July 31, 2014

WASHINGTON BUDGET REPORT: Jan. 5, 2009

WASHINGTON BUDGET REPORT: Jan. 5, 2009
Overview: 4-Track Budget Process 1st Track: Economic Stimulus Legislation (late Jan/Feb) 2d Track: Completion of FY 2009 Appropriations (Jan/Feb) 3rd Track: FY 2010 Budget (March/April) 4th Track: Stabilizing the Financial, Housing, and Auto sectors (Ongoing)

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Budget Process: Step-by-Step

Dec. 30: Douglas Elmendorf appointed new CBO Director

Jan. 5: President-Elect Obama meets with Democratic congressional leaders to discuss stimulus package

Jan. 6: House and Senate convene for 111th Congress and begin assembling economic stimulus bill 

Jan. 7: CBO releases annual budget and economic outlook (for fiscal years FY 2009 - 2019)

Jan 20: Presidential Inauguration. 

Late Jan / Feb: Enactment of economic stimulus bill

Late Jan / Feb: Enactment of remaining FY 2009 appropriations

March 6: Funding for much of the Federal Government expires under the terms of the current continuing resolution (see article below)

March 31: SCHIP runs out of federal funds (State Children's Health Insurance Program)

March/April: President Obama to transmit FY 2010 budget proposal to Congress

April/May: Congressional action on a 5-year or 10-year Budget Resolution

May-September: Congressional action on a Budget Reconciliation bill (if called for by the Budget Resolution)

Ongoing:  Measures to stabilize financial, housing, and auto sectors

Overview: 4-Track Budget Process

In considering the fiscal and economic challenges facing the new Obama Administration, it is helpful to visualize a four-track process:

  1. Enactment of economic stimulus legislation (likely to occur in February);

  2. Completion of FY 2009 appropriations (likely to occur in February, but no later than March 6, 2009 when the continuing resolution expires);

  3. Transmittal of the FY 2010 budget (in March or April) followed by a congressional budget resolution and a possible budget reconciliation bill; and

  4. Ongoing measures by the Treasury and Fed to stabilize the financial, housing, and auto sectors.

1st Track: Economic Stimulus Legislation (late Jan/Feb)

In announcing his budget and economic team (see the December 2, 2008 WBR), President-elect Obama emphasized that work to develop a far-reaching stimulus measure would begin immediately, particularly in light of Commerce Department reports that the economy shrunk by 0.5 percent in the third quarter.

[The National Bureau of Economic Research, a panel of academic economists charged with the official designation of business cycles, said that the United States economy has been in recession since December 2007, when economic activity peaked.]

Obama declined to specify a size for the stimulus measure but tasked his economic and budget team to develop an "aggressive economic recovery plan" that would create or save 2.5 - 3 million jobs. Obama advisers have suggested the package might be in the range of $675 - $775 billion.

Democratic congressional leaders would like to have legislation ready to sign shortly after Obama is sworn in as President on January 20. (Congress reconvenes on January 6.) However, Republican leaders have signaled a desire to go slower.  The pace of the legislation will ultimately depend on how long it takes the White House and Democratic leadership to assemble 60 votes in the Senate to invoke cloture and bring the package to a vote; all eyes will be on moderate Republican Senators.

Based on recent reports from the New York Times, the stimulus package may include: 

  • TAX RELIEF: middle class tax relief, possibly in the form of a refundable $500 payroll tax credit for most workers; tax relief for businesses that create or save jobs and invest in new equipment; and renewable energy tax incentives. Obama aides told the NY Times this component may amount to $300 billion.
  •  

  • INFRASTRUCTURE INVESTMENTS: in roads, bridges, rail systems, mass transit, ports, airports, sewers, water treatment facilities, schools, public housing, healthcare information technology, renewable energy, and broadband (with preference given to ready-to-go projects)--amounting to $175 - $275 billion. 
  •  

  • DIRECT AID TO STATES: including federal Medicaid contributions to cash-strapped States. (For many States, Medicaid is one of their largest expenditures.)  Congressional aides briefed on the package told AP that this component may amount to $200 billion.

Other items could include further expansion of unemployment benefits to cover part-time workers and increased food stamp assistance. 

House Majority Leader Hoyer has said the stimulus package would  be free of earmarks and the investment funds would instead be distributed on a "formula basis," i.e. allocated to states based on population or other factors.

According to Obama advisers, the middle class tax relief in the stimulus package will be temporary, but permanent tax cuts--that are not offset--will be proposed in the President-Elect's FY 2010 budget transmittal to Congress in the spring.   While stimulus measures could be characterized as "emergency" in nature, non-offset permanent cuts would run afoul of House and Senate PAYGO rules that require new tax cuts and entitlement increases to be paid for with offsets. "Blue Dogs" in the House of Representatives (a group of 51 conservative Democrats) would typically oppose permanent erosion of the revenue base.
Senator Finance Chairman Max Baucus (D-MT) has indicated that some tax items, such as AMT relief and estate tax reform, might be placed in a separate tax bill.  A separate tax bill could proceed as part of the budget reconcilation process.  Budget reconciliation bills are easier to manage because they preclude filibusters and limit amendments.  A tax reconciliation bill would follow adoption of an FY 2010 budget resolution (see below).

House Republicans have outlined an alternative stimulus plan focused on tax cuts and energy investments. 

The nation's governors discussed infrastructure projects recently during a meeting with President-elect Obama. See the National Governors Association white paper on economic recovery.

Background.--The 2008 economic stimulus bill was signed into law on February 13, 2008 and cost $152 billion (HR 5140).  It provided tax rebates for individuals and business incentives.

In late September 2008, the House passed a second, $61 billion economic stimulus bill 264-158 (HR 7110), despite a presidential veto threat. However, Senate attempts to pass a similar stimulus bill failed when proponents fell 8 votes short of the 60 votes needed to shut down a Republican filibuster. The Senate bill (S. 3604) also drew a presidential veto threat.
CBO cost estimate of HR 7110

Both of the September stimulus bills would have extended unemployment benefits, and provided funding for infrastructure projects, state Medicaid programs, and food stamps.


2d Track: Completion of FY 2009 Appropriations (Jan/Feb)

Last year's appropriations process was one of the worst on record in terms of Congress passing the 12 regular appropriations bills. In fact, in 2008, only one appropriations bill made it to the House Floor.

There were two reasons for the serious disruption of the regular appropriations process. First, President Bush threatened to veto any appropriations bills that exceeded his requests, and Democrats--as reflected in the Budget Resolution--called for nearly $25 billion more than the President requested. Second, House Republicans attempted to amend appropriations bills with off-shore oil drilling amendments, strongly opposed by many Democrats.

Consequently, in late September, Congress enacted a stopgap measure to keep Federal programs operating. The stopgap measure was a hybrid of an "omnibus" appropriations bill and a "continuing resolution":

  • it included detailed, full-year appropriations measures for the Departments of Defense, Homeland Security, and Veterans Affairs (based upon provisions informally negotiated by House and Senate Appropriators); and
  • it included stopgap funding through March 6, 2009 for all other departments and agencies of government at FY 2008 levels.

The stopgap provision did not provide inflation adjustments for the covered agencies. However, some specific programs did receive increases: the low income home energy assistance program (LIHEAP) received a $2.5 billion increase over '08; Pell Grants for higher education received $2.5 billion over '08; and the WIC program received $1 billion over '08 to assist with nutrition for new mothers and their children.

In addition, the bill included $23 billion for disaster relief, and authorized $25 billion in loans to the auto industry to retool and develop more fuel efficient vehicles. (GM and Chrysler have received a separate bridge loan to forestall bankruptcy.)

In the coming weeks, the Obama Transition Team will work with congressional appropriators on legislation to keep Federal programs operating beyond March 6, 2009, and at levels closer to Congress' FY 2009 Budget Resolution.

Following is a summary of the late September stopgap measure:

Summary: Continuing Resolution

Summary: Disaster Relief Package

Summary: Defense Appropriations

Summary: Homeland Security Appropriations

Summary: Military Construction and Veterans Affairs Appropriations

Bill Text and Explanatory Statement

3rd Track: FY 2010 Budget (March/April)

While FY 2009 appropriations and a major economic stimulus plan are being expedited, President-elect Obama's new Administration will be simultaneously developing an FY 2010 Budget for transmittal to Congress. The 2010 Budget is technically due the first Monday in February 2009, but new Administrations are generally accorded flexibility to develop and transmit their first budget submission by early April.

The FY 2010 Budget transmittal will provide Congress with its first opportunity to view the Administration's long-term budget priorities in detail.

From a strategic point of view, provisions that may be controversial are more likely to be considered in the FY 2010 budget process rather than in the January stimulus bill. The reason is that the FY 2010 congressional budget process can initiate a filibuster-proof "Budget Reconciliation" measure.

4th Track: Stabilizing the Financial, Housing, and Auto sectors (Ongoing)

The Washington Budget Report is maintaining an ongoing summary of actions taken by the Treasury, the Federal Reserve, FDIC, and other agencies to stabilize the financial, housing, and auto sectors and reestablish credit flows.

Click here to view our Financial Crisis Timeline.