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April 17, 2007: Congress Reconvenes BUDGET PROCESS: STEP-BY-STEP™ March 29: Senate passed H.R. 1591, the FY 2007 War Supplemental (w/ Senate Amendment) by a vote of 51-47. House passed H.Con.Res. 99, the FY 2008 Budget Resolution, 216-210. March 30: On March 30, the Senate Budget Committee released a CRS report projecting the Army could finance its operations "through the end of May” with funding already appropriated and through June or July by using its authority to transfer funds among accounts. CRS Report April 3: President reiterated veto threat against House- and Senate-passed war supplementals: “…if either the House or Senate version of this bill comes to my desk, I will veto it.” President's April 3 Veto Threat April 11: Senate Finance Committee hearing with CBO Director Peter Orszag on Medicare's managed care program, “ Medicare Advantage ,” which may be a target for budgetary savings needed to finance the scheduled rollback of physician fees, SCHIP expansion, and other unfunded initiatives set forth in the Budget Resolution. Orszag informed the Committee that “Medicare's payments for beneficiaries enrolled in Medicare Advantage plans are higher than what the program would spend if those beneficiaries were in the traditional fee-for-service” Medicare program. Testimony on Medicare Managed Care Week of April 16: House-Senate Conferences on FY 2007 War Supplemental and FY 2008 Budget Resolution. Context: Chairman Spratt is aiming for completing action on a Budget Resolution conference report by May 1. Timing on the supplemental conference is less clear. Appropriators could have a quick conference leading to a veto and then negotiations, or (less likely and depending on the April 18 White House meeting) negotiations with the White House could take place within the context of conferencing the House and Senate bills. April 18: Congressional Democratic leaders scheduled to meet with President Bush to discuss the impasse over the timetables and benchmarks included in the FY 2007 War Supplemental. Also scheduled for Wednesday is a Senate cloture vote on the Medicare Rx drug bill (explained below). April 27: House Appropriations Committee deadline for submission of FY 2008 earmark requests. Early May: Following adoption of a Budget Resolution Conference Report, House and Senate Appropriations Committees make critical discretionary spending allocations (known as 302(b) allocations) among their 12 subcommittees. This is a key step in setting Federal spending priorities. THE WAR SUPPLEMENTAL WBR Table Comparing President's Request, House-passed, and Senate-passed Bills This week House and Senate negotiators begin the process of melding the House- and Senate-passed versions of H.R. 1591, the FY 07 War Supplemental, building on pre-conference discussions by senior staff. Tomorrow (Wednesday) Congressional leaders are scheduled to meet with President Bush to discuss Iraq policy. In the meantime, the war of words continues. House Democratic Leader Steny Hoyer (D-MD) released a statement yesterday which said, in part, “Unfortunately, the President once again today repeated false assertions that call into question the sincerity of his invitation to sit down and talk on a bipartisan way forward. He wrongly blamed Congress for delaying a bill for Iraq...and continues to disingenuously link the war in Iraq with 9/11. The fact is, this Administration's failed policy has left our troops mired in the middle of a civil war..." In Saturday's radio address, the President said: “68 days ago, I sent Congress an emergency war spending bill that would provide the vital funds needed for our troops on the front lines...Democrats in Congress...passed bills that would impose restrictions on our military commanders and set an arbitrary date for withdrawal from Iraq, giving our enemies the victory they desperately want. The Democrats' bills also spend billions of dollars on domestic projects that have nothing to do with the war...” Context: Congress typically passes a supplemental funding bill each spring, which is half-way through the fiscal year, to cover unanticipated funding needs. The principal reason for the large size of this year's supplemental is the under-funding of war expenses in the regular FY 2007 defense appropriations bill. (The President requested only $50 billion for the war, Congress appropriated $70 billion, and five months into the fiscal year the Administration requested an additional $100 billion.) It is not unusual for Congress to include both defense and non-defense supplemental funds in the same bill. The non-defense supplemental funds include (largest amounts first): Katrina recovery aid; farm disaster assistance; military base realignment & closure funding; veterans health services; low-income energy assistance; funding for mid-year shortfalls in state children's health insurance; wildfire suppression; rural schools; and smaller items. Likely outcome: a bill with no mandatory withdrawal or draw-down dates, but requirements that the President report to Congress periodically on specific benchmarks. Major war supplemental conference issues include: (1) Whether to send the House Iraq language or the Senate language to the President (the House language mandates withdrawal by September 1, while the Senate language establishes a nonbinding goal of March 2008 but mandates that a withdrawal begin within 120 days); (2) whether to include the $1.5 billion added by the Senate for mine-resistant vehicles; (3) the size of the small business tax relief package that accompanies the minimum wage; (4) the amount of Defense Operations and Maintenance funding; (5) the amount of LIHEAP (Low Income Home Energy Assistance) emergency funding; (6) the amount of farm disaster funds; and (7) the amount of Katrina assistance. UPCOMING HOUSE-SENATE CONFERENCE ON FY 2008 BUDGET RESOLUTION Context: The Budget Resolution is an internal procedural mechanism of the Congress—guiding subsequent action on spending and revenue bills—and does not go to the President for signature. Major conference issues will include: (1) Whether to adjust revenues to allow for an AMT fix for any years beyond FY 2007; (2) whether to accept the Senate's Baucus amendment that adjusts the Budget Resolution to make room for extension of certain tax cuts including marriage penalty relief, the child credit, adoption tax credit, and the 10% bracket; (3) whether to let the estate tax bounce back to 2001 levels after 2010, or whether to accept the Baucus provision to extend the 2009 estate tax rate (45%) and exemption level ($3.5 million); (4) whether to set the non-defense discretionary total for FY 2008 at the Senate's $448 billion level, or the House's $454 billion level; (5) whether to accept the Senate's Baucus amendment that provides $15 billion in additional funding for SCHIP, the State Children's Health Insurance program, or require that any funding for expansion of SCHIP coverage must be fully offset; (6) whether to include the House's “Budget Reconciliation” instruction that would place student loan reforms on a filibuster-proof fast-track; and (7) which of the Senate Resolution's new points of order to retain. SENATE FINANCE REPORTS MEDICARE Rx BILL The issue of allowing Medicare to negotiate drug prices with pharmaceutical companies has important budgetary implications. The Senate Finance Committee and the House Committees on Ways & Means and Energy & Commerce (which share jurisdiction over the Medicare Rx drug program) need to find budgetary savings to offset various initiatives such as expansion of the State Children's Health Insurance Program (SCHIP) and rolling back scheduled reductions in Medicare physician reimbursements. However, prior to the Finance Committee action, the Congressional Budget Office released two letters casting doubt on how much savings can actually be achieved from the Baucus proposal. The CBO letter to Senator Baucus, which you can link to below, states in part "that modifying the noninterference provision would have a negligible effect on federal spending because we anticipate that under the bill the Secretary would lack the leverage to negotiate prices...that are more favorable than those obtained by prescription drug plans under current law." CBO also stated in a letter to Sen. Ron Wyden (D-OR) that significant savings can be achieved only by allowing Medicare to establish a formulary or set prices administratively--which the Baucus bill and the Medicare Rx bill that already passed the House--do not do. The Medicare Rx bill is on the Senate's agenda for Floor action this week. Senator Reid filed a cloture petition on Monday, hoping to garner 60 votes to prevent a filibuster when the cloture vote occurs on Wednesday. BEWARE OF THE HEADLINES These headlines run the risk of obscuring reality; there is broad-based agreement that the long-term fiscal outlook for the U.S. is extremely serious due primarily to rapidly rising health care costs and, secondarily, to retirement of the boomers. In January of this year, Fed Chairman Ben Bernanke warned the Senate Budget Committee that, because of rising entitlement costs, a "vicious cycle may develop in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits...Ultimately, this expansion of debt would spark a fiscal crisis...(T)he effects on the U.S. economy would be severe." GAO Comptroller General David Walker told the Senate Budget Committee that "our long-term fiscal outlook is both imprudent and unsustainable…driven primarily by rising health care costs and known demographic trends," namely the baby boom. The Government Accountability Office chief projected that by 2030, interest payments, Social Security, Medicare and Medicaid, alone, would consume all or nearly all Federal revenues.” And the Congressional Budget Office stated that "the aging of the population and continuing increases in health care costs are expected to put considerable pressure on the budget in coming decades. Economic growth alone is unlikely to be sufficient to alleviate that pressure as Medicare, Medicaid, and (to a lesser extent) Social Security require ever greater resources under current law." WORTH READING Estimated Cost of the Administration's Proposal to Increase the Army's and the Marine Corps' Personnel Levels, Congressional Budget Office, April 16, 2007. (Increasing Army by 65,000 and Marine Corps by 27,000.) CBO estimates the cost through 2012 at $108 billion. CBO Report |
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| Charles S. Konigsberg, President | (202) 587-2984 (ph) | (202) 587-2983 (fax) | ckonigsberg@federalbudgetgroup.com | |
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