Federal Relations

First FY12 Appropriations Bill Approved

Appropriations

On Thursday the House passed their FY12 Homeland Security bill, its first FY12 appropriations measure of the year. Democrats have declared the funding levels in the bill insufficient and are particularly unhappy about cuts to homeland security and first responder grants, although some funding to hire/re-hire/retain firefighters was restored by an amendment on Wednesday. Overall, twenty Republicans opposed the bill, mostly conservatives who wanted to cut spending in the bill further. An amendment by Indiana Republican Todd Rokita to cut most accounts across-the-board by 10 percent was rejected, 110-312 – but that’s 110 members that agree that more drastic cuts are necessary.

Also on Thursday the House began debate on its FY12 Military Construction-VA spending bill.  There is some controversy with this bill, mostly related to a procedure rule that will allow members to vote on VA funding independent of the Military funding.  This could put VA funding in jeopardy as many conservatives want to curtail VA spending.  Further consideration of the measure won’t occur until the House returns from its one-week recess on June 13th.

Finally, the House Energy and Water Appropriations Subcommittee approved its draft FY12 spending measure by voice vote on Thursday. The draft measure reflects the Republican’s highest priorities by supporting Energy Department national defense programs and funding water infrastructure and basic science research, at the expense of applied energy research. Overall, the draft House bill provides $30.6 billion in discretionary spending, $1 billion below FY11 enacted levels and $5.9 billion (16 percent) less than the President’s FY12 budget request. The full committee will mark up the measure when the House returns from recess.

Debt Ceiling

Despite new urgency from top congressional leaders that the debt ceiling dispute should be resolved quickly, rank-and-file lawmakers remain deeply divided over how to do it.  Both Democrats and Republicans want to avoid instability in the financial markets with a debt showdown, and most agree that something must be done to curb the nation’s deficit.  But after a week of meetings with President Obama and other administration officials, several major roadblocks stand in the way of an agreement, particularly the issue of taxes.

Separate events involving Democrats and Republicans on Thursday illustrated the difficulty that negotiators will have in reaching an agreement to reduce deficits.  In a meeting with the President, House Democrats stressed that new revenue must be part of any deal to reduce the deficit and raise the nation’s $14.3 trillion debt limit.  They urged the President to ensure that tax hikes on the wealthy and an end to tax breaks for oil companies would be part of any agreement reached with Republicans on debt reduction.  Republicans continue to insist, however, that tax increases are a non-starter.  Democrats also urged Obama not to give too much ground on spending, particularly on Medicare, where Republicans want to fundamentally restructure the program.

Also this week, freshman Republicans met with Treasury Secretary Geithner and came away from that meeting “unimpressed” that the administration was serious about addressing the nation’s fiscal problems.  GOP members said Geithner warned of the consequences of failing to raise the debt limit, but were dismayed that he called for higher taxes to help reduce the deficit and failed to specify how the costs of entitlements such as Medicare should be reduced.  Republicans are focused on achieving major deficit reduction through cuts in spending, with a particular focus on Medicare.

The hard line being taken by the two parties prompted another credit rating company yesterday to warn that the United States could lose its top credit rating.  Moody’s Investor Services said it may lower the US rating if Congress is unable to raise the debt limit and prevent a default.  In April, Standard & Poor’s downgraded its outlook on the US credit rating to negative, saying the path to reducing large budget deficits and growing debt was uncertain.

The appropriations and debt limit situations are closely tied together and are created an environment for a “perfect storm” by August.  The strong push by Republicans to cut spending is driving the debate on the debt limit – they simply won’t agree to the debt limit issue until the Administration agrees to corresponding spending cuts.  It will certainly be a long, hot summer in DC!