June 24, 2017

Washington Budget Report: Jan. 8, 2013

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New Congress Faces More Budget Battles

The 113th Congress convened last week amid widespread concern that the fiscal cliff legislation – signed Wednesday by President Obama – set the stage for a series of “mini-cliffs” and intense political struggles over federal budget issues early this year.

The Concord Coalition, the Campaign to Fix the Debt and many others who support fiscal responsibility had pushed last year for a comprehensive approach to budget reform – or at least a framework for the new Congress to quickly move forward on it. In a new blog post, Concord Coalition Executive Director Robert L. Bixby agrees with remarks last week by retiring Senate Budget Committee Chairman Kent Conrad (D.-N.D.), who said the new legislation was a short-term fix that simply postponed badly needed deficit reduction work.

In fact, according to the Congressional Budget Office, the fiscal cliff deal – which focused largely on tax cuts – will increase federal deficits by $4.6 trillion in the coming decade relative to what had been current law. The legislation failed to address key parts of the budget, including the need for broad reforms in the entitlement programs and the tax system.

For the country’s future, Conrad warned in his parting remarks to Capitol Hill colleagues, “it is critically important that the next Congress, in its early days, try to get back to doing the grand bargain, the big deal” that could stabilize the debt in the coming years and eventually start bringing it down.

Conrad noted that the federal government is borrowing 31 cents of every dollar it spends – an improvement over the recent past, but still unsustainable. And he refuted those who say that this is just a spending problem or just a revenue problem.

“This is a problem of the relationship between spending and revenue,” Conrad said. “The gap – much higher spending than we have revenue – is what leads to deficits and leads to additions to the debt.” As he noted, federal revenues are near a 60-year low as a share of the economy, while spending is near a 60-year high.

With the federal government again bumping up against its statutory debt limit, Congress will soon need to raise that limit to avoid default and pay for previously approved spending and revenue policies. Some Republicans, however, are characterizing a debt limit increase as a concession to President Obama that they will not approve without getting something in return. Obama says he will not be drawn into negotiations over the debt limit.

Other key fiscal decisions facing the new Congress: What to do about the “automatic” spending cuts that lawmakers agreed last week to postpone for two months, and how to deal with the expiration in late March of the continuing resolution that is funding the government for the current fiscal year. Like the debt limit increase, these issues are essentially leftovers from the partisan stalemates of the last Congress.

There are also some intra-party tensions, with both Obama and House Speaker John Boehner drawing some criticism from members of their parties who were disgruntled with various aspects of the fiscal cliff deal. Boehner was re-elected speaker last week but did not receive the support of a dozen Republican House members.

Obama Signs Law to Provide Sandy Aid

Over the weekend, President Obama signed legislation to provide an initial $9.7 billion in disaster relief funding for states recovering from Hurricane Sandy. The funding will provide additional borrowing authority to enable the Federal Emergency Management Agency to continue processing claims under the National Flood Insurance Program.

The House passed the bill on Friday by a 354-67 vote, and the Senate then passed it with a voice vote.   

Last month the White House requested $60.4 billion in supplemental funding for priorities such as the Community Development Block Grant program, the Federal Emergency Management Agency’s response and recovery efforts, the National Flood Insurance Program, repairs to transportation infrastructure in places such as New York City, and Federal Transit Administration and Army Corps of Engineers programs to reduce the risk of future flooding and damage to transportation systems.

Prior to the end of the 112th Congress, the Senate passed a bill that would have provided the  funding requested by the White House.

House Speaker John Boehner and Majority Leader Eric Cantor said last week that the House would consider the remainder of the administration’s request on Jan. 15, the first full legislative day of the 113th Congress. One of the major issues in the House is likely to be the size of the bill. The Senate bill provides the full $60.4 billion request, though many House Republicans have said that the bill should be smaller and focus only on the most immediate funding needs.

House Appropriations Committee Chairman Harold Rogers has introduced legislation to provide $17 billion in additional funding “to meet immediate and critical needs for Sandy victims and their communities.” Rogers indicated that the House would vote on his legislation and a separate amendment to provide an additional $33 billion for longer-term recovery efforts to help prevent damage from future disasters.

States Fret Over Washington’s Fiscal Problems

Although recession-related pressures on state budgets may be easing, governors and other state officials around the country are worried about the potential impact of Washington’s fiscal difficulties.

State finances are “modestly recovering in step with the slowly improving national economy,” according to the latest semi-annual Fiscal Survey of States, recently released by the National Governors Association and the National Association of State Budget Officers. While growth is uneven among states and often has not returned to pre-recession levels, states are showing improvements in tax revenues in comparison to previous years.

But the report says states are deeply concerned about “the significant uncertainty surrounding federal tax and spending decisions, which could negatively impact the economy and federal funding for states.”

Congress last week delayed for two months the “automatic” spending cuts that had been scheduled to start this month under the U.S. Budget Control Act of 2011. Even if  those cuts are eventually avoided, the Fiscal Survey of States said, “the likely policies required to address the nation’s long-term fiscal debt problems may also reduce the level of federal funds for states.”