This week budget negotiators reached agreement on the FY 2010 Budget Resolution (S.Con.Res. 13).  The measure -- which is a congressional blueprint and does not require presidential signature -- passed the House by a vote of 233-193, and passed the Senate by a vote of 53-43.  The budget plan received no Republican support.  

Highlights of the budget resolution conference agreement follow:

- Total outlays are estimated at $3.5 trillion for FY 2010, with revenues of $2.3 trillion, and a deficit of $1.2 trillion.

- Health Care Reform:  allows the filibuster-proof budget reconciliation process to be used for health care reform (details below).

- Student Loan Reform:  Allows the filibuster-proof budget reconciliation process to be used for student loan reform that eliminates subsidies for private lenders and increases availability of direct student loans

- Total discretionary spending for FY 2010 is set at $1.086 trillion, which is $10 billion less than the President's request and a 6% increase over FY 2009 base discretionary spending. The discretionary total is assumed to include $556 billion for defense (the President's request) and $530 billion for nondefense discretionary spending--although the Appropriations Committees can alter this split (details below).

- Extension of the "middle class" portion of the expiring Bush tax cuts (costing more than $2 trillion over 10 years) will require a 60-vote PAYGO waiver in the Senate, but no waiver in the House due to a baseline adjustment (details below).

- Renewable energy / climate change legislation does not receive budget reconciliation protection in the Budget Resolution and is therefore vulnerable to filibuster. (The House could theoretically use the reconciliation instructions to piggyback a climate change bill on health care reform, but that could result in losing reconciliation protections for health care reform in the Senate--since some energy and climate provisions would be outside the jurisdiction of the committees receiving reconciliation instructions). 

- Assumes only a 3-year fix for the AMT (Alternative Minimum Tax) in order to hold down outyear deficit numbers.

- Assumes only a 2-year fix to Medicare physician reimbursement rates in order to hold down outyear deficit numbers.

- Passage of the Budget Resolution triggered automatic House passage of an increase in the debt ceiling to $13.029 trillion (which includes debt held by the public and debt held by government trust funds). The Senate will have to vote on the measure.

- Unlike the President's Budget, which proposed spending and revenue levels for 10 years, the Budget Resolution covers only 5 years, which obscures rising deficit numbers in the outyears.

Senate Budget Committee Overview (Democrats)

House Budget Committee Press Release (Democrats)

House Budget Committee Republican Analysis of Conference Report 

Under the Budget Resolution Conference Report, health care reform can proceed in either of 2 ways: 

1. Bipartisan Approach:  It can proceed this summer pursuant to the budget resolution reserve fund which requires that health care reform be deficit neutral (over 11 years in the Senate and over 6 years and 11 years in the House).  This path to health care reform would be subject to Senate filibuster and therefore effectively requires 60 votes to pass the Senate.
2. Reconciliation Fallback:  If the first option fails, health care reform can be reported from the committees of jurisdiction by October 15 as a filibuster-proof Budget Reconciliation bill that would have net deficit reduction of $1 billion over FY 2009-2014. Because the bill would be filibuster-proof, it would effectively require only 51 votes. Under the Senate's PAYGO rule, the reconciliation bill would also have to be deficit neutral over 6 years and 11 years. 

The Reconciliation path to health care reform, while having the advantage of a simple majority (51 vote) requirement, has a downside, which is that all provisions in the bill must be "budgetary" in nature.  Purely policy provisions without a budget impact, or with an "incidental" budget impact cannot be included in the reconciliation bill (due to a restriction known as the "Byrd Rule").

The House and Senate both have pay-as-you-go ("PAYGO") rules that require new tax cuts and new entitlement spending to be "paid for," i.e., their costs have to be offset by tax increases and/or spending cuts.

The Obama Administration and most members of Congress -- on both sides of the aisle -- support permanent extension of the "middle class" portion of the Bush tax cuts.  These provisions, which expire at the end of 2010, include: the 10% individual income tax bracket; marriage penalty relief; the $1000 child tax credit; education incentives; and other provisions. 

Neither Democrats nor Republicans--in the House or the Senate--want to pay for the cost of extending these provisions, which CBO estimates at more than $2 trillion over 10 years (including added debt service costs).

The Budget Resolution Conference Report includes a provision that--in the House of Representatives--adjusts the budget baseline to include the post-2010 tax cuts.  In effect, this allows the House to assume--with its adjusted baseline--that there is no cost associated with the tax cut extensions. Similar baseline adjustments are allowed for fixing the AMT (Alternative Minimum Tax), estate tax relief, and relief from automatic cuts in Medicare payments to physicians.

The baseline adjustment in the House is made contingent on House passage of "statutory PAYGO" -- a fiscal enforcement measure from the 1990s that imposed automatic budget cuts if the PAYGO requirement was breached.

In effect, the Budget Resolution Conference Report waives PAYGO in the House of Representatives for purposes of extending the middle class portion of the Bush tax cuts, estate tax relief, fixing the AMT, and fixing Medicare physician payments in exchange for a promise to be more fiscally responsible in the future (under a statutory PAYGO regime). 

This approach was underscored in an April 29 letter from House Speaker Nancy Pelosi (D-CA) and Majority Leader Steny Hoyer (D-MD) which states that "the House will not consider any conference reports on these four bills (middle class tax cuts, estate tax, AMT relief, and Medicare physician payments)...unless these conference reports or bills include statutory PAYGO...or statutory PAYGO has already been enacted into law."  

The Senate, while not setting up a "baseline adjustment," is just as likely to ignore PAYGO for the purposes of making the middle class tax cuts permanent, fixing AMT, estate tax relief, and the Medicare physician payment fix. It is anticipated that the Senate will simply vote to waive its PAYGO rule (requiring 60 votes) when those measure come to the Senate Floor.

Text of Pelosi-Hoyer letter

Blue Dogs Release PAYGO bill

President Releases Letter Supporting PAYGO

The Budget Resolution's $1.086 trillion allocation for discretionary spending can be adjusted upward for the following specific purposes:

• $1.9 billion in additional LIHEAP (Low Income Home Energy Assistance Program) funding;
• $485 million for Social Security Administration disability reviews and Supplemental Security Income redeterminations;
• $311 million for HHS health care fraud and abuse control; and
• $50 million for Labor Dept. unemployment insurance payment reviews. 

The Budget Resolution also uses a mechanism to target additional funds for heightened IRS tax enforcement ($600 million in the House and $890 million in the Senate).

There is broad agreement that the rapid growth of health care costs is a prime driver of exploding, unsustainable budget deficits.  Medicare and Medicaid are growing at an alarming pace. Consequently, a vital component of impending health care reform legislation will be strategies to reduce the rapid growth of health care costs.

Early this week, the Senate Finance Committee released an options paper for health care reform. Among the cost-saving options discussed in the options paper are:

• Change the Medicare reimbursement structure so that it emphasizes positive outcomes and the quality of care rather then the volulme of tests, scans, and procedures provided.
• Use Medicare payments to promote quality primary care.
• Medicare pilot programs for patient-centered care coordination models for the chronically ill that improve quality and reduce spending. 
• Single bundled Medicare payments for acute and post-acute episodes of care.
• Promote competition among Medicare providers.
• Invest in health information technology to promote efficiency and quality care and reduce unnecessary procedures.
• Invest in research on which treatments work best for which patients.
• Close loopholes in physician self-referral laws.
• Increase graduate medical education (GME) training positions for primary care.
• Promote quality and efficiency in Medicare Advantage (private) plans.
• Reduce waste by enhancing the review of health care providers prior to granting billing privileges.