Budget and Appropriations Update

Budget Watchwords: Austerity and Contraction

By Brent Jaquet, CRD Associates

Given the nation’s mounting debt and political pressures to reduce spending, it’s no surprise that the $3.8 trillion budget President Obama unveiled February 13 will probably get short-shrift from congressional lawmakers. Grand ideas are a hard sell when the projected deficit for next year tops $901 billion and the debt ceiling deal enacted last August already reduced discretionary spending by $1 trillion over the next 10 years.

Indeed, the president himself has upped the stakes by proposing an additional $3 trillion in deficit reduction, half of which would be derived from new revenue, $278 billion from mandatory spending and $360 billion in savings to Medicare, Medicaid and other health programs.

The $1.5 trillion in new revenue assumes that the Bush tax cuts of 2001 and 2003 would expire for high-income earners and that the “Buffett rule” will be adopted, i.e., those with an annual income in excess of $1 million will pay no less than 30 percent of their income in taxes, while deductions will be capped for those making more than $250,000.

An ambitious list of domestic initiatives contained in the president’s proposal is financed largely by reduced spending on the wars in Iraq and Afghanistan. While budget hawks will argue that those savings should be applied against the deficit, the president would plow some of the war savings funds into a $50 billion down-payment on a six-year highway and infrastructure modernization program, $30 billion to modernize 35,000 schools, and another $30 billion to help states and school districts retain and hire teachers and first responders.

Also on the education front, the president proposes to sustain the maximum Pell Grant award of $5,635 through academic year 2014-2015 and provides $8 billion to the Departments of Labor and Education for state and community college partnerships with businesses.

The budget also proposes a five percent increase in nondefense R&D programs, including the National Science Foundation, the Energy Department’s Office of Science and the National Institute of Standards and Technology Laboratories. Funding for the National Institutes of Health would be held at the fiscal year 2012 level of $30.7 billion.

The president’s budget submission will serve as the starting gun in what is likely to be a long and contentious battle. Presidents typically use an election-year budget not to effect policy change, but to lay out a blueprint of priorities for their second term.

State of the Union

President Obama’s State of the Union Address placed a heavy emphasis on economic issues with a strong tie-in to higher education.

The president urged Congress to permanently extend a tuition tax credit that was expanded by the economic stimulus measure passed in 2009. He also called on lawmakers to block an expected jump in federal loan interest rates, and called for a doubling of work-study jobs for students.

But another proposal to hold down tuition costs has already prompted some backlash in states where tuition levels are low compared to the national average.

The president said the federal government cannot continue to subsidize skyrocketing tuition costs. He called on colleges and universities to find ways to hold costs down and asked states to make postsecondary education funding a higher priority in their budgets.

“So let me put colleges and universities on notice: If you can’t stop tuition from going up, the funding you get from taxpayers will go down. Higher education can’t be a luxury — it’s an economic imperative that every family in America should be able to afford.”

Some in Congress took issue with the proposal, arguing that it is an overreach by the federal government to link aid to tuition costs. Other lawmakers might find some appeal for a mechanism that would limit federal money for education, while most others say they want to see details before making a judgment.

According to College Board data, in the past year in-state tuition and fees at public four-year institutions increased 8.3 percent, compared to a 3 percent rise in inflation.

The president’s proposal would significantly boost the federal investment in the Perkins loan program from $1 billion to $8 billion and revamp the formula for distributing the money. Under the plan, colleges would be rewarded based on their success in offering relatively lower tuition prices, providing value and serving low-income students, the White House said.

The administration also is proposing to provide $1 billion in aid to states that curb higher education costs and to create a competition that provides $55 million in start-up funding for higher education institutions to pursue innovation to boost productivity.

Lastly, the president also called for the placement of 2 million workers in jobs through partnerships between community colleges and businesses. He noted that in 2012 the country will need to fill mid- to high-level skilled positions in health care, clean energy and information technology.

Whether the president’s proposals are acted upon is uncertain, particularly in a year of electoral uncertainty. The second session of Congress will probably be just as gridlocked as the first.

The high-stakes presidential race, coupled with uncertainty surrounding several Senate races, will hang over virtually every issue and every debate that surface in Congress this year. But most lawmakers hope to avoid the brinksmanship and high drama that marked 2011 by limiting their to-do list to the bare essentials.

Congress first must agree on extending the payroll tax holiday and long-term unemployment benefits. Then, lawmakers must decide how and for how long they will put off a planned 27 percent cut in Medicare physician reimbursements.

Both chambers will likely tackle some version of a job-creation bill, but it is not certain that any consensus will be found.

Appropriations Process

Appropriations committees in both chambers have signaled their intention to move the Fiscal Year 2013 process along sooner this year. To some extent the process will be aided by the fact that last year’s Budget Control Act established a total FY2013 appropriations level at $1.047 trillion. The Senate has announced that it will not take up a separate budget resolution this year because the spending amount is already set. The House, however, has indicated that it will pass its own budget resolution and it will likely establish spending levels for House bills lower than the amount agreed to in the Budget Control Act. House conservatives feel that the law’s FY13 budget amount was only a ceiling and not an absolute spending level.

In the House, which traditionally (and Constitutionally) begins appropriations work earlier than the Senate, leaders have said that all budget hearings will be completed by the end of March, and some have already been held. March 20 is set as the deadline for Members of the House to inform the Appropriations Committee of their requests for program support at the agencies. So, that is the deadline for Members to express their interest in funding the Graduate Psychology Education Program. The Senate request deadline will likely occur a week or so later, but the date has not been announced. No Senate hearings with the agencies have been scheduled yet.

The eventual negotiations and wrap-up to the appropriations process later this year will be complicated by several factors, especially the Congressional and Presidential elections.

By the end of the current fiscal year on Sept. 30, it is unlikely that the new bills will be completed. In that case, a stop-gap continuing resolution would be required to keep federal programs running until sometime after the elections in November.

That post-election or “lame-duck” session of Congress will have many issues before it, not the least of which will be completing the 12 appropriations bills, confronting another request by the Administration to increase the nation’s debt ceiling, and resolving how to deal with the so-called Bush tax cuts which expire at the end of the year.

And if that isn’t enough, there will probably be other last-ditch efforts to achieve $1.2 trillion in savings over the next 10 years in an effort to prevent automatic “sequestration” or across the board cuts. These cuts, based on provisions in last year’s Budget Control Act, are set to take effect January 2013 if that level of savings in not realized. Domestic programs would be cut about 8 percent and defense agencies would be cut 10 percent under the terms of the law. Currently, several proposals are being floated in Congress to try to exempt the defense cuts. These efforts are being opposed by both budget conservatives who want to adhere to the forced spending cuts and supporters of domestic agencies who do not want to allow a defense exemption which would put more pressure on domestic agencies to absorb cuts.

The President’s new budget proposals offer his recommendations for achieving the required savings and avoiding sequestration through both spending cuts and tax hikes. However, such a plan is unlikely to move very far during this election year.

Depending on which party wins control of the House, Senate and White House, the lame-duck session may take on all issues — or very little, in which case the next Congress would have to face them all.