WASHINGTON BUDGET REPORT: Jan. 16, 2009

Details of Economic Stimulus Legislation Released

Stabilizing the Financial, Housing, and Auto sectors

Announcements

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Budget Process: Step-by-Step

Track 1- Economic Stimulus (Jan/Feb):

Jan 21: House Appropriations to markup spending portion of stimulus bill (12pm: webcast)
Jan 21 or 22: House Ways & Means to markup tax portion of stimulus bill
Jan 22: Senate Finance to markup tax portion of stimulus bill
Week of Jan 26: House Floor action on stimulus bill

Track 2 - Completion of '09 Appropriations (Jan/Feb):

Feb 13: Target date for Democrats to complete action on omnibus FY '09 appropriations bill
March 6: Funding for much of the Federal Government expires under the terms of the current continuing resolution (see article below)

Track 3 - FY 2010 Budget (Feb / March / April):

Feb 2: President required to transmit the FY 2010 budget to Congress (however, this being a presidential transition year, it is likely that President Obama will transmit a "baseline budget" on February 2d followed by a "budget policy outline" later in the month)
March: Markup of FY 2010 Congressional Budget Resolution
April: Floor action and conference on Budget Resolution
May-Sept: Action on FY 2010 appropriations bills and Budget Reconciliation Bill (if called for by the Budget Resolution)

Track 4 - Stabilizing the Financial, Housing, and Auto Sectors (Ongoing)

Senate this week voted down a bill to block release of the remaining $350 billion in the TARP (Troubled Asset Relief Program)--clearing the way for obligation of the funds

Details of Economic Stimulus Legislation Released

On Thursday, the House Appropriations Committee released details of the $550 billion spending portion of the economic stimulus legislation, now titled the "America Recovery and Reinvestment Bill of 2009":

Summary Document: http://appropriations.house.gov/pdf/PressSummary01-15-09.pdf

Bill Language: http://appropriations.house.gov/pdf/RecoveryBill01-15-09.pdf

Committee Report: http://appropriations.house.gov/pdf/RecoveryReport01-15-09.pdf

The House Ways & Means Committee released separately an outline of the $275 billion tax portion of the bill separately. The largest component of the tax piece is a $1000 tax credit ($500 for individuals) distributed in the form of reductions in payroll tax withholding. The tax credit would phase out for upper income taxpayers. Ways and Means Release

The Committee report contends that the net cost of the stimulus package will actually be significantly less than the $825 billion "budgeted cost" because it will "create jobs for people who would otherwise be unemployed....generate sales at companies that would otherwise not occur....(and) increase tax revenues and lower income support payments" compared to an economic scenario without any stimulus. This is the flip side of the "dynamic scoring" argument often made by proponents of tax cuts who have argued that tax cuts really cost less than their price tag when economic growth is calculated into the mix.

The Committee report also asserts that "the proposed increases in federal spending...will have nearly complete pass through to additional demand for goods and services because infrastructure projects are ready to go....federal relief for state and local operating budgets will prevent them from making cuts in spending or increases in taxes....(and) economically stressed families will increase spending by as much as their unemployment insurance, food stamp, and other financial help goes up."

However, Republican lawmakers expressed serious concerns about the package. House Appropriations Committee ranking Republican Jerry Lewis (R-CA) said in a statement, "This legislation appears to blanket government programs in spending with little thought toward real economic results (and) job creation...." House Minority Leader John Boehner (R-OH) said, "The plan releasead this morning...appears to be grounded in the flawed notion that we can simply borrow and spend our way back to prosperity....."

General provisions: the bill and report language contain no earmarks; the bill requires that formula grants must be allocated within 30 days and discretionary grants within 90 days, with the period lengthened by 30 days for new programs. The bill also provides for the redistribution of funds not obligated in a timely manner, and provides extensive transparency and oversight requirements.

Highlights of the spending portion of the stimulus bill (in billions of dollars):

State Fiscal Relief: $87b for temporary increases in the Federal Medicaid matching rate (FMAP); $79b for a State fiscal stabilization fund to prevent cutbacks in key services including education and public safety; and $4b for law enforcement grants (including $1b for the COPS program)

Helping Unemployed Workers: $36 billion for extended and increased unemployment benefits; $20b for increased food stamp benefits; $4b for job training (workforce investment act); $2.5b for TANF (Temporary Assistance for Needy Families); $1b for Low-Income Home Energy Assistance (LIHEAP)

Highways / Transit / Airports: $30b for highways & bridges; $9b for transit projects; $3b for airport improvements; $1b for Amtrak
Education: $20b for school construction (K-12 and higher ed); $16b for Pell grants; $13b for Title I grants (elementary & secondary); $13b for special education (IDEA); $1b for education technology

Healthcare: $30b to help unemployed workers keep their employer provided health insurance coverage (known as "COBRA"); $9b for increased Medicaid for unemployed workers; $20b for health information technology; $3b for disease prevention; $2b for NIH research grants; $1.5b for university research facilities; $1.5b for community health centers
Energy: $16b for grants, loans, and loan guarantees for renewable energy and efficiency; $11b to upgrade the electricity grid; $7b for federal building energy efficiency; $6b to weatherize low-income homes; $7b for local govt energy efficiency block grants; $2.5b for low-income housing energy retrofit; $2b for fossil energy carbon capture and sequestration; $2b for Dept. of Energy research; $2b for grants and loans for advanced battery technology

Housing: $5b for public housing improvements; $4b for neighborhood stabilization; $1.5b in emergency shelter grants for the homeless; $1.5b to rehab low-income housing
DOD / VA facilities: $8b for Dept. of Defense facilities; $1b for veterans medical facilities
Environment: $10b for wastewater treatment and safe drinking water; $2b for Superfund and other environmental cleanup
Broadband access: $6b for broadband internet access in underserved areas
Public Lands & Waterways: $4.5b for backlogged Corps of Engineers projects; $3b for infrastructure on federal lands (including $2b for Natl Park Service); $1b for reducing wildfires
SSI (Supplemental Security Income) payments: $4b for low-income elderly and disabled

Early Childhood Development: $2b for Head Start; $2b for low-income child care

Science: $3b for Nat'l Science Foundation; $2b for research funded by BARDA, NOAA, NIST, USGS, and Dept. of Agriculture; $600 million for NASA

Homeland Security: $2b for homeland security including border ports of entry and explosive detection technology.

Flexible Use Block Grants: $2 b in CDBG and CSBG block grants
National Service: $200 million for 16,000 additional AmeriCorps members

Highlights of the $275 billion tax portion of the stimulus bill (in billions of dollars):

"Making Work Pay" credits: Middle class payroll tax relief in the form of a $1000 tax cut ($500 for individuals) -- phasing out at $150,000 for couples.

Education: $2500 tax credit for the first four years of higher education expenses (40% refundable for taxpayers owing no tax)

Housing Stimulus: Remove repayment requirement on $7500 first-time home buyer credit until 6/30/09

Bonus depreciation

Small Business Expensing: Extend a provision in last year's stimulus bill providing a $250,000 small business expensing limit
5-Year Carryback of NOLs: Extend a provision in last year's stimulus bill that allows companies to apply net operating losses to the last 5 years -- generating instant refunds.

Expand bonding authority to stimulate State and local bonds, private activity bonds, school construction bond, and bonds for "recovery zones"

Renewable energy tax incentives including a 3-yr $8.6 billion extension of the energy production tax credit for renewable energy, and other measures to boost high ethanol fuel, plug-in vehicles, biodiesel production, and carbon-capture technology for coal-fired power plants.

Some House Democrats want to include a one-year AMT (Alternative Minimum Tax) patch (although this could push the total cost of the stimulus bill too high for some Members to support).

Other tax provisions could include expanding EITC (the Earned Income Tax Credit) to cover childless couples, and expanding the child tax credit to make it fully refundable (allowing people without any tax liability to receive the credit).

Stabilizing the Financial, Housing, and Auto sectors

Recent developments: On January 15th, the Senate voted down a measure (42-52) to block release of the remaining $350 billion authorized by the TARP (Troubled Assets Relief Program) -- clearing the way for Treasury to commit the funds.

Nevertheless, there are still widespread bipartisan concerns in Congress about the effectiveness of the first $350 billion.
Last Friday, Harvard Law School Professor Elizabeth Warren, who chairs a bipartisan TARP oversight panel said "we would urge Congress to consider the accountability and transparency questions, the question of whether money is going to be used for foreclosures, and the overall strategy issues as part of any additional requests made for more money." The panel's report questions whether Treasury knows what banks are doing with the TARP funds; expresses concern about inadequate transparency and asset valuation; finds that Treasury has yet to take any steps to use TARP funds to assist homeowners; and concludes that "Treasury does not have a coherent overall strategy and goals for use of the TARP funds." Congressional Oversight Panel Releases Second Report
This week House Financial Services Committee Chairman Barney Frank unveiled legislation placing conditions on expenditure of the $350 billion remaining in the TARP fund (Troubled Assets Relief Program). In particular, it would require that at least $40-$50 billion be spent for housing foreclosure relief. The bill would also require detailed reporting by financial institutions receiving assistance from TARP. However, at this time, there are no indications that the Senate will take up the measure.

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.

Obama Pledges Entitlement Reform

In an interview with the Washington Post, President-Elect Barack Obama pledged to move forward with entitlement reforms saying the nation's long-term economic recovery cannot be achieved without bringing rapidly growing entitlement spending under control.

Obama pledged to convene in February a "fiscal responsibility summit."

He said "what we have done is kicked this can down the road. We are now at the end of the road and are not in a position to kick it any further. We have to signal seriousness in this by making sure some of the hard decisions are made under my watch, not someone else's."

Obama added, "This, by the way, is where there are going to be very difficult choices and issues of sacrifice and responsibility and duty. You have to have a president who is willing to spend some political capital on this. And I intend to spend some."

More specifically, Obama said "Social Security, we can solve. The big problem is Medicare, which is unsustainable....We can't solve Medicare in isolation from the broader problems of the health-care system."

In 2008, the Concord Coalition, along with representatives from The Brookings Institution, The Heritage Foundation, The American Enterprise Institute, The New America Foundation, The Progressive Policy Institute, and The Urban Institute released a nonpartisan report outlining the long-term unsustainability of current entitlement spending in a report entitled Taking Back our Fiscal Future.

See Concord Coalition comments at Concord Coalition: Blog: The (Tab)ulation

One Small Victory for PAYGO

This week the House passed a bill to reauthorize and expand SCHIP (the State Children's Health Insurance Program), the cost of which is fully offset by tax increases--primarily a 61 cent per pack increase in cigarette taxes, as well as closing a small loophole for doctor-owned specialty hospitals.

Senate Finance Committee marked up its version of the SCHIP bill on Thursday, with Floor action expected next week.

CBO Releases Report on TARP

In the first of a series of reports on the TARP (Troubled Asset Relief Program), CBO found that "as of the end of December, the Treasury had spent $247 billion of the first $350 billion and had plans in place for most of the rest of that half of the funds."

The report continues: "Although CBO believes that the budget should record only subsidy cost of those purchases (an estimated $64 billion through December 31), the Treasury has had to borrow the full amount disbursed, thereby increasing debt held by the public by $247 billion." (emphasis added)

Full CBO Report