June 27, 2017

WEEKLY REPORT: July 15, 2008

WEEKLY REPORT: July 15, 2008
FY '09 Appropriations Bills Stalled Senate Appropriations Committee to markup Second FY'08 Supplemental/Stimulus Bill Senate Passes Medicare Patch; Veto Override Likely Tax Extenders Remain Mired in Clash over Offsets Senate Passes Housing Legislation; Collapse in Fannie and Freddie Stocks Adds Momentum


Important Note to WBR Subscribers: Effective immediately, the Washington Budget Report will be published weekly by the Concord Coalition--a nationwide, nonpartisan, grassroots organization advocating responsible fiscal policy. The Coalition was founded in 1992 by the late Senator Paul Tsongas (D-MA) and former Senator Warren Rudman (R-NH). Former Senator Bob Kerrey (D-NE) was named co-chair in 2002.

Charles Konigsberg, who now serves as Chief Budget Counsel at the Concord Coalition, will continue to write and edit the weekly Budget Report.

For additional information on the Concord Coalition, visit www.concordcoalition.org. For questions about the transition of the newsletter, contact Mr. Konigsberg at 703-894-6228 ext. 238.

Budget Process: Step-by-Step

Senate Appropriations schedule:

Week of July 14: Agriculture; State Foreign- Ops; Military Construction-VA
Week of July 21: Defense; Interior-Environment; Legislative Branch; Second '08 Supplemental/Stimulus Bill

House Appropriations: appropriations mark-ups have been suspended, as explained below. Click here for schedule updates.

Possible House Floor consideration this week of the Senate-passed housing-mortgage relief bill.

FY '09 Appropriations Bills Stalled

By mid-July, the House of Representatives would typically have completed action on at least several of the 12 regular appropriations bills that fund the departments of government.

However, as reflected in the chart below, although the full House Appropriations Committee has marked up five bills and the Senate Committee has marked up six, neither the House nor the Senate have brought a single appropriations bill to the Floor.

This reflects a couple factors:

--First, President Bush has threatened to veto any appropriations bills that exceed his request, and Democrats--as reflected in the Budget Resolution-- have called for nearly $25 billion more than the President requested. If Democrats wait until after the presidential election to make FY '09 funding decisions, they see the possibility of negotiating funding levels with a Democratic President. As reported by Congressional Quarterly, Senate Majority Leader Harry Reid (D-NV) said last week, "I hope we would do a continuing resolution until after Sen. Obama becomes President."

--In addition, House Republicans have been attempting to amend appropriations bills with off- shore oil drilling amendments, opposed by many Democrats. According to Congressional Quarterly, last week House Majority Leader Steny Hoyer (D-MD) backed a decision by Appropriations Chairman David Obey (D-WI) to suspend markup of the Labor- HHS appropriations bill when Republicans attempted to amend the bill with oil drilling language.

Despite the unlikelihood of Floor action, appropriations action at the Senate committee level has been proceeding -- which will facilitate final action on '09 bills after the election. Senate Appropriations Robert C. Byrd (D-WV) has signaled his intent to complete all committee action before the August recess.

[Click on the blue links for information on each appropriations bill.]

  Latest House Committee
Floor Action
Latest Senate Committee
Floor Action
Action; President
Agriculture Subcomm: 6/19        
Commerce- Justice-Science      
Energy- Water      
Financial Services      
Homeland Security      
Interior- Environment        
Labor-HHS- Education      
Legislative Branch        
Military Construction-VA        
State-Foreign Operations          

Background on Appropriations.-- The 12 annual appropriations bills provide funds for all of the discretionary programs, projects, and activities of the Federal government. In total, the 12 appropriations bills allocate about $1 trillion -- one-third of the $3 trillion Federal budget.

(The other $2 billion consists of entitlement programs-- the largest being Social Security, Medicare, and Medicaid--as well as interest payments on the Federal debt and other "mandatory spending.")

The total amount of funding available for the annual appropriations bills is determined by the Congressional Budget Resolution. The House and Senate completed action June 5th on S.Con.Res. 70, the Congressional Budget Resolution for FY 2009 (the fiscal year beginning October 1, 2008).

Following adoption of the Budget Resolution, the House and Senate Budget Committees provided to their respective Appropriations Committees a lump-sum discretionary spending allocation (called a "302(a) allocation"). The total allocation for FY '09 was approximately $1,013 billion --about $21 billion higher than the President's $992 billion request ($24.5 billion more than the President's request when advance appropriations and special adjustments for enforcement initiatives are included.

After receiving their respective 302(a) allocations, the House and Senate Appropriations Committees allocated total discretionary spending among their 12 respective subcommittees.These suballocations are called "302(b) allocations" and determine how much funding authority is available for programs under the jurisdiction of each subcommittee.

The Senate Appropriations Committee approved its 302(b) subcommittee allocations on June 19. The House Appropriations Committee approved its suballocations the week of June 24. The following table compares the subcommittee allocations with the President's request.

(discretionary budget authority allocated to appropriations subcommittees)

'08 Enacted

'09 Request

Senate FY'09

House FY
'09 Allocations
Senate Allocation
Compared to President
Defense (w/o war funding)
- 4.0
Homeland Security
+ 2.5
Military Con-Veterans Affairs
+ 3.7
State- Foreign Ops
- 1.6

Nondefense Domestic Discretionary:

Commerce-Justice- Science
Energy- Water
Financial Services-General Govt
Interior- Environment
Labor- Health- Education
Legislative Branch
- 0.4
Transportation- Housing
Subtotal - Nondefense Domestic:

Total Discretionary

*($24.5 billlion more than the President's request when advance appropriations and special adjustments for enforcement initiatives are included.)

Senate Appropriations Committee to markup Second FY'08 Supplemental/Stimulus Bill

Senate Appropriations Committee Chairman Robert C. Byrd (D-WV) has announced plans to mark-up a second FY '08 supplemental appropriations bill on July 22, 2008.

The bill may include funding for:

--low-income energy assistance (LIHEAP);
--food stamps;
--infrastructure projects
to stimulate the economy;
--disaster relief
(western wildfire and midwest floods); and
--Gulf Coast hurricane recovery.

This would follow last month's action on the first FY'08 Supplemental Appropriations Bill (P.L. 110-252) that included: $162 billion in war funding without any timetables; an expanded "GI Bill" providing enhanced veterans' education benefits;
an extension of unemployment insurance; emergency disaster relief funds to deal with flooding in the Midwest; and
a delay in 6 controversial Medicaid regulations.

Senate Passes Medicare Patch; Veto Override Likely

The Senate last week passed HR 6331, a bill to nullify automatic cuts in Medicare payments to physicians. The bill passed July 9th, after the ailing Sen. Ted Kennedy (D-MA) returned to the Senate to cast the decisive 60th vote needed to break a Republican filibuster and bring the measure to a final vote.

The bill would nullify a cut of 10.6%, scheduled to occur this month due to a provision in the the Balanced Budget Act of 1997. Supporters of the bill believe that a significant number of physicians would refuse to accept Medicare patients if the cut in physician payments goes into effect.

However, the Administration and many congressional Republicans oppose the bill because it would offset the bill's cost by cutting payments to privately run ("Medicare Advantage") plans. Many Democrats believe the private plans receive too much government support, while many Republicans believe the private sector managed care plans will reduce overall Medicare costs (though that has not yet been the experience).

Outlook.-- Once Sen. Kennedy broke the filibuster (by casting the 60th vote needed to invoke cloture and bring the bill to a vote), an additional 9 Republicans switched their votes to support cloture. However, the outcome remains uncertain. President Bush has threatened to veto the bill and 67 votes (2/3) are required to override the veto. It is unclear whether the 9 Republicans who backed off from a filibuster will vote to override the anticipated presidential veto.

There will be no difficulty overriding the veto in the House. The House passed the measure on June 24, 2008 by a lopsided 355-59.

Background.-- The 1997 Balanced Budget Act set up a cost control mechanism called the "sustainable growth rate" (SGR) to trigger automatic reductions in physician reimbursements if payments exceed a benchmark level. The idea was to rein in out-of-control increases in Medicare payments to physicians and allow a growth rate that is "sustainable" from a budgetary perspective.

However, after the first automatic cut went into effect in 2002, physicians successfully lobbied for a reversal of the cuts. And since then, each time the SGR mechanism would have triggered a cut, Congress has nullified the cuts and substituted a modest increase. This is what the proposed legislation would do in the current fiscal year. (And the more time that passes without an SGR adjustment, the automatic cuts required by the 1997 law grow larger and more unrealistic.)

In a May 22, 2008 letter to Congress, Health and Human Services Secretary Michael Leavitt said the President would veto any Medicare bill that cuts payments to Medicare Advantage plans.

Other provisions in the Baucus bill would: provide a general payment increase of 1.1%; provide incentives for physicians to use electronic prescriptions; offer more assistance to low-income participants in the Medicare prescription drug program; eliminate higher copayments for mental health services; and enhance services in rural areas.

From a fiscal perspective, legislation of this type--which annually tinkers around the edges of the Medicare program--reflects an ongoing stalemate between Democrats and Republicans over how to rein in the rapid growth of Medicare costs. The rapid growth of Medicare is being driven by overall increases in health care costs and is accelerating as baby boomers retire.

Unchecked Medicare growth is a key component of the looming fiscal crisis facing the nation.

Statement of Administration Policy
Section-by-section summary of Sen. Baucus' Medicare Improvements for Patients and Providers Act of 2008
CBO Cost Estimate

Tax Extenders Remain Mired in Clash over Offsets

The $55 billion tax extenders and energy incentives bill--HR 6049-- remains mired in a partisan disagreement over offsets. Over 10 years, the bill would spend about $27 billion on provisions to extend dozens of expired (and expiring) tax provisions. The bill also includes nearly $17 billion in energy tax incentives and about $10 billion in additional tax relief. The bill passed the House 263-160 on May 21.

House and Senate Democrats want to offset the costs of the bill as required by current PAYGO rules, while Republicans strongly disagree with the PAYGO requirement.

Republicans point out that under current congressional budget rules, extension of expiring entitlement spending programs do not require offsets (which is correct). However, Democrats point out that the repeal of PAYGO early in the Bush Administration, and the subsequent failure to pay for the 2001 and 2003 tax cuts, has led to large deficits and trillions in new debt (which is also correct)..

The current House and Senate PAYGO rules were put in place when Democrats regained the majority in 2007. They are based on the PAYGO law of the 1990s, which required that any new tax cuts need to be offset by revenue raisers (or entitlement cuts).

However, unlike the PAYGO statute of the 1990s (which was enforced through the threat of automatic entitlement cuts), the current PAYGO rules lack any statutory enforcement mechanism. Consequently, it has been difficult to enforce the current rules, which have already been waived a number of times. Most notably, last year's AMT patch was not offset.

Senate Democrats have already conceded that this year's AMT patch will not be offset, but they have joined House Democrats in their insistence that the tax extenders bill must be offset.

More specifically, the House- passed bill would pay for the extenders and tax incentives by curtailing certain offshore deferred compensation plans and delaying a tax benefit for multinational corporations.

Due to this fundamental disagreement on offsets, Senate Republicans have twice blocked consideration of the extenders bill. 41 Republican Senators (the number needed to successfully filibuster legislation) have signed a letter opposing the use of any offsets for extenders or AMT relief. (The letter was signed by the party leadership, Senator John McCain (R-AZ), and all Finance Committee Republicans except for Maine Senator Olympia Snowe.) Text of the Senate Letter

In addition to placing a broad array of tax extenders and incentives in legislative limbo, the logjam is also casting doubt over when and how this year's AMT patch will be enacted. Senate Finance Chairman Baucus had hoped to attach an AMT patch to the extenders bill. Failure to extend Alternative Minimum Tax Relief through 2008 would result in the AMT boosting taxes for 21 million taxpayers.

JCT Revenue Estimate (summarizes the bill)
JCT Description (detailed description of provisions)

President Bush has threatened to veto the bill due to the revenue raisers.

Meanwhile, House Democrats are preparing to take action on an AMT patch with offsets. The House AMT patch, drafted by House Ways & Means Chairman Charles Rangel (D-NY) would be paid for by a number of offsets, including the taxing of investment managers' income at regular income rates rather than capital gains rate (known as the "carried interest" provision).

Outlook:.In a recent letter, Senate Republican Leader Mitch McConnell (R-KY) suggested offsetting the cost of the tax extenders by scaling back future discretionary appropriations. However, that appears to be a nonstarter for Democrats.

Among the Items extended by the bill are:

--the R&E tax credit (usually referred to as the research and development credit)
--the option to deduct state sales taxes instead of income taxes
--the deduction for qualified tuition expenses
--tax-free distribution from IRAs to certain public charities
--the deduction for teacher classroom expenses
--the "new markets" tax credit
--15-yr straight-line cost recovery for qualified leasehold improvements
--expensing of "Brownfields" environmental remediation costs

Among the energy tax incentives are:

--$10 billion over 10 years for clean energy production incentives
--$2.7 billion over 10 years for transportation and domestic fuel security provisions
--$4.3 billion over 10 years for energy conservation and efficiency provisions

Senate Passes Housing Legislation; Collapse in Fannie and Freddie Stocks Adds Momentum

The Senate last Friday passed housing and mortgage relief legislation (HR 3221) , by a vote of 63-5 (although a more critical vote occurred the previous day when the Senate invoked cloture 84-12).

The bipartisan Dodd-Shelby housing relief bill is aimed at helping borrowers avoid foreclosure by expanding the Federal Housing Administration's (FHA) loan guarantee authority. The legislation would also overhaul the regulation of Fannie Mae and Freddie Mac--adding to the momentum driving the bill in light of Wall Street's loss of confidence in the two mortgage giants.

While completion of the bill has strong support in the House and Senate, opponents have attempted to characterize the expanded FHA authority as a "$300 billion bailout" for bad mortgage decisions. However, this is not a direct loan program; it is a loan guarantee program designed to encourage private lenders to refinance mortgage loans, under strict Federal requirements, to help homeowners avoid foreclosure. The projected Federal cost of the FHA program accrues only to the small percentage of loans that end in default.

Despite strong bipartisan support for the bill, the Administration had earlier threatened a veto due to expanded FHA loan guarantee authority and new block grant funding for states to purchase and rehab foreclosed properties. However, Administration opposition appears to be softening in light of strong bipartisan support on the Hill and the need to restore investor confidence in Fannie and Freddie. Last week, Treasury Secretary Paulson said, "We appreciate Congress' important efforts to complete legislation that will promote confidence in these companies."

Paulson Statement
Senate Banking Committee Summary of Dodd-Shelby Housing Bill
CBO Cost Estimate
Statement of Administration Policy on Senate bill

Key issues in ongoing negotiations include:

--The Senate's proposal to use a new Affordable Housing Trust Fund to pay for an expansion of Federal mortgage guarantees. House Financial Services Chairman Barney Frank (D-MA) strongly opposes this use of Trust Fund resources.

--The Senate's proposed "net operating loss carryback" provision that would provide tax relief to homebuilders, real estate companies, and financial institutions hit by the downturn in the housing market. House Democrats have raised concerns about the $25 billion 3-year cost of the "NOL" provision.

Outlook: House-Senate negotiations are being conducted by bouncing the legislation back and forth, rather than through a House-Senate conference. This helps Members to guage support for various changes. The House is expected to make some changes to the bill this week before sending it back to the Senate. Given the rate of foreclosures and last week's nose-dive in Fannie and Freddie stock, completion of the bill is likely prior to the August recess.

Following is a brief comparison of the Senate Banking Committee and House-passed measures:

HOUSING BILLS Senate Amendment House Passed (HR 3221)
$300 billion expansion of FHA's loan insurance programs aimed at helping borrowers avoid foreclosure
FHA would provide up to $300 billion in new loan guarantees to help borrowers refinance existing mortgages. Participating lenders would voluntarily accept a write-down in exchange for a Federal loan guarantee. Loans could not exceed 90% of appraised value and would have to be fixed rate. Costs would be offset from the new Affordable Housing Trust Fund (see below).
Similar to Senate bill, except the legislation would not allow Trust Fund assets to offset the costs of the refinancing program. Also, the House FHA program would last through 2013, while the Senate program would end in 2011.
New Affordable Housing
Trust Fund
Would be funded by Fannie, Freddie and Home Loan Banks and is intended to build and repair
1.5 million low-cost homes.
House Chairman Barney Frank opposes using Trust Fund revenues to underwrite the FHA program.

Regulation of
Fannie Mae and
Freddie Mac

A single Federal regulator would establish minimum capital requirements and limit the size of portfolios.
Background: Fannie Mae and Freddie Mac are government chartered corporations, with private shareholders. They operate with implied, but not explicit, government backing.
Similar to Senate, although the House bill would not begin the new Federal regulation for 6 months
Maximum Conforming Loans (which is the cap on the size of mortgages Fannie and Freddie can buy)
$625,000 in high cost areas.
125% of median home price or $729,750, whichever is less.
Aid for State and Local Governments to purchase, renovate, and sell foreclosed housing Nearly $4 billion in Community Development Block Grants for states and local governments to purchase and rahabilitate foreclosed properties.< /td> No similar grants, but in a separate bill the House would authorize HUD to make $15 billion in loans to States for housing authorities and nonprofits to purchase, renovate, and sell foreclosed housing. See HR 5818

Tax Incentives for

Includes a refundable tax credit up $8000 for first-time homebuyers and an additional standard deduction for state and local property taxes. Cost: $14.5 billion, with all but $2.4 billion offset.
Includes $11 billion in tax breaks


Recent Budget Documents