 7 new Medicaid regulations that would reduce Federal payments to States. The Administration had strongly opposed the delays arguing they "would turn back progress that has already been made to stop waste, fraud and abuse." Eventually the Administration agreed to delay 6 of the 7 regulations. HR 2642
The Senate will vote this week on HR 6331, a bill to nullify automatic cuts in Medicare payments to physicians. Specifically, the bill would nullify a cut of 10.6% scheduled to occur on July 1st as required by the Balanced Budget Act of 1997. (The Administration has administratively delayed the required cuts until July 15 to give the Senate time to act on the measure.) The House passed the measure on June 24, 2008 by a lopsided 355-59. The Senate was deadlocked prior to the July 4th recess due to Republican and Administration opposition to offsets intended to pay for the legislation. Outlook: The American Medical Association and other lobbyist groups have been pressuring GOP Senators to provide the votes needed to invoke cloture and move the measure to a final vote in the Senate. However, even if the measure moves forward in the Senate, the Administration has threatened a veto. While the bill had a veto-proof margin in the House, an override of the President's veto in the Senate (requiring 67 votes) is far more uncertain. Background.--The 1997 Balanced Budget Act 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 successfully lobbied for 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 proposed legislation would 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 larger and more unrealistic.) Senate deadlock on offsets.--The Administration and many congressional Republicans oppose Senate Finance Committee Chairman Max Baucus' (D-MT) proposed legislation because it would offset the 5-year $20 billion cost of the bill by cutting payments 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 have blocked the Baucus bill by threatening a filibuster and denying Democrats the 60 votes needed to invoke cloture (the procedure to end a filibuster and bring a 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. Other provisions in the Baucus bill would: provide a general payment increase of 1.1%; provide incentives for physicians to use electronic prescriptions; 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. 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 rein in the rapid growth of Medicare costs. The rapid growth of Medicare is being driven by the overall increase in health care costs and is accelerating as baby boomers retire. Unchecked Medicare growth is a key component of the looming fiscal crisis facing the nation. Statement of Administration Policy
Prior to the July 4th recess, Senate Republicans for a second time blocked consideration of HR 6049, a $55 billion tax extenders and energy incentives bill. Democrats were 8 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 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 would spend 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 Meanwhile, House Democrats are preparing to take action on an AMT patch with offsets. The House AMT patch, drafted by House Ways & Means Chairman Charles Rangel (D-NY) would be paid for by a number of offsets, including the taxing of investment managers' income at regular income rates rather than capital gains rate (known as the "carried interest" provision). Outlook:.In a recent letter, Senate Republican Leader Mitch McConnell (R-KY) suggested offsetting the cost of the tax extenders by scaling back discretionary appropriations. However, that appears to be a nonstarter for Democrats. 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
The Senate yesterday moved closer to passage of housing and mortgage relief legislation (HR 3221), voting 76-10 to invoke cloture on part of the package. The bipartisan Dodd-Shelby housing relief bill is aimed at helping borrowers refinance home mortgages through the Federal Housing Administration (FHA). The legislation would also overhaul the regulation of Fannie Mae and Freddie Mac. The bipartisan bill was overwhelmingly approved by the Senate Banking, Housing, and Urban Affairs Committee on a 19-2 vote. Senate Banking Committee Summary of Dodd-Shelby Housing Bill Budget Myth: Critics of the FHA expansion claim that it costs $300 billion. Despite strong bipartisan support for the bill, the Administration had earlier threatened a veto due to expanded FHA (Federal Housing Administration) authority to refinance mortgages and new block grant funding for states to purchase foreclosed properties. Although in recent days, the Administration opposition appears to be softening with statements focused on including certain additional safeguards in the bill. Key issues in ongoing negotiations 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. --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.
Recent Budget Docs CBO: Options to Increase Efficiency in Health Care "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: Issues and Options in Infrastructure Investment CBO: Policy Options for the Housing and Financial Markets 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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