June 5, 2007

BUDGET PROCESS STEP-BY-STEP™

May 17: Congress adopted the FY 2008 Budget Resolution, S.Con.Res. 21, reestablishing PAYGO principles for spending increases and tax cuts/extensions and increasing nondefense discretionary spending $22 billion over the President's request.

May 25: President signed HR 2206, the FY 2007 War Supplemental. WBR summary

June 4: GAO released The Nation's Long-Term Fiscal Outlook: Federal Fiscal Policy Remains Unsustainable.

June 5:

• State-Foreign Ops Approps (House subcommittee mark-up)
• Financial Services Approps (House subcommittee mark-up)
• 302(b) Allocations and Homeland Security Approps (House full committee– WEBCAST )

June 6:

• Energy-Water Approps and MilCon-VA Approps (House full committee-- WEBCAST )
• Leg Branch Approps (House Subcommittee)

June 7: Interior-Environment Approps (House full committee)

July 2-6: Fourth of July Recess

August 6: Beginning of 4-week August Recess

September 10: Deadline for House Education & Labor and Senate HELP Committees to report Budget Reconciliation legislation (intended to reduce student loan costs, offset by reduced subsidies to lenders).

October 1: FY 2008 Begins

HOUSE SET TO APPROVE KEY APPROPRIATIONS ALLOCATIONS

Yesterday, House Appropriations Chairman David Obey released the Committee's proposed 302(b) allocations (which the Committee will vote on today). This is a key step in the congressional budget process.

Context: The FY 2008 Budget Resolution (S.Con.Res. 21) generated lump-sum 302(a) discretionary spending allocations to the House and Senate Appropriations Committees.

Each committee then sub-divides the discretionary funding among its 12 subcommittees in a step called 302(b) allocations (so-named for the Budget Act section mandating the procedure). This is a key step in the congressional budget process because it sets the broad priorities that determine how much funding will be available to each of the subcommittees. Because Budget Act rules enforce the 302(b) allocations through parliamentary points of order, funding cannot be shifted from one subcommittee to another once the allocations are made (unless the allocations are subsequently revised, which is unlikely).

The following table compares the House FY'08 302(b) allocations with legislative action thus far, the President's request, and the '07 level. Pay particular attention to the President's request, given OMB Director Portman's recent statement, reported by WBR , that “in order to ensure fiscal discipline I will recommend the President veto appropriations bills that exceed our request for discretionary spending.” The OMB veto threat was prompted by adoption of the Congressional Budget Resolution which provided $22 billion more in discretionary budget authority for FY 2008 than requested by the President.

FY 2008 302(b) Allocations vs. President's Request vs. FY 2007
Budget Authority in Billions

Highlights:

• The House allocation for defense does not include war funding for FY '08 ($142 billion).
• The House allocations do not include advance appropriations (the Budget Resolution permits advance appropriations for fiscal years 2009 or 2010 up to a total of $25.6 billion for specified education, housing and postal accounts).
• While the Budget Resolution assumed full funding of the President's request for defense discretionary spending, the House Appropriations Committee exercised its authority to shift $3.5 billion from defense to nondefense discretionary.

JUNE BUDGET SPOTLIGHT:
ACTION LIKELY ON SCHIP EXTENSION / EXPANSION

SCHIP, the State Children's Health Insurance Program, is due to expire this September. Extension—and expansion—of the program is one of this year's top congressional priorities.

SCHIP was established in 1997 to help states provide health coverage to uninsured children who are not eligible for Medicaid. At the time of its enactment, the Congress appropriated $40 billion for a 10-year period, making it the largest Federal expansion of health coverage since the passage of Medicaid in 1965.

SCHIP is considered mandatory spending because the expenditures were written into the 1997 balanced budget law and are not subject to annual appropriations decisions. However, it is not a classical entitlement because expenditures are not tied to a set of individual eligibility criteria. Instead, the $5 billion per year currently available is divided among the states according to a statutory formula. (Under the formula, allocations to states are based on the number of low-income uninsured children in the state, the total number of low-income children, and a geographic health care cost factor.)

Programs of this type are sometimes referred to as “capped entitlements.”

SCHIP provides health coverage to children in families whose incomes are low, but somewhat higher than Medicaid's very tight income eligibility limits. Generally, SCHIP covers children in families up to 200% of the Federal Poverty Level (FPL), though some states select upper eligibility limits above or below 200%.

The program operates like Medicaid, with joint Federal-state funding and state administration of the program. However, the Federal reimbursement rate for SCHIP is somewhat higher than in the Medicaid program, ranging from 65% to 83% (compared to Medicaid's 50% to 77%).

CBO's baseline assumes that SCHIP will continue to be funded at the current level of $5 billion per year. The President's Budget would increase funding above the baseline by $12 billion over 10 years, however CBO says this is insufficient to maintain current enrollment due to rapidly rising health care costs. (The President's proposal would also limit States' ability to use Medicaid funds after exhausting SCHIP funds which would reduce Medicaid funding by $8 billion over 10 years).

A total of 7.4 million people were enrolled in SCHP at some point during 2006. Under the baseline funding level of $5 billion per year, CBO estimates that the program's enrollment would remain at 7.4 million in 2007 and then decline to 5.6 million by 2012 due to health care inflation.

CBO estimates that under the President's proposal, enrollment would increase to 8.3 million in 2007, but fall to 6.7 million by 2012.

Many congressional Democrats want to increase funding more than the President in order to fully fund existing beneficiaries of the program, as well as expand the program to cover additional uninsured children . This carries a hefty price tag and faces a major budgetary hurdle: Any funding above the $5 billion/year baseline level must be fully paid for by tax increases or spending cuts under the House and Senate PAYGO rules.

A source of some confusion has been the Budget Resolution “reserve fund” which calls for $50 billion in additional (i.e. over baseline) funds for SCHIP over 5 years, but is contingent on finding budgetary offsets. ( More specifically, the legislation must be deficit neutral over 5 years AND over 10 years). Put simply, the Budget Resolution did not provide any funds for an SCHIP increase over the $5 billion per year in the baseline.
WBR's Budget Resolution Side-by-Side

Three major proposals have been introduced thus far:

Rockefeller-Snowe-Kennedy proposal: Spending on SCHIP would increase to $15.4 billion per year by 2012 and then increase in each subsequent year at a rate tied to health care inflation and population growth. The bill is designed to increase SCHIP funding by no more than $50 billion over 5 years in order to stay within the Budget Resolution guidelines. The plan does not yet identify offsets to comply with PAYGO, although Rockefeller is reportedly considering cuts in extra payments to Medicare Advantage (private managed care plans). This plan is one to watch, since Rockefeller is working closely with Senate Finance Chairman Max Baucus. Snowe and Rockefeller press releases.

Dingell-Clinton bill (HR 1535 / S 895): Considerably more expensive than Rockefeller-Snowe with the goal of health coverage for every child in the country. It would allow States to cover children up to 400% of the poverty level, $86,200 for a family of four. Would also allow States to subsidize children's insurance provided by employers and allow families that aren't eligible for SCHIP to buy into the program. The plan does not identify offsets to comply with PAYGO. Clinton press release.

Emanuel-Durbin (HR 2147 / S 1364): Smaller expansion of SCHIP than the other two plans. It would increase SCHIP spending to $7.5 billion per year, plus increases linked to health care inflation and population growth. Emanuel's bill (but not Durbin's) would also include a tax credit for middle-class families earning up to 350% of the poverty level, and capital gains reporting requirements as PAYGO offsets. Emanuel and Durbin press releases.

Senator Gordon Smith: During the Budget Resolution debate, Sen. Gordon Smith (R-OR) gained Senate support of a nonbinding amendment to pay for $35 billion in funding to maintain and expand SCHIP enrollment by increasing the Federal tobacco excise tax from the current 39 cents per pack to $1 per pack. Smith could run into opposition on the tobacco tax increase from House Energy & Commerce Chairman Dingell (D-MI) and Senate Minority Leader Mitch McConnell (R-KY). Smith press release.

Other possible offsets include Medicare cuts. 

DEBT LIMIT INCREASE

Under the House's “Gephardt Rule,” upon adoption of the FY 2008 Budget Resolution on May 17, the House clerk automatically engrossed and transmitted to the Senate a joint resolution (H.J.Res. 43) increasing the debt limit by $850 billion to $9.815 trillion. While the Gephardt Rule spares the House the political difficulties of voting to increase the debt ceiling, the resolution is open to full debate and amendment in the Senate.

WORTH READING

Yesterday, the Government Accountability Office (GAO) released The Nation's Long-Term Fiscal Outlook: Federal Fiscal Policy Remains Unsustainable. According to GAO, its “long-term simulations show ever-larger deficits resulting in a federal debt burden that ultimately spirals out of control.”