August 22, 2014

WEEKLY REPORT: August 5, 2008

WEEKLY REPORT: August 5, 2008
House Passes Mil Con-VA, but FY '09 Appropriations Still Deadlocked Senate Appropriators Drafting Second Stimulus/Supplemental Bill for Consideration in September Gridlock continues on Tax Extenders, Energy Incentives, AMT Bill Amid Worries About Fannie and Freddie, President Signs Sweeping Housing Bill I.O.U.S.A. -- The Movie

Announcements

Important Note to Readers: The Concord Coalition Washington Budget Report will resume weekly publication on Monday, September 8th after Congress convenes from recess. You can access Washington Budget Report Archives, going back to January 2007, at http://washingtonbudgetreport.com/archives.php.

In an effort to keep you up-to-date and informed about Federal budget negotiations and activities, the Concord Coalition is pleased to announce that we have acquired the highly-respected Washington Budget Report, which is now The Concord Coalition Washington Budget Report.

Delivered weekly when Congress is in session, the new Concord Coalition Washington Budget Report gives you the news, behind the scenes stories, and thoughtful analysis in an easy-to-read format. Written and edited by Charles Konigsberg, Chief Budget Counsel of The Concord Coalition, the Budget Report will be your source for news about the budget and fiscal policy.

We are pleased to send you the Budget Report, along with the other issue briefs and policy analyses you are already receiving. We think you'll find it a valuable addition to your knowledge base.

The Concord Coalition relies on support from people like you, across the country, who are concerned about the direction in which our nation is headed. If you like our new Washington Budget Report and the other information and resources you receive from The Concord Coalition, we invite you to visit http://concordcoalition.org/support.html and consider making a tax-deductible contribution today in support of The Concord Coalition's work.

Budget Process: Step-by-Step

Congress has recessed for the traditional August recess period and the national political conventions:

--Democratic Convention: Aug. 25-28
--Republican Convention: Sept. 1-4

September 8: Congress reconvenes

September 26: Target Adjournment Date for 110th Congress

October 1: Fiscal Year 2009 Begins. Since and few FY 2009 appropriations bill are expected to be enacted by September 30, Federal agencies that have not been funded will be forced to shut down on October 1 unless a "continuing resolution" is enacted. (Continuing resolutions allow funding for designated agencies and programs to continue at a specified level--usually the prior year's level or the House-passed or Senate-passed level--until the regular appropriations bills are enacted into law.) The last government shutdown occurred in 1995 during a stand-off between President Bill Clinton and the Republican-controlled Congress over proposed budget cuts.

House Passes Mil Con-VA, but FY '09 Appropriations Still Deadlocked

By late July, the House of Representatives would typically have completed Floor action on most of the 12 regular appropriations bills that fund the departments of government.

However, as reflected in the chart below, the House had taken up and passed only one appropriations bill--Military Construction/VA--when they adjourned for the August recess.

House Mil Con-VA bill summary

The other bills that might see action before Congress adjourns in September are:

--the Defense Appropriations Bill, which the Defense Appropriations Subcommittee in the House marked up the last week of July; and

--a second stimulus/supplemental bill (discussed in the article below).

House Defense bill subcommittee summary

Aside from possible action on Defense and MilCon-VA, this year's appropriations is in a serious logjam because of two key 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. From Democrats' perspective, if they wait until after the presidential election to make FY '09 funding decisions, they may be working with a Democratic President. As reported by Congressional Quarterly, Senate Majority Leader Harry Reid (D-NV) said recently, "I hope we would do a continuing resolution until after Sen. Obama becomes President."

Second, House Republicans have been attempting to amend appropriations bills with off-shore oil drilling amendments, strongly opposed by many Democrats. On June 26, House Appropriations Chairman David Obey (D-WI) suspended markup of the Labor-HHS appropriations bill when Republicans attempted to substitute drilling language for the labor, health, and education provisions.

Despite the unlikelihood of significant Floor action in September, the Senate Appropriations Committee has completed action on most bills as reflected below.

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


Latest House Committee
Action
House
Floor Action
Latest Senate Committee
Action
Senate
Floor Action
Conference
Action; President
Agriculture Subcomm: 6/19 -- Full Comm: 7/17 -- --
Commerce-Justice-Science Full Comm: 6/25 --
Full Comm: 6/19 -- --
Defense**

Subcomm:
7/30

--
--
--
--
Energy-Water Full Comm: 6/25 -- Full Comm: 7/10 --
--
Financial Services Full Comm: 6/25 -- Full Comm: 7/10 --
--
Homeland Security Full Comm: 6/24 -- Full Comm: 6/19 --
--
Interior-Environment Subcomm: 6/11 -- --
--
--
Labor-HHS-Education Subcomm: 6/19
-- Full Comm: 6/26 --
--
Legislative Branch Subcomm: 6/23 -- --
--
--
Military Construction-VA Full Comm: 6/24 Passage:
8/01

Full Comm: 7/17 --
--
State-Foreign Operations Subcomm: 7/16 -- Full Comm: 7/17 --
--
Transportation-HUD Subcomm: 6/20 -- Full Comm: 7/10 --
--


**War funding for the first part of FY '09 was provided in the FY '08 Supplemental Appropriations Bill.

Click here for additional details on status of appropriations bills.

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 of discretionary spending -- one-third of the $3 trillion Federal budget.

(The other $2 trillion 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 provide 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 (and $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 allocate 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--a key decision-point in the budget process.

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)

Subcommittee
Allocations
'08 Enacted

President's
'09 Request

Senate FY'09
Appropriations
Allocations

House FY
'09 Allocations
Senate Allocation
Compared to President
Defense (w/o war funding)
459
492
488
488
-4.0
Homeland Security
38
40
42
42
+ 2.5
Military Con-Veterans Affairs
64
69
73
73
+ 3.7
State-Foreign Ops
33
38
37
37
- 1.6

   

   
Nondefense Domestic Discretionary:
   

   
Agriculture
18
19
20.4
20.6
+1.8
Commerce-Justice-Science
52
54
58
57
+4.2
Energy-Water
31
31
33
33
+1.9
Financial Services-General Govt
21
22
23
22
+0.5
Interior-Environment
27
26
28
28
+2.0
Labor-Health-Education
145
145
153
153
+7.8
Legislative Branch
4
4.8
4.4
4.4
- 0.4
Transportation-Housing
49
51
53
55
+2.7
Subtotal - Nondefense Domestic:
347
352
373
373
+21

   

   
Total Discretionary
940
992
1,013
1,013
+21*

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

Senate Appropriators Drafting Second Stimulus/Supplemental Bill for Consideration in September

A second economic stimulus/supplemental bill is being drafted by the Senate Appropriations Committee for consideration in September.

One scenario for September is that this discretionary spending package may be joined together with tax extenders, an AMT patch, and a continuing resolution through early 2009. Another possibility is that all of these items could be piggy-backed onto the Defense or Mil Con/VA appropriations bill.

According to a Senate Appropriations Committee press release, the stimulus/supplemental bill would provide more than $24 billion, including $10 billion for infrastructure, energy and economic recovery programs, and $10 billion for natural disaster recovery.

The $10 billion in infrastructure, energy, and economic recovery includes:

--$3.57 billion for highways;
--$2.3 billion for rural programs;
--$1.5 billion for alternative energy initiatives;
--$892 million for mass-transit agencies;
--$850 million for school repair and renovation;
--$570 million for nutrition programs;
--$561 million for border and homeland security;
--$500 million for job training;
--$400 million for clean water programs;
--$309 million for housing;
--$200 million for airport improvements;
--$100 million for small business assistance;
--$100 million for Amtrak; and
--$13 million for the Commodity Futures Trading Commission.

The $10 billion for natural disaster relief includes:

--nearly $3 billion for Hurricane Katrina Recovery;
--$1.8 billion for FEMA (Federal Emergency Management Agency);
--$1.8 billion for CDBG (Community Development Block Grants);
--$1.2 billion for repairing damaged highways; and
--$910 million for firefighting.

The other $4 billion in the bill includes:

--$1.3 billion for health and research investments at NIH, NASA, DoE, and CDC; and
--$1.25 billion for LIHEAP (the Low Income Home Energy Assistance Program).

Byrd Press Release

On the House side of the Capitol, House Speaker Nancy Pelosi recently suggested a larger stimulus bill in the range of $50 billion.

The first 2008 stimulus bill was signed into law on February 13, 2008 and cost $152 billion (HR 5140). The bipartisan package negotiated early this year provided tax rebates for individuals and business incentives. CBO cost estimate on first 2008 economic stimulus bill.

Gridlock continues on Tax Extenders, Energy Incentives, AMT Bill

On July 29 and 30, Senate leaders failed in their third and fourth attempts to invoke "cloture" (end a filibuster) on a package of energy incentives and tax extenders. The vote on S 3335, a revised tax bill introduced by Senator Baucus, was 51-43-- nine votes short of the 60 votes needed for cloture. An attempt to invoke cloture on the House-passed bill (HR 6049) fell seven votes short (53-43) of the required 60.

The tax package, which is also the likely vehicle for a critical one-year AMT (Alternative Minimum Tax) patch, will be at the top of Congress' agenda when they return in September. Failure to amend the AMT would result in tax increases for 21 million taxpayers when they file their 2008 returns.

In an attempt to garner the votes necessary to break a lengthy impasse, Senate Finance Committee Chairman Max Baucus (D-MT) had introduced S. 3335 and included some legislative "sweeteners" (disaster relief and mental health parity) to attract more votes.

However, Republicans continued to oppose the revised package because of their general opposition to including revenue raisers in the bill as required by the Senate's pay-as-you-go (PAYGO) rules. Senate Finance Committee Ranking Republican Charles Grassley (R-IA) said he objects to the bill because the legislation, "should not use tax increases to extend existing tax policy."

At the same time, Senate Majority Leader Harry Reid indicated that dropping the tax offsets would be a waste of time because "we know the House won't accept that, and rightfully so," (as quoted by BNA's Daily Tax Report).

The Baucus bill (S 3335) included:

--$17 billion in energy tax incentives;
--$28 billion in one-year tax extenders;
--$9 billion in "additional relief";
--$54 billion in revenue offsets to pay for the above provisions;
--$5.3 billion (not offset) in disaster relief provisions; and
--$64 billion (not offset) for a one-year AMT patch

Background.--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 (and new entitlement spending offset by spending cuts or revenue raisers).

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 and energy incentives must be offset.

Earlier in the year, 41 Republican Senators (the number needed to successfully filibuster legislation) 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

Among the items that would be extended by S. 3335 are:

--the R&E tax credit (usually referred to as the research and development credit)
--the option to deduct state and local 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 certain business improvements
--expensing of "Brownfields" environmental remediation costs
--other provisions described in the revenue estimates below

Among the energy tax incentives in the bill are:

--$10.6 billion over 10 years for alternative energy production incentives
--$1.8 billion over 10 years for transportation and domestic fuel security provisions
--$4.4 billion over 10 years for energy conservation and efficiency provisions
--other provisions described in the revenue estimates below

Among the revenue offsets in the bill are:

--Modifying tax treatment of deferred compensation of managers of offshore hedge funds
--Delaying the implementation of interest allocation provisions affecting multinationals
--Mandate reporting by brokers for transactions involving publicly traded securities

Latest veto threat on the extenders legislation

JCT Preliminary Revenue Estimate of Baucus Bill

Committee Description of Baucus Bill

JCT Revenue Estimate of House-passed bill

JCT Description of House-passed bill


Amid Worries About Fannie and Freddie, President Signs Sweeping Housing Bill

Amid worries about the stability of Fannie Mae and Freddie Mac, Congress moved quickly last month to complete action on a comprehensive housing bill (HR 3221). The President signed the measure on July 30, 2008 (PL 110-289).

The measure easily passed the House by a vote of 272-152, and the Senate by a vote of 72-13.

Major provisions of the bill -- titled the American Housing Rescue and Foreclosure Prevention Act of 2008 -- include the following:

1. In order to shore up confidence in Fannie Mae and Freddie Mac, the bill gives the Treasury Secretary authority to increase the line of credit available to both entities for the next 18 months; and gives the Treasury Department emergency authority (through Dec. 31, 2009) to purchase stock in Fannie and Freddie.

In estimating the cost of these provision, the Congressional Budget Office reviewed various scenarios. CBO noted "a significant chance--probably better than 50 percent--that the proposed new Treasury authority would not be used before it expired at the end of December 2009." CBO also acknowledged the possibility that the costs to the Treasury could be considerable--as high as $100 billion. However, on balance, "taking into account the probability of various possible outcomes," CBO estimated a Federal cost of $25 billion over fiscal years 2009 and 2010.

Under Congress' PAYGO rules, the estimated cost of $25 billion would normally have to be offset, but Congress chose to waive the rules--and instead required that the authority only be available if the Secretary of the Treasury declares an "emergency."

It should also be noted that if the emergency Treasury authority is used, the practical impact would be to raise the public debt--essentially shifting the financial burden to subsequent generations.

2. Creates a new independent agency (the Federal Housing Finance Agency) to regulate Fannie and Freddie through minimum capital requirements, limiting the size of portfolios, and limiting executive pay.

3. Permanently increases the cap on mortgages Fannie and Freddie can purchase (known as the "conforming loan limit") to the lesser of $625,000 or 115% of an area's median home price.

4. Authorizes $300 billion in Federal Housing Administration (FHA) loan guarantees through FY 2011 to help at-risk borrowers restructure high-cost loans with rapidly rising payments for more affordable mortgages backed by FHA. (As home prices have fallen, many borrowers now owe more than their homes are worth, making it impossible to refinance variable rate mortgages.) Lenders participating in this program would voluntarily accept a write-down in exchange for a Federal loan guarantee.

(Context: The cost to the Treasury is not $300 billion, as many media reports have suggested. These are Federal loan guarantees, which means that private lenders provide the loans and a cost accrues to the Federal government only when a default occurs.)

5. Creates a $7500 refundable tax credit for first-time homebuyers (that would have to be repaid over 15 years).

6. Creates a standard deduction for property taxes for non-itemizers ($500 for single filers and $1000 for joint.)

7. Authorizes an additional $11 billion in tax-exempt housing bonds to finance new mortgages and low-income housing.

8. Pays for the above tax provisions with new IRS reporting requirements, and delaying a rule regarding allocation of interest by multinationals.

9. Provides $3.9 billion in grants to state and local governments to purchase and rehabilitate abandoned and foreclosed homes. (The Administration had earlier threated to veto the bill over this provision, arguing it was a bailout for lenders who foreclosed on properties. Democrats argue it would stabilize urban neighborhoods.)

10. Increases the statutory limit on the public debt from $9.8 trillion to $10.6 trillion (discussed in the previous article).

Background--Fannie Mae, Freddie Mac, and the Federal Budget

Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are congressionally chartered--but shareholder owned--financial institutions created to establish and maintain a secondary mortgage market. Fannie and Freddie support the residential home mortgage market by purchasing mortgages from lenders, who then use the proceeds to make more loans available to homebuyers. This eliminates regional disparities in mortgage rates and draws financing from around the world.

Fannie and Freddie raise capital for the purchases by: (1) issuing bonds; and (2) "securitization" which involves bundling similar mortgages together and reselling them as securities.

According to the Congressional Research Service, "the biggest advantage that Fannie Mae and Freddie Mac enjoy over other private companies is the presumption on the part of investors that, were the enterprises to fall into dire financial straits, the government would bail them out" -- an advantage reflected by this legislation.

CBO: Cost Estimate of H.R. 3221, the Housing Bill
JCT: Revenue Estimates of Tax Provisions in the Housing Bill
JCT: Explanation of Tax Provisions

CBO: Cost of Administration's Proposal to Authorize Assistance for Freddie and Fannie

I.O.U.S.A. -- The Movie


The Concord Coalition invites you to the nationwide premiere of the critically acclaimed independent documentary I.O.U.S.A.. The film, which debuted at the 2008 Sundance Film Festival, is showing in over 400 theaters across the country on August 21.

I.O.U.S.A. tells the real story of our national debt and why we need to reverse the flow of red ink before our nation faces a fiscal disaster. Highlights of the film include scenes of The Concord Coalition's Fiscal
Wake-Up Tour, which has taken its message of fiscal responsibility across the country non-stop over the past two years.

The August 21st showing will feature a special live satellite link to a town-hall meeting following the film featuring Warren Buffett, David alker, Pete Peterson, and others. You can find a theater near you and
showtimes for this unique screening at the following link:
http://www.fathomevents.com/details.aspx?eventid=728

The movie has its official opening Friday,August 22nd in the following cities: Atlanta, Chicago, Dallas, Kansas City (MO), Los Angeles, Miami, New York, Philadelphia, San Francisco and Washington, D.C.

I.O.U.S.A. will also be shown as part of the IMPACT film festival at both the Democratic and Republican national conventions, in Denver (August 25 -8) and Minneapolis (September 1 - 4).

For more information on the movie and The Concord Coalition's involvement, visit http://www.concordcoalition.org/iousa-movie. After you've seen the movie, send an email to iousa@concordcoalition.org and let us know what you thought.