Keep Calm with Appropriations and Carry On

Posted on June 14, 2017

Despite having no budget resolution and discretionary spending levels, the House and Senate Appropriations committees have decided to move forward with crafting draft bills.

Lawmakers of both parties and in both chambers have predicted the need for another stopgap measure to extend current funding levels when FY 2018 begins on October 1, 2017.

Without any budget in place or the prospect of one coming soon, congressional leaders understand that they must have some sort of spending package ready to avoid a government shutdown. Additionally, writing detailed spending bills that fund lots of popular programs is easier than navigating the treacherous politics involved in constructing a bipartisan deal over spending limits.

That said, the House and Senate are taking different approaches to crafting their bills.

On Monday, the House Appropriations Committee has released its version of the FY2018 Military Construction – VA appropriations bill. The first of the 12 annual spending bills Monday night — a popular measure funding the Department of Veterans Affairs and construction projects at military bases. The $88.8 billion measure is $6 billion over FY2017 levels, despite FY2018 sequester levels being less than FY2017 levels. It is unclear where the $88.8 billion figure came from. The House Appropriations Committee is expected to vote on the measure as soon as Thursday and more bills are expected to be released soon.

Late Tuesday, Senate Majority Leader Mitch McConnell, (R-KY) said that spending bills in the Senate would be written using FY 2017 funding levels as a guidepost.

If no new budget deal is cut, the House and Senate are confined to the levels set by the 2011 deficit-cutting law, the Budget Control Act (BCA), which is also known as the Sequester. That law would require cutting about $5 billion from the agreement reached to set FY2017 levels.

Memorial Day Recess, Health Care & Tax Reform Slowly Move, Omnibus Already?

Posted on May 30, 2017May 30, 2017

The House and Senate are in recess to observe Memorial Day this week. Members returned to their home districts to work as efforts continue behind the scenes in DC on health care and tax reform.

Health care continues to be a big unknown in the Senate. According to the most recent impact analysis released by the Congressional Budget Office (CBO), the amendments to the AHCA do little to improve the bill. The AHCA would lead to 14 million people without insurance in 2018 and 23 million uninsured in 2025. The bill also hurts the Medicaid program, cutting $834 billion over 10 years.

The bill is now with the Senate where various Senate Republicans have indicated that any health care measure will undergo a dramatic overhaul in the coming weeks. Senate Republicans ca not ignore CBO completely — they have to pay attention to the cost estimates to make sure they comply with budget rules.

A specific timeline for the bill has not yet been set or made public. Currently, Senate staffers are drafting legislation intended to jump-start conversation when the Senate reconvenes next week.

House and Senate leaders and the White House going to try to put their heads together and cook up a single tax plan – instead of allowing each chamber to craft its own bills, like Republicans are doing now on health care and as happened with the 1986 tax revamp. However, the timeline to accomplish reform is slipping due to several factors (including the need to raise the debt ceiling much earlier than previously anticipated) and a failure to reach consensus about what provisions should actually change. All politicians hate the tax code, but there is not agreement on which provisions exactly what they hate. Voters gripe about complexity but are opposed to losing any breaks that benefit them.

Looming over tax reform is federal government’s need to raise the debt ceiling now, several months before Congress was prepared to act. At the beginning of 2017, Treasury estimated that the Department could use extraordinary measures until the Fall so that the federal government could continue to operate.

Now, senior White House officials are requesting Congress address and raise the debt ceiling prior to the August Recess. The request sets up a potentially monumental political fight. It is something that will not just be a fight between Republicans and Democrats but within each of the parties. The GOP is torn over whether to combine spending cuts with the debt ceiling lift, and Senate Democrats are already signaling they may push for their own concessions since their votes are going to be needed to avoid a devastating government default.

Rumor of the Week! House Appropriators are floating the idea of passing a 12- bill omnibus before the August Recess. Such a move would certainly accelerate the FY 2018 process, which is significantly behind this cycle due to the late completion of the FY 2017 appropriations in May. To complete such a package would put tremendous pressure on the House Appropriations committee to craft, mark up and combine all 12 bills (none of which are currently in public draft form) and would be a significant accomplishment if any of the bills were already available. FY 2018 begins October 1 and right now, lawmakers have just 12 legislative days planned when both chambers will be in session in September. Stay tuned!!

Administration’s FY2018 Budget Would Restrict F&A, Contains Salary Cap

Posted on May 25, 2017

Two provisions of note in the President’s Budget released Tuesday:

Within the NIH section of the Major Savings and Reforms provision, the Budget includes an indirect cost rate for NIH grants that will be capped at 10 percent of total research. This approach would be applied to all types of grants with a rate higher than 10 percent currently and will achieve significant savings in 2018. It would also bring NIH’s reimbursement rate for indirect costs more in line with the reimbursement rate used by private foundations, such as the Gates Foundation, for biomedical research conducted at U.S. universities. In addition, the Budget proposes that NIH will streamline select Federal research requirements for grantees through targeted approaches. In tandem, the Budget supports burden reduction measures that will further reduce grant award recipient costs associated with research.

In the Budget’s Appendix document (on page 480 under general provisions), Section 202 proposes to lower the NIH allowable salary cap from the current Executive level II (2) to Executive level V (5). If the this recommendation is enacted, the cap will drop to $151,700, which is a 21% cut in currently supported salary levels.

Tax Provisions in the FY 2018 Administation’s Budget Proposal

Posted on May 25, 2017

In an effort to set the agenda for tax reform later in the 115th Congress, the New Foundation for American Greatness Budget for FY 2018 does contain a number of tax provisions in various sections. The White House Budget provides few specific details about the Administration’s plans for tax reform, noting that details “will be released at a later date.” No Green Book has been issued.

Core principles:

Lower individual income tax rates
End the Alternative Minimum Tax
Expand the standard deduction
Protect charitable giving

Specific provisions within the FY 2018 Budget include:

Exclusion of scholarship and fellowship income — Scholarships and fellowships are excluded from taxable income to the extent they pay for tuition and course-related expenses of the grantee. Similarly, tuition reductions for employees of educational institutions and their families are not included in taxable income.

Tax credits and deductions for post-secondary education expenses — The budget would not allow credits for particular activities, investments, or industries.

Deductibility of student loan interest — The budget accepts current law’s general rule limiting taxpayers’ ability to deduct non-business interest expenses.

Qualified tuition programs — The budget generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.

Exclusion of interest on student-loan bonds —The budget generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.

Exclusion of interest on savings bonds redeemed to finance educational expenses —The baseline tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.

Discharge of student loan indebtedness — Under the baseline tax system, all compensation, including dedicated payments and in-kind benefits, would be included in taxable income.

Education Individual Retirement Accounts (IRA) —The baseline tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.

Parental personal exemption for students age 19 or over —Under the baseline tax system, a personal exemption would be allowed for the taxpayer, as well as for the taxpayer’s spouse and dependents who do not claim a personal exemption on their own tax returns. To be considered a dependent, a child would have to be under age 19.

Exclusion of employer-provided educational assistance —Under the baseline tax system, all compensation, including dedicated payments and in-kind benefits, would be included in taxable income because they represent accretions to wealth that do not materially differ from cash wages.

Exclusion of interest on bonds for private nonprofit educational facilities —The baseline tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.

Expensing of research and experimentation expenditures (normal tax method) —The baseline tax system would allow a deduction for the cost of producing income. It would require taxpayers to capitalize the costs associated with investments over time to better match the streams of income and associated costs. Research and experimentation (R&E) projects can be viewed as investments because, if successful, their benefits accrue for several years. It is often difficult, however, to identify whether a specific R&E project is successful and, if successful, what its expected life will be. Because of this ambiguity, the reference law baseline tax system would allow expensing of R&E expenditures.

Credit for increasing research activities —The baseline tax system would uniformly tax all returns to investments and not allow credits for particular activities, investments, or industries.

Exclusion of employee meals and lodging —Under the baseline tax system, all compensation, including dedicated payments and in-kind benefits, would be included in taxable income.

New Foundation for American Greatness Budget for FY 2018

Posted on May 23, 2017May 23, 2017

The Administration unveiled the New Foundation for American Greatness Budget which builds on the America First or blueprint or skinny budget released in March.

Similar to the previous Administration, the Trump Administration does address the sequester caps. Where the Obama Administation repeatedly proposed scaling back the spending caps on both military and domestic spending, Trump would relieve just the defense spending caps and decrease caps on discretionary spending. Under Trump’s plans, nondefense discretionary spending would decrease by 2 percent each year, as part of his broader efforts to balance the budget by the end of the decade. The budget refers to those 2 percent nondefense cuts as a “two-penny plan.” The domestic spending cuts laid out in Trump’s budget would increase each year compared to the annual spending caps under current law: a $77 billion reduction below the cap in FY 2019, a $99 billion cut in FY 2020, reaching a $260 billion cut in FY 2027 – all levels are calculated as below projected levels under current law.

Overall, the Administration’s budget calls for $668 billion in defense spending, coming in $22 billion above current levels. The proposal would cut more than $1.5 trillion out of base nondefense spending programs over the next decade, while rolling back statutory budget caps to hike military spending by nearly $500 billion during the same period. The Administration would drop base domestic spending to $462 billion in FY 2018, with deeper cuts each year over the next decade until nondefense spending shrinks to $385 billion in FY 2027. Statutory limits on defense and nondefense discretionary spending are in place through FY 2021 under the 2011 deficit control law (Budget Control Act or the sequester). Trump’s budget assumes that without his proposed changes, discretionary spending would continue to grow through FY 2027 at rates “consistent with current law,” according to the budget documents.

Proactive themes for the Administration include tax reform, federal workforce production and streamlining, continued regulatory reform and six weeks of paid family leave.

Federal workforce reduction will remain a priority while improving management and delivery of critical services; reducing work related towards compliance activities; letting manager adopt private practices for hiring and IT services; and hold agencies accountable for performance.
Continued regulatory reform will remain an issue via Executive Order 13777, “Enforcing the Regulatory Reform Agenda.” Within each agency a Regulatory Reform Officer and a Regulatory Reform Task Force to carry out the President’s regulatory reform priorities. These new teams will work hard to identify regulations that eliminate jobs or inhibit job creation; are outdated, unnecessary, or ineffective; or impose costs that exceed benefits.
The budget includes a proposal to increase mandatory spending by $25 billion during the next decade to establish paid family leave. The program, if approved by Congress, would include six weeks of paid family leave for all new parents, including those who adopt.

One important note, all summaries in the budget show FY 2017 numbers as the FY 2017 CR levels annualized–NOT the final levels in the FY 2017 omnibus. As a result, the cuts (or increases) presented in the text and tables are not accurate.

All GPO Budget information is here.

Budget Overview is here.

Appendix with detailed budget estimates is here.

Major Savings and Reforms are here.

Fact sheets from the Administration:

Agency highlights are below.

Commerce

The President’s 2018 Budget requests $7.8 billion for the Department of Commerce, a $1.5 billion or 16 percent decrease from the 2017 annualized CR level. It maintains NOAA’s Polar Follow On satellite program, Joint Polar Satellite System (at a 10 percent cut) and Geostationary Operational Environmental Satellite programs, and the National Weather Service forecasting capabilities. Cuts are assessed to National Ocean Service ($24 million), Oceanic and Atmospheric Research, and National Weather Service.

Eliminations:

Eliminates the Minority Business Development Agency
Manufacturing Extension Partnership (MEP) program, which subsidizes up to half the cost of State centers, which provide consulting services to small- and medium-size manufacturers.
Eliminates $250 million in targeted National Oceanic and Atmospheric Administration (NOAA) grants and programs supporting coastal and marine management, research, and education including Sea Grant [Note: the NOAA budget specifics will not be released until next week.]

DOD

The President’s 2018 Budget requests $639 billion for DOD, a $52 billion increase from the 2017 annualized CR level. The total includes $574 billion for the base budget, a 10 percent increase from the 2017 annualized CR level, and $65 billion for Overseas Contingency Operations.

The Defense Health Program (DHP) provides care to current and retired members of the Armed Forces, their family members, and other eligible beneficiaries. The Defense Health Agency would be funded at $25.2 billion from $31 billion.

The Overseas Contingency Operations Fund has a request of $65 billion.

The Department of Defense (DOD) has approximately 20 percent excess infrastructure capacity across all Military Departments. The best way to eliminate DOD’s unneeded infrastructure is through the Base Realignment and Closure (BRAC) process. If the Congress authorizes DOD to begin a new round of BRAC in 2021, DOD estimates it could generate $2 billion or more in annual savings by 2027. These savings would be re-invested in higher priority DOD needs.

The President’s 2018 Budget provides $59 billion in discretionary funding down from $68 billion in the FY 2017 Omnibus which is a ~14 percent cut.

The Administration would ramp school choice funding up to an annual total of $20 billion (from $1.4 billion), and an estimated $100 billion including matching State and local funds. This additional investment in 2018 includes a $168 million increase for charter schools, $250 million for a new private school choice program, and a $1 billion increase for Title I, dedicated to encouraging districts to adopt a system of student-based budgeting and open enrollment that enables Federal, State, and local funding to follow the student to the public school of his or her choice. Maintains approximately $13 billion in funding for IDEA programs to support students with special education needs. Safeguards the Pell Grant program by level funding the discretionary appropriation, while proposing a cancellation of $3.9 billion from unobligated carryover funding, leaving the Pell program on sound footing for the next decade. The Budget supports year-round Pell Grant eligibility to allow students the opportunity to earn a third semester of Pell Grant support up to an additional 50 percent of their regular Pell Grant award during an award year in which they have exhausted their eligibility and enroll in additional coursework, ensuring that students can accelerate their studies and enter the workforce on time.

The budget does propose student loan reforms including consolidating the federal government’s more than half dozen income-based repayment programs into a single plan (proposed savings of at least $76 billion over the next 10 years); eliminating subsidized student loans (proposed savings of $39 billion over the next decade); and eliminating public service loan forgiveness (proposed savings of at least $27 billion over the next decade).

Reductions:

Federal Work-Study to $500 million from $990 million in FY 2017 Omnibus, a 50 percent cut/
Gaining Early Awareness for Undergraduate Programs (GEAR UP) to $219 million from $340 million in FY 2017 Omnibus, a 35.5 percent cut. Many of the services provided by GEAR UP are duplicative of other Department of Education programs, such as Talent Search (one of the five TRIO programs), and there is limited evidence that GEAR UP is effective at increasing college access and persistence of its participants.
TRiO to $808 million from $950 million in FY 2017 Omnibus, a 15 percent reduction.
GAANN to $6 million from $28 million in FY 2017 Omnibus, an 80 percent reduction.

Eliminates:

21st Century Community Learning Centers program
Federal Supplemental Educational Opportunity Grant program
Comprehensive Literacy Development Grants
Supplemental Educational Opportunity Grant (SEOG)
International Education and Foreign Language Studies Domestic and Overseas Programs
Strengthening Institutions Program (SIP)
Student Support and Academic Enrichment Grants program
Teacher Quality Partnerships (TPQ)

ENERGY

The President’s 2018 Budget requests $28.0 billion for DOE with a focus on moving toward a responsive nuclear infrastructure and advancing the existing program of record for warhead life extension programs through elimination of defense sequestration for the National Nuclear Security Administration (NNSA). Ensures the Office of Science continues to invest in the highest priority basic science and energy research and development as well as operation and maintenance of existing scientific facilities for the community for a total of $4.47 billion from $5.392 billion in FY2017 Omnibus, a 17 percent cut. Within that Energy Efficiency and Renewable Energy, Fossil Energy, Nuclear Energy, and Electricity Delivery and Energy Reliability are all cut. The only program increased is Advanced Scientific Computing Research.

Eliminates:

Advanced Research Project Agency-Energy (ARPA-E)
Four applied energy research and development (R&D) program areas:
- Energy Efficiency and Renewable Energy,
- Fossil Energy,
- Nuclear Energy, and
- Electricity Delivery and Energy Reliability

HHS

The National Institutes of Health would face a $5.6 billion reduction from the previous fiscal year, reducing its budget to $26.9 billion from its $32.5 billion appropriation in FY 2017 a cut of $7.2 billion compared to the comparable figure from the FY 2017 omnibus, approximately 21 percent, which, would result in 1,946 fewer grants. Much of that savings would come from a $1 billion reduction to the $5.5 billion budget of the National Cancer Institute, the largest of the health research agency’s two dozen institutes. Most of the others would be similarly subject to cuts of around 20 percent, except for a $70 million international health research center that would be eliminated entirely. Also reduced is the National Coordinator for Health Information Technology (ONC) by reducing its budget by 36 percent.

The budget does propose a cap of 10 percent on indirect costs of the total grant starting in 2018.

The Centers for Disease Control and Prevention budget would see a $1.3 billion cut to around $5 billion from its discretionary total in FY 2017 of $6.3 billion. The savings would come from reductions for a variety of programs, but the steepest cuts would be to programs for environmental health, occupational safety, emerging infectious diseases, and prevention of HIV/AIDS and other chronic diseases.

Eliminates:

Agency for Healthcare Research and Quality’s (AHRQ)
Fogarty International Center
Community Services Block Grant (CSBG)
Food and Drug Administration (FDA) medical product user fees
health professions and nursing training programs (HRSA Title VII and VIII)
National Institute for Occupational Safety and Health (NIOSH)

DHS

The President’s 2018 Budget requests $44.1 billion with $314 million to recruit, hire, and train 500 new Border Patrol Agents and 1,000 new Immigration and Customs Enforcement law enforcement personnel in 2018, plus associated support staff. It provides an additional $1.5 billion above the 2017 annualized CR level for expanded detention, transportation, and removal of illegal immigrants. Invests $15 million to begin implementation of mandatory nationwide use of the E-Verify Program, an internet-based system that allows businesses to determine the eligibility of their new employees to work in the United States. Safeguards cyberspace with $1.5 billion for DHS activities that protect Federal networks and critical infrastructure from an attack.

Restructures selected user fees for the Transportation Security Administration (TSA) and the National Flood Insurance Program (NFIP) to ensure that the cost of Government services is not subsidized by taxpayers who do not directly benefit from those programs.

Eliminates or reduces State and local grant funding by $667 million for programs administered by the Federal Emergency Management Agency (FEMA) that are either unauthorized by the Congress, such as FEMA’s Pre-Disaster Mitigation Grant Program, or that must provide more measurable results and ensure the Federal Government is not supplanting other stakeholders’ responsibilities, such as the Homeland Security Grant Program. For that reason, the Budget also proposes establishing a 25 percent non-Federal cost match for FEMA preparedness grant awards that currently require no cost match.

Eliminates and reduces unauthorized and underperforming programs administered by TSA in order to strengthen screening at airport security checkpoints, a savings of $80 million from the 2017 annualized CR level. These savings include reductions to the Visible Intermodal Prevention and Response program, which achieves few Federal law enforcement priorities, and elimination of TSA grants to State and local jurisdictions, a program intended to incentivize local law enforcement patrols that should already be a high priority for State and local partners. In addition, the Budget reflects TSA’s decision in the summer of 2016 to eliminate the Behavior Detection Officer program, reassigning all of those personnel to front line airport security operations.

DOI

The President’s 2018 Budget requests $11.6 billion for DOI with a focus on reducing federal land acquisition.

Eliminates:

Heritage Partnership Program
National Wildlife Refuge Fund

STATE

The President’s 2018 Budget requests $25.6 billion in base funding for the Department of State and USAID, and cuts by half funding the Department of State’s Educational and Cultural Exchange Programs, including the Bureau of Educational and Cultural Affairs (ECA). Global health programs are cut by $2 billion from FY 2017 CR levels by eliminating funding in the Global Health Programs account for international family planning programs and additional reductions below the 2017 CR level for tuberculosis, nutrition, vulnerable children, and neglected tropical diseases.

Eliminates:

Global Climate Change Initiative
USAID Development Assistance account

EPA

The President’s 2018 Budget requests $5.7 billion for the Environmental Protection Agency with a focus on reducing enforcement activities, particularly where there is overlap with state agencies. EPA STAR grants receive $249 million a 50 percent cut.

Eliminates:

Energy Star
Geographic Programs for a variety of ecosystem protection activities within specific watersheds, including the Great Lakes, Chesapeake Bay, Puget Sound, and others

NASA

The President’s 2018 Budget requests $19.1 billion for NASA. It provides $1.8 billion for a focused, balanced Earth science portfolio that supports the priorities of the science and applications communities, a savings of $102 million from the 2017 annualized CR level. The Budget terminates four Earth science missions (PACE, OCO-3, DSCOVR, Earth-viewing instruments, and CLARREO Pathfinder) and reduces funding for Earth science research grants. It eliminates the $115 million from the Office of Education to fund it at $37 million, resulting in a more focused education effort through NASA’s Science Mission Directorate.

NSF

The Budget proposes a reduction of 11 percent to National Science Foundation (NSF) grant programs to $6.652 billion from FY2017 Omnibus $7.472. Cuts in every directorate across the board.

National Science Foundation Summary Table
FY 2018 Budget Request to Congress
(Dollars in Millions)
	FY 2016 Actual	FY 2017 Annualized CR	FY 2018 Request	FY 2018 Request change over FY 2016 Actuals
				FY 2018 Request change over FY 2016 Actuals
NSF by Account				Amount	Percent
BIO	$723.78	–	$672.11	-$51.67	-7.1%
CISE	935.20	–	838.92	-96.28	-10.3%
ENG	915.68	–	833.49	-82.19	-9.0%
Eng Programs	727.16	–	657.28	-69.88	-9.6%
SBIR/STTR	188.52	–	176.21	-12.31	-6.5%
GEO	876.51	–	783.31	-93.20	-10.6%
MPS	1,348.78	–	1,219.43	-129.35	-9.6%
SBE	272.20	–	244.02	-28.18	-10.4%
OISE	49.07	–	44.02	-5.05	-10.3%
OPP	448.87	–	409.18	-39.69	-8.8%
IA	426.57	–	315.74	-110.83	-26.0%
U.S. Arctic Research Commission	1.43	–	1.43	–	–
Research & Related Activities	$5,998.09	$6,022.18	$5,361.65	-$636.44	-10.6%
Education & Human Resources	$884.10	$878.33	$760.55	-$123.55	-14.0%
Major Research Equipment & Facilities Construction	$241.50	$199.93	$182.80	-$58.70	-24.3%
Agency Operations & Award Management	$351.11	$329.37	$328.51	-$22.60	-6.4%
National Science Board	$4.31	$4.36	$4.37	$0.06	1.5%
Office of Inspector General	$14.76	$15.13	$15.01	$0.25	1.7%
Total, NSF	$7,493.86	$7,449.30	$6,652.89	-$840.98	-11.2%