September 24, 2007

Special Issue:
Appropriations, SCHIP, Farm Bill to Expire on Sept. 30
Treasury to Hit Debt Ceiling Early October
President Bush Has Threatened Multiple Vetoes
How Will Congress Respond?

APPROPRIATIONS SET TO EXPIRE

[ Context: Spending authority for all Federal agencies expires midnight, September 30 . With the exception of a few programs that are permanently appropriated (e.g., Social Security) or advance appropriated (with multiyear spending authority), agencies without enacted FY 2008 appropriations must cease all but essential operations at that time unless a continuing resolution is passed.]

Democratic leaders are expected to mark-up a continuing resolution (CR) providing discretionary spending authority funding until early- or mid-November 16 at FY 2007 levels. The House has passed all 12 spending bills while the Senate has passed only four (Homeland Security, MilCon-VA, State-Foreign Ops and Transportation-HUD).

Congressional Democrats and the President are currently locked in a face-off over appropriations levels, with Congress' Budget Resolution calling for $23 billion more in discretionary spending than the President's FY 2008 Budget request. The President has threatened to veto nearly all of the appropriations bills due to spending levels.

Status of pending appropriations:

Agriculture/HR 3161: House bill $982 million over President's request; Senate-reported bill $874 million over President's request; White House threatened a veto on July 31.

Commerce-Justice-Science/HR 3093: House bill $2.31 billion over President's request; Senate-reported bill $3.4 billion over President's request; White House threatened a veto on July 24.

Defense/HR 3222: House bill $3.29 billion under President's request; Senate-reported bill $3.58 billion under President's request. No veto threat. [Context : The defense budget is further complicated this year because Congress will consider the President's FY 2008 request for operations in Iraq and Afghanistan in a separate war funding bill in October . Reportedly, the President's 2008 war funding request will be significantly higher than the $145 billion initially requested in February. On Wednesday, September 26, the Senate Appropriations Committee will hold a hearing on the war supplemental. Democrats are still wrestling with the political difficulty of how to handle continued funding for the war in Iraq . Republicans in the Senate have sufficient votes to filibuster legislation that would mandate a reduction in U.S. troops and the President would certainly veto any such legislation. Yet many Democrats are wary of refusing to 'fund the troops' as a means of withdrawal.]

Energy-Water/HR 2641: House bill $1.13 billion over President's request; Senate-reported bill $800 million over President's request; White House threatened a veto on June 13.

Financial Services/HR 2829: House bill $244 million under President's request; Senate-reported bill $122 million over President's request; White House threatened a veto on June 26 because of provisions that would 'weaken current [trade] restrictions against Cuba .'

Homeland Security/HR 2638: House bill $2.06 billion over President's request; Senate bill $5.25 billion over President's request; White House has threatened to veto the House and Senate bills.

Interior-Environment/HR 2643: House bill $1.95 billion over President's request; Senate-reported bill $1.498 billion over President's request; White House threatened a veto on June 25.

Labor-HHS-Education/HR 3043: House bill $10.83 billion over President's request; Senate-reported bill $8.28 billion over President's request; White House threatened a veto on July 17.

Legislative Branch/HR 2771: House bill $3.1 billion; Senate-reported bill $2.8 billion; President requested $4.33 billion (combined), White House has not threatened a veto. [Context: The House and Senate do not consider the spending of the other chamber until conference.]

MilCon-VA/HR 2642: House and Senate bills $4 billion over President's request; White House has not threatened a veto but insists on offsets in other spending bills.

State-Foreign Ops/HR 2764: House bill $700 million under President's request; Senate bill $720 million under President's request; White House has threatened to veto the House and Senate bills. [Context: Despite coming in under the President's request, both bills face veto threats because of language that would overturn a policy barring U.S. funding for any international organization that performs abortions overseas.]

Transportation-HUD/HR 3074: House bill $2.77 billion over President's request; Senate bill $3.1 billion over President's request; White House has threatened to veto the House and Senate bills.

SCHIP SET TO EXPIRE; PRESIDENT REITERATES VETO THREAT

On Friday, House and Senate Democrats reached a compromise on SCHIP that would reauthorize the program and increase federal funding by $35 billion over 5 years ($30 billion more than the President's request). The bill largely resembles the Senate version, including a 61 cent per pack tax increase on cigarettes. The House is expected to vote on the bill on Tuesday, with the Senate following later in the week. Congressional leaders hope to send the bill to the President by September 30, when the authorization expires.

Last week, the President reiterated his threat to veto the bill, despite the fact that the new version does not eliminate funding for Medicare Advantage (one of the President's major objections to the House bill). The President has criticized the bill for expanding the SCHIP program and for increasing the tobacco tax increase offsetting the additional spending. Senate Finance Committee Ranking Republican Senator Chuck Grassley (R-IA), joined Democrats in supporting the legislation, releasing a letter calling the conference report a 'good compromise bill that will have broad bipartisan support.'

While the bill is expected to garner a veto-proof majority in the Senate, the House may not be able to marshal the two-thirds (290 votes) needed to overturn a presidential veto. On August 2, the Senate passed its version of the bill 68-31. The House bill, however, received a vote of 225-204 , well short of the necessary 2/3 to override a veto. If the President vetoes the bill, as anticipated, the Congress will likely pass a short-term extension to continue funding the program at current levels (which will mean a reduction in the number of children currently covered because rapidly increasing medical inflation will consume increasing amounts of funding).

[Context: SCHIP was established in 1997 and provides health coverage to children in families whose incomes are low, but somewhat higher than Medicaid's very tight income eligibility limits. The program is due to expire on September 30, and program expansion has been a major legislative goal for congressional Democrats. Baseline spending on SCHIP is currently $5 billion per year and the President's budget included a 5-year $5 billion expansion of the program.]

FARM BILL SET TO EXPIRE

With the multiyear Farm Bill authorization set to expire on September 30, the Senate has yet to mark-up its version of a new. Farm Bill programs that expire on September 30 will likely be extended in the CR Congress considers this week.

Progress on the Farm Bill recently slowed as the Senate Agriculture and Finance Committees disagreed over tax cuts and new spending programs. On September 11, Senate Finance Committee Chairman Max Baucus (D-MT) released an agricultural tax package that would create a permanent disaster relief fund for farmers and new rural development bonds, and would convert conservation payments into tax credits. The package would be paid for through tariff revenues. Agriculture Committee Chairman Harkin released a statement welcoming the proposals but cautioning that there is still 'a way to go in these discussions.' Harkin and Baucus plan to hold mark-ups before the Columbus Day recess.

[Context: The "Farm Bill," renewed every 5 to 6 years, governs the key aspects of Federal farm policy. Many provisions of the current Farm Bill, enacted in 2002, will expire this year. The 2002 bill covers a wide range of programs. Those with the greatest budget impact are (1) Food Stamps; (2) Commodity Support programs (government subsidies to producers of certain farm commodities--primarily corn, cotton, wheat, rice, and soybeans--intended to stabilize farm income); (3) Agricultural Conservation programs (payments and incentives addressing environmental concerns, soil erosion and water supplies);and (4) Export Programs. See September 11 WBR for additional background.]

TREASURY: U.S. TO HIT DEBT CEILING EARLY OCTOBER

On September 12, the Senate Finance Committee voted to report H.J.Res. 43: legislation to increase the nation's debt ceiling from $8.965 trillion to $9.815 trillion. In a July 30 letter, Treasury Secretary Paulson informed Congress that the current debt ceiling would be reached in "early October." Paulson has since revised this estimate and projects the Treasury will reach the debt ceiling on or about October 1.

The Senate has not yet scheduled a vote on the Finance Committee bill. (The House long ago decided to spare itself from the periodic political storms over the debt ceiling by adopting the "Gephardt Rule," under which the House is "deemed" to have passed a debt ceiling increase by virtue of voting on a Budget Resolution that recommends an increase.)

Passage of the debt ceiling is a financial imperative in order to honor the Federal government's financial obligations. While ultimate passage of the debt ceiling increase is never in doubt, it often attracts heated debate on the Senate Floor regarding Federal fiscal policy. With the impending major election, there is little doubt that Senators will spend considerable time "debating" this measure. In addition to heated debate, the debt ceiling often attracts a slew of amendments because it is a "must pass" bill. In previous years, debt ceiling bills have been the vehicle for major budget legislation (such as Gramm-Rudman-Hollings).

[Context : Federal debt is the accumulated debt of the Federal government. Whenever the Federal government runs an annual budget deficit , the additional borrowing to finance that deficit adds to the Federal debt. Federal law contains a statutory limit on the Federal debt, commonly called the "debt ceiling." The debt ceiling approximates Gross Federal debt - which includes: (1) Debt Held by the Public (money borrowed by selling Treasury securities in the capital markets to various buyers including foreign investors, mutual funds, state and local governments, commercial banks, insurance companies and individuals); and (2) debt held by Federal government accounts , such as the Social Security Trust Funds and various federal retirement trust funds. (The Social Security and other trust funds, by law, invest all of their surpluses in nonmarketable Treasury securities.)

While a lot of political attention is paid to the debt ceiling, many economists view Debt Held by the Public as more significant economically than Gross Federal Debt, because Debt Held by the Public reflects the total amount the Federal government is borrowing from the private credit markets- with the implications that has for interest rates and available credit.]

NEW BUDGET DOCS

CBO: The Possible Costs to the United States of Maintaining a Long-Term Military Presence in Iraq

GAO: 21 st Century Challenges: How Performance Budgeting Can Help

Conrad, Gregg Entitlement Legislation: The Bipartisan Task Force for Responsible Fiscal Action Act