CBO August Update and new Census Bureau Figures Appropriations, SCHIP, Farm Bill Face Veto Threats BUDGET PROCESS STEP-BY-STEP Tuesday 9/4:
Wednesday 9/5 and beyond:
September 30:
October 1:
CBO AUGUST UPDATE: LONG-TERM OUTLOOK "UNSUSTAINABLE" DUE TO RISING HEALTH CARE COSTS On August 23 the Congressional Budget Office released its August Update to the Budget and Economic Outlook. The update revised downward the FY 2007 budget deficit projection from $177 billion to $158 billion due to increased revenue projections. The Update projects "real" (inflation-adjusted) GDP growth of 2.1% this calendar year and 2.9% next year. However, the big picture continues to be CBO's projection that "over the long term, the budget remains on an unsustainable path. Unless changes are made to current policies, growing demand for resources caused by rising health care costs and the nation's expanding elderly population will put increasing pressure on the budget." CBO calls rising healthcare costs the "key determinant of the nation's long-term fiscal outlook," and projects that if healthcare costs continue to grow at their current rate "federal spending on [Medicare and Medicaid] alone would rise from 4.6 percent of GDP this year to about 20 percent by 2050." Both Republicans and Democrats have used the report to bolster their budgetary arguments, with Republicans claiming that their policy of cutting taxes and restraining nondefense discretionary spending is the reason for the short-term decrease in deficits and Democrats asserting that Republican policies have put the nation's finances on an unsustainable path.
CENSUS UPDATE ON INCOME, POVERTY, AND HEALTH INSURANCE On August 28 the Census Bureau released its annual report on Income, Poverty, and Health Insurance Coverage in the United States report. Highlights of the report include: The poverty rate in 2006 declined slightly from 12.6% to 12.3%, with 36.5 million Americans living below the Federal Poverty Level (FPL). However, the FPL has been considered by many to be unrealistically low (e.g. the poverty level for a family of 4 is just $20,444) and inaccurate for not taking into account differing price levels across the country. The number of people without health insurance increased in from 44.8 million to 47.0 million (15.3% to 15.8%). Real median household income rose 0.7% between 2005 and 2006 to $48,201.
APPROPRIATIONS LEGISLATION FACING VETOES As Congress returns from August recess most major legislation is facing Presidential veto threats. On August 8th the President reiterated his tough stance on spending, saying "Now, look, I recognize the Democrats control the Congress, and with it, the power of the purse. I also have some power, and it's called the veto. And I have the votes in Congress to sustain vetoes, and therefore, I will use the veto to keep your taxes low and to keep federal spending under control." On Appropriations, the President has threatened to veto seven appropriations measures because they exceed his budget requests. More specifically the veto threats seek to limit total discretionary spending for FY 2008 to $933 billion, while the House reported bills add $22 billion to the discretionary funding total. The Administration also objects to the allocation of discretionary funds among the 12 appropriations subcommittees which shifts $1.7 billion from defense to non-defense spending (in contrast to the Budget Resolution which mirrored the President's defense request) as well as the House rejection of $1.8 billion in new health care fees for participants in the defense health care system (TRICARE). The President has also threatened to veto pending legislation to reauthorize and expand the State Children's Health Insurance Program (SCHIP); the House-passed higher education budget reconciliation bill; and the House-passed "Farm Bill." The Federal government hasn't faced a legislative deadlock of this magnitude since 1995, when an impasse between then President Clinton and the Republican-led Congress over proposed cuts in Medicare, Medicaid, education and environment programs led to a Federal Government shut down. Context for the Appropriations summaries below: Congress appropriates "budget authority" to agencies which is the legal authority for agencies to enter into financial obligations. "Outlays" are the resulting disbursements from those obligations. In general, discussions of spending levels in appropriations bills refer to budget authority. House Agriculture-Rural Development-FDA Appropriations: H.R. 3161, passed by the House on August 1, would appropriate $18.8 billion in discretionary budget authority for FY 2008, nearly $1 billion above the President's request, prompting an Administration veto threat. The bill would boost funding for meat and poultry inspectors at the Agriculture Dept. by $38 million and adds funds at the FDA for improving regulation of food safety. The bill would also permit prescription drug importation, a policy opposed by the Administration. (Context: USDA inspects meat and poultry; FDA has jurisdiction over other food safety.) (The Senate-reported bill is $900 million above the President's request.) House Commerce-Justice-Science Appropriations: H.R. 3093, passed by the House on July 26, would appropriate $53.6 billion in discretionary budget authority for FY 2008, $2.3 billion above the President's request, prompting an Administration veto threat. In particular, the Administration objects to $1.7 billion in state and local law enforcement assistance which exceeds the President's request. (The Senate-reported bill is $3.4 billion above the President's request.) House Energy-Water Appropriations: H.R. 2641, passed by the House on July 17, would appropriate $31.6 billion for FY 2008, $1.1 billion above the President's request, prompting an Administration veto threat. In particular, the bill exceeds the President's requests for research on global climate change, alternative energy resources, nuclear energy technology, energy conservation measures and environmental clean-up. The bill also eliminates funding for next generation nuclear warheads ("Reliable Replacement Warhead") "until the President has a post cold war strategic nuclear weapons plan." (The Senate-reported bill is $800 million above the President's request.) House Financial Services-General Government-Treasury-DC Appropriations: H.R. 2829, passed by the House on June 28, would appropriate $21.4 billion for FY 2008, $240 million below the President's request. The Administration has threatened to veto the bill over the inclusion of a provision that loosens trade and travel restrictions against Cuba, and also threatens to veto over exclusion of a provision that would prevent use of Federal funds to grant rights to same-sex couples. (The Senate-reported bill is $120 million above the President's request) House & Senate Homeland Security Appropriations: H.R. 2638, passed by the House on June 15, would appropriate $36.3 billion for FY 2008, $2.1 billion above the President's request. S.1644, passed by the Senate on July 26, would appropriate $39.4 billion for FY 2008 discretionary spending, $5.2 billion above the President's request (including $3 billion in additional border security funding added on the Senate Floor). The Administration has threatened to veto both bills due to their spending levels, and also issued a veto threat due to a House provision expanding Davis-Bacon prevailing wage requirements to disaster recovery projects. The House and Senate bills exceed the President's request, in part, due to higher funding levels for state & local grants and funds to restore FEMA's capabilities. (See our WBR Backgrounder on Homeland Security Grants).
House Interior-Environment Appropriations: H.R. 2643, passed by the House on June 27, would appropriate $27.6 billion for FY 2008, $1.9 billion above the President's request, prompting an Administration veto threat. The House bill includes $887 million in EPA funding above the President's request, as well as a half billion more for the Dept. of Interior. (The Senate-reported bill is $1.5 billion above the President's request) House Labor-HHS-Education Appropriations: H.R. 3043, passed by the House on July 18, would appropriate $151.8 billion for FY 2008, $10.8 billion above the President's request, prompting an Administration veto threat. Nearly three-fourths of the additional funding is for education and $880 million is for LIHEAP. (The Senate-reported bill is $8.3 billion above the President's request) House State-Foreign Operations Appropriations: H.R. 2764, passed by the House on June 22, would appropriate $34.2 billion for FY 2008, $700 million below the President's request. The Administration has threatened a veto because the bill contains "burdensome reporting requirements" regarding Administration decisions to withhold funds from international organizations that perform abortions. (The Senate-reported bill is $100 million below the President's request) House Transportation-HUD Appropriations: H.R. 3074, passed by the House on July 23, would appropriate $50.7 billion in discretionary funding for FY 2008, $2.8 billion above the President's request, prompting an Administration veto threat. (The Senate-reported bill calls for $3.1 above the President's request in discretionary funding.) Both bills reject the President's proposed cuts in: Amtrak, the FAA Airport Improvement Program, subsidies for air service to small communities, CDBG grants, Housing for the Elderly, Housing for the Disabled, and HUD's HOPE VI program (aimed at revitalizing neighborhoods by replacing outdated public housing with new mixed-income housing). Context: The overall total for the Transportation-HUD bill exceeds $100 billion because it includes more than $50 billion in "mandatory" spending, that is, spending which is determined by authorizing legislation--not the annual discretionary decisions of the Appropriations Committees. Most of the mandatory spending funded in the bill consists of Federal aid for highways which is determined by levels set in the multiyear "Highway Bill." FARM, SCHIP, ENERGY, HIGHER ED FACING VETOES Farm Bill: 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. The starting point, or "baseline" for consideration of the Farm Bill projects what farm spending would be if there was a simple extension of current policies (i.e., policies set forth in the 2002 Farm Bill). The following table (source: CRS) shows Farm Bill actual spending over FY'02-'07, and the CBO (March 2007) baseline for the next 6 years:
The baseline spending levels reflect an increase in Food Stamps (which grow automatically as the number of eligible recipients increases and the price of food increases) and a reduction in commodity support due to the relatively high prices in current commodity markets. Congress' FY 2008 Budget Resolution allows for enactment of a new Farm Bill at baseline spending levels, plus an additional $20 billion-but only if the $20 billion is deficit neutral (that is, fully offset by new taxes or mandatory spending cuts). H.R. 2419, passed by the House on July 27, would reform Food Stamp benefit rules to improve coverage of food costs and expand access to the program; give farmers participating in the commodity programs a choice between traditional price supports and "market-oriented revenue coverage payments"; ensure that people making more than $1 million/year cannot collect conservation or commodity payments; and increase spending on conservation programs. The Administration has threatened to veto HR 2419 due to expansion of Davis-Bacon requirements, as well as objections to the spending reductions and taxes used to offset new spending above the baseline. SCHIP (State Children's Health Insurance Program) Reauthorization/Expansion: 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 of 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. The FY 2008 Budget Resolution would allow expansion of the program by $50 billion over 5 years to cover more children who are eligible but not currently enrolled through a so-called "reserve fund." However, the additional spending must be fully offset with spending cuts or tax increases. On August 1, the House passed H.R. 3162, the Children's Health and Medicare Protection Act (CHAMP), by a vote of 225-204. The bill would expand SCHIP by $47 billion over 5 years, as well as reversing scheduled reductions in Medicare physician payment rates over the next two years. CBO estimates the bill would add 5 million uninsured children to the current 6 million currently covered by SCHIP. The cost of the bill would be offset by a 45 cents per pack increase in the Federal cigarette tax, a reduction in payments to private sector Medicare Advantage (managed care) plans, and a new fee on private health insurance plans. On August 2, the Senate passed its SCHIP reauthorization/expansion by a vote of 68-31 (the bill number, S. 1893, became H.R. 976 to comply with the requirement that revenue measures originate in the House). The Senate bill would expand SCHIP by $35 billion over 5 years, covering an additional 3.2 million children. The Senate would pay for the SCHIP expansion by increasing the Federal cigarette tax to $1 per pack (a 61-cents per pack increase). The Administration has threatened to veto both bills due to opposition to the tobacco tax increase (calling it "highly-regressive") and to expanding the SCHIP program beyond limited numbers of low-income children (as well as additional changes to Medicare made by the House bill). Renewable Energy and Energy Conservation Tax Act: H.R. 2776 passed the House on August 4 by a vote of 221-189. The bill would increase taxes on oil and gas producers by $16 billion and would use the revenues to increase tax incentives for producers of renewable energy. The Administration has threatened to veto the bill, asserting that it would lead to reduced domestic oil and gas production, thereby lessening the nation's energy security. Higher Education Reconciliation: Context: This year's FY 2008 Budget Resolution includes Reconciliation instructions to the Senate HELP Committee and the House Education and Labor Committee to report budget reconciliation legislation having the effect of reducing projected budget deficits by $750 million over fiscal years 2007-2012. The objective is to use Reconciliation's expedited and filibuster-proof procedures to pass legislation that increases higher education assistance (offset by reduced subsidies to lenders) with a net budget savings of $750 million over 5 years. On July 11 the House passed H.R. 2669 by a vote of 273-149. The bill would cut student lender subsidies by $18 billion over 5 years and use the savings to increase federal aid to students and reduce the deficit. Maximum Pell Grant awards would increase to $5,200 and the interest rates on subsidized loans would be cut in half from 6.8% to 3.4%. The bill has drawn a veto threat for expanding mandatory spending programs such as "Cooperative Education Rewards," "Incentives and Rewards for Low Tuition," and "Federal Perkins Loans." The Senate passed its version of H.R. 2669 (based upon S. 1762) on July 20 by a vote of 78-18. The Senate version cuts lender subsidies by $18 billion and would increase the maximum Pell Grant award to $5,400. The Senate version does not cut subsidized loan interest rates, but instead uses the savings for increased loan forgiveness. The Administration has not threatened a veto of the Senate version, but has expressed serious concerns. BUDGET DOCS CBO: The Budget and Economic Outlook, An Update CBO: The Treatment of Federal Receipts and Expenditures in the National Income and Product Accounts CBO: Assessing Pay and Benefits for Military Personnel GAO: Gulf Coast Rebuilding: Observations on Federal Financial Implications GAO: Stabilizing Iraq: DOD Cannot Ensure That U.S.-Funded Equipment Has Reached Iraqi Security Forces |
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| Charles S. Konigsberg, President | (202) 587-2984 (ph) | (202) 587-2983 (fax) | ckonigsberg@federalbudgetgroup.com | ||||||||||||||||||