The Obama Administration’s FY13 budget, released on February 13, reflects a continuing commitment to increased federal investments in research and education.  The budget would increase funding for the National Science Foundation (NSF); the Department of Energy’s (DOE) Office of Science and ARPA-E; and the Agriculture and Food Research Initiative (AFRI) in the Department of Agriculture, which supports competitive research.  It also would provide a modest funding increase for the National Endowment for the Humanities (NEH).  Similarly, funding for basic research at the Department of Defense (DOD) is essentially level despite significant cuts elsewhere in the agency. 

Funding for the National Institutes of Health (NIH) would be essentially frozen at the FY12 level.  The science portfolio at NASA would be cut by more than three percent.  

For student aid, the Administration would fully fund the maximum Pell Grant level of $5,635 and extend the 3.4 percent interest rate on subsidized Stafford loans, which otherwise would rise to 6.8 percent on July 1, 2012.  Additionally, the Administration would shift campus-based aid programs, such as Perkins Loans, toward institutions that “keep their tuition and tuition increases low,” enroll relatively high numbers of Pell-eligible students, and provide “good value.”  No additional details are available on exactly how the Administration would implement this.

The FY13 budget also contains several tax proposals of interest to research universities.  These include making the American Opportunity Tax Credit permanent and limiting the value of certain tax expenditures, including the deduction for charitable contributions for individual taxpayers, to 28 percent.  The budget would also expand the Build America Bonds program by making the program permanent, expanding eligibility to both government entities and nonprofit institutions—including both public and private universities—and expanding the allowed uses of the bonds.

The President is scheduled to deliver his FY13 budget request to Congress later this morning, kicking off the annual budget and appropriations season. While the details of the budget have remained under wraps until today, the Office of Management and Budget (OMB) released a 2013 “Fact Sheet” on Friday revealing that the budget will include strong support for research and development, including “$140.8 billion for R&D overall; increase the level of investment in non-defense R&D by 5 percent from the 2012 level, even as overall budgets decline; maintains the President’s commitment to double the budgets of three key basic research agencies (National Science Foundation, Department of Energy’s Office of Science, and National Institute of Standards and Technology Laboratories); expands and makes permanent the R&D tax credit. [Includes] Level funding for biomedical research at NIHNational Institutes of Health ($30.7 billion); and to get more out of the money, proposes new grant management policies to increase the number of new research grants by 7 percent.”

The President will also request $4 trillion in deficit reduction over the next decade in his FY13 budget, but his proposal to pay for it with revenue increases and spending cuts — already rejected by the special deficit reduction panel last fall — will make it tough to sell to Congress. Half of the deficit reduction would come by increasing revenues, including raising $1 trillion over 10 years by increasing taxes on families earning more than $250,000. Obama’s proposal would cut the deficit to $901 billion by the end of FY13, or about 5.5 percent of the gross domestic product. All told, his proposal would reduce accumulated debt by $3 trillion in addition to the $1 trillion in savings over 10 years already put in place by the BCA. If approved, Obama’s plan would void the automatic across-the-board cuts— known as a sequester— due to kick in January 2013.

Once the budget request is delivered to the Hill, both the House and Senate canCures Acceleration Network begin the annual appropriations process. The usual first step in that process is for both chambers to approve a budget resolution, which gives appropriations committees their top-line numbers on how much to appropriate. This year, however, Senate Majority Leader Harry Reid (D-NV) has announced that he won’t move a budget resolution to the floor, even if the Senate Budget Committee approves one, since the Budget Control Act (BCA) approved last August already specified the top-line number for FY13. In the House, Budget Committee Chairman Paul Ryan (R-WI) will move a budget resolution through his committee, which will likely specify a top-line number even less than what was agreed to in the BCA.

Senate Republicans are posed today to initiate an effort to block automatic budget cuts scheduled to take place next January.  They will propose replacing the first year of the spending “sequester” with a plan to shrink federal employment and extend a pay freeze on government workers.  The effort is an attempt to stave off what many view as potentially devastating cuts to the Pentagon.

Late last year, House Armed Services Chairman McKeon (R-CA) offered a similar proposal (HR 3662) that quickly received a veto threat from the White House.  McKeon’s legislation would save more than $120 billion over a decade, effectively offsetting the first year of the statutory sequester of both defense and non-defense spending. That would push off until FY14 the spending cuts triggered the Budget Control Act (PL 112-25) that was approved by Congress last August.

The Senate’s proposed bill, the Down Payment to Protect National Security Act of 2012, will add credibility to the sequester repeal effort due to the high-profile sponsors of the bill, including Senators Jon Kyl (R-AZ), John McCain (R-AZ), John Cornyn (R-TX), Lindsey Graham (R-SC), and Kelly Ayotte (R-NH).

Like McKeon’s measure, the Senate legislation would replace $109 billion in estimated, across-the-board spending cuts that are set to kick in January 2, 2013 with savings from a reduction in the federal workforce over a decade.  McKeon’s proposal would trim the workforce by 10 percent by replacing every three workers who leave an agency with just one new hire.  The Senate bill would cut the workforce by 5 percent, replacing every three full-time workers who leave with two new hires.  The Senate bill goes farther than the House measure by also finding savings by extending the current pay freeze for federal civilian workers until June 30, 2014.  Contrast that will what is expected to be in the President’s FY13 budget request: a 0.5 percent pay bump for federal employees in his budget proposal due February 13^th, bringing an end to the two-year freeze.

Senator Murray (D-WA) has already expressed her opposition to the GOP plan via Twitter, where she posts “GOP to lay out plan to avoid def. cuts tmw. Who thinks it will also avoid having wealthy pay fair share? Ask only middle class sacrifice?”

Automatic spending cuts, or sequestration, was established through the Budget Control Act passed by Congress last August and is set to go into effect January 2013.  The sequestration process has great implications for all federal discretionary programs, including most – if not all – of federally funded research programs. Below is a link to a detailed explanation of this process and the impacts to federal spending in both the short- and long-term.

Sequestration_Details.pdf

President Obama will delay the release of his FY13 budget request by a week, until February 13^th, but lawmakers will still get a start on budget season today when the Congressional Budget Office (CBO) releases its annual budget and economic outlook. This report will certainly re-energize the debate around the issue of the automatic spending cuts that are set to take effect next January as required in the Budget Control Act of 2011 (PL 112-25).  Those cuts, officially referred to as a sequester, were required when the Joint Select Committee on Deficit Reduction failed to produce $1.2 trillion in savings over a decade.  The cuts are expected to reduce appropriations for FY13 by roughly 9 percent across the board.

The CBO’s report, to be released momentarily, serves as the unofficial kickoff of budget season.  Congressional budget committees in both chambers will hold hearings over the next few weeks on spending, taxes, and entitlements. The pace will pick up further when President Obama presents his FY13 budget request to Capitol Hill on February 13^th. Committee leaders say they plan to hold hearings on the request and want to write congressional budget resolutions this spring. Those resolutions will serve as non-binding blueprints for appropriators as they draft the annual spending bills.

The President is expected to include an alternative to the automatic cuts in his budget request, which will likely include a number of familiar policies that have been recommended previously but not enacted.  House Republicans will present their recommendations in their FY13 budget resolution in a few months. The GOP budget is expected to limit the automatic cuts, especially for defense programs, by making further reductions in discretionary and maybe even mandatory programs.

However, none of this is likely to lead to any serious deficit reduction action.  As you might recall, lawmakers debated and negotiated this issue for much of 2011 and still failed to come to any consensus on deficit reduction recommendations.  This will probably end up in a chaotic post-election lame-duck session to deal with the sequester – and a whole lot of expiring tax cuts – which will kick in on January 2, 2013 unless Congress takes action. 

Read more about the traditional calendar of congressional budget activities.

President Obama will release his FY13 budget on February 13^th this year, one week late. Under the law, the budget is to be released on the first Monday in February but yesterday the Office of Management and Budget (OMB) announced that they would be releasing the budget late. The Obama administration also delayed the release of the budget last year, waiting until February 14^th. OMB offered no reason for the delay, but it’s not unusual for the administration to push back the date, this being the third time it has done so. President Obama is expected to offer some broad outlines of his budget this evening in the State of the Union address. The Congressional Budget Office meanwhile, will provide detailed spending and economic projections for the next 10 years on January 31^st, when it releases its annual budget and economic outlook for fiscal years 2013-22.

The President’s budget request will urge lawmakers to come up with $1.2 trillion in spending cuts and scrap the automatic reductions known as sequesters that are due to kick in next year. Despite the failure of last year’s joint deficit committee, Obama has urged lawmakers to continue seeking ways to cut the deficit rather than face the automatic budget cuts mandated by last year’s agreement to raise the debt ceiling. During his State of the Union address, the President is likely to offer the broad outlines of his deficit-reduction plan. If lawmakers were to reach an agreement on deficit reduction, they would have to amend the Budget Control Act to turn off the sequester. Unless the law is changed, OMB will implement the sequester in January 2013 that would cut discretionary spending by a projected $97 billion in that year (7.8% cut to the overall FY13 budget). The law calls for annual sequestrations totaling almost $1 trillion and saving $1.2 trillion, including reduced interest costs, through fiscal 2021.

Members of congress from both parties say they are hoping to reach a deal with the President to negate the automatic cuts, or substitute another deficit-reduction package for them, before they take effect in January 2013. But because of the elections this fall, it seems most likely that the sequestration will be dealt with after November, leaving plenty of uncertainty in the months ahead.

Avoiding yet another threat of government shutdown, the Senate on Saturday approved the FY12 conference report after the House adopting it Friday.   The final package completes the work on the FY12 appropriations bills.  It includes the text of the underlying Military Construction-VA bill and eight other spending measures: Defense, Energy-Water, Financial Services, Homeland Security, Interior-Environment, Labor-HHS-Education, Legislative Branch, and State-Foreign Operations.  The President is expected to sign this bill sometime this week.  In November, a smaller package containing the other three annual spending bills was enacted (Agriculture, Commerce-Justice-Science, and Financial Services).  See our December 15^th posting for information how programs will be funded for the year.

As an aside, it had been reported that the final FY12 deal included an across-the-board cut of 1.8 percent to provide for disaster funding.  That legislation, however, was not approved so there will not be an across-the-board cut for FY12. 

The Office of Federal Relations is signing off for the year.  We will resume posting to this blog after the New Year.  Happy Holidays!

After negotiations late into the night and leaders finally reaching an agreement, the House today released the conference report containing details for the remaining nine spending bills. The House is expected to vote on the package this afternoon and then send it to the Senate for quick passage. It looks like Congress will remain through the weekend to try and work out a deal to extend the payroll taxcut for another year.

FY2012 Spending Bills Conference Report (HR 2055)

Defense

• Overall Discretionary= $518.1 billion, an increase of $5.1 billion over FY11
• RDT&E (Overall) = $72.4 billion, a decrease of $2.5 billion from FY11

• DARPA language: The conferees recommend a total of$166,122,000 in undistributed reductions

throughout the Defense Advanced Research Projects Agency (DARPA).  The conferees

direct the Director of DARPA to provide a report to the congressional defense

committees, not later than 60 days after enactment of this Act, detailing by program

element and project the application of each undistributed reduction

• NAVY University Research Initiatives = $133.2 million

Energy & Water

• Department of Energy overall discretionary = $32 billion, increase of $328 million over last year’s level
  • ARPA-E = $275 million, increase of $95 million from FY11
  • EERE = $1.825 billion, decrease of $10 million from last year
  • Office of Science = $4.889 billion, increase of $5 million over FY11

Interior and Environment

• Department of Interior
  • USGS = $1.07 billion, $30 million less than FY11
  • NEH = $146.3 million, $9 million less than FY11
  • NEA – $146.3 million, $9 million less than FY11
• EPA
  • Office of Science and Technology = $795 million

Labor-HHS-ED

• HHS overall discretionary = $69.7 billion, decrease of $700 million from FY11
  • HRSA = $6.5 billion, decrease of $41 million from FY11
    • Health Workforce  = $734.4 million
    • Ryan White HIV/AIDS Program = $2.33 billion, level funded
    • Healthcare Systems = $83.5 million, $3 million cut from FY11

**Note: language included that states that an additional $161.8 million may be used to supplement programs under the sections: “Primary Health Care”, “Health Workforce”, “Maternal and Child Health”, “Ryan White HIV/AIDS Program”, “Health Care Systems”, “Rural Health”

• • CDC = $6.1 billion ($38 million above FY11)
    • NIOSH (overall funding level)= $182.9 million, also includes language: “in addition to amounts provided herin, $110.7 million shall be available from amounts available under section 241 of the PHS Act”
      • Education and Research Centers = $24.3 million
      • Agriculture Forestry and Fishing Program = $22 million
  • NIH = $30.7 billion, $299 million above FY11 level
  • SAMHSA = $3.5 billion, $27 million below FY11
• Education overall discretionary = $71.3 billion, decrease of $153 million below FY11
  • Pell = $5550 maximum award is maintained by implementing the following changes (estimated to save $11 billion over 10 years):
    • Eliminate the interest subsidy during the 6 month student loan grace period
    • Limit grants per student to max of 6 yrs/12 semesters
    • Require HS Diploma, GED/completion of homeschool program for eligibility
    • Slight adjustment of minimum Pell grant
    • Reduce eligible automatic income level from $30K to $23K

• International Education = $74.2 million

• • IES = $594.8 million
  • JAVITS and GAANN programs will be consolidated at the recommendation of the administration
  • TRIO = $840 million

State

• International Fisheries Commission (top line number) = $36.3 million

And this language:

The conference agreement includes funding for the  operational costs of  the International

Pacific Halibut Commission, including current lease expenses, and the conferees direct the

Commission to fund these costs prior to investing in new programs or expanding existing

programs

House and Senate appropriations members are close to an agreement on their $900 billion-or-so “megabus” appropriations deal on the remaining nine FY12 bills.  Agreement has been reached on all but two of the remaining nine bills:  Labor-HHS-ED and Interior-Environment.   There’s still a chance that the conferees will reach enough of an impasse on those two that they’ll propose a special CR just for them lasting until September 2012 (end of the federal fiscal year), while coming to a comprehensive agreement on the other seven.  We hope to see that draft later today or early tomorrow.  The House will take action on Wednesday followed by Senate action on Friday – probably just hours before the current continuing resolution (CR) expires at midnight.

The Week Ahead

The House is in at noon today, though no votes are expected.  Eight bills will be considered under suspension of the rules.  House Republicans will try to move forward on a deal to extend the expiring payroll tax cut and could hold a vote this week.  The Senate’s in at 2 pm and will consider the nominations of four judges for district courts in New York, Texas, and Montana.  There will be a vote on one of the nominations; the other three are expected to be confirmed by unanimous consent.  Other than that, both chambers of Congress will continue to work on wrapping up the year’s business before adjourning for the holidays.  The biggest item on the agenda is funding the federal government for FY12.  The current continuing resolution (CR) expires December 16^th.  Appropriators will spend the week working on an omnibus bill with a tentative plan to release a package on December 12^th for a December 15^th vote. 

Appropriations

Appropriators expect to make progress this week on wrapping the nine remaining FY12 appropriations bills into a year-end omnibus package.  Appropriators say that work on many of the remaining appropriations bills is nearly complete and their goal remains to clear the roughly $900 billion package before the current continuing resolution expires December 16^th.  

Payroll Taxes, Unemployment Benefits, and the “Doc Fix”

Lawmakers also want to deal with proposals for extending an expiring payroll tax break, continuing unemployment benefits, and maintaining the current Medicare physician reimbursement rate, all of which are likely to be negotiated into a single legislative package.   The Obama administration is pushing for extending and expanding last year’s payroll tax, with a cost estimate of $120 billion for 12 months, and would pay for it by creating a new surtax on the top-earning Americans.  Senate Republicans blocked that proposal (S 1917) last week.  The GOP then countered with their own plan (S 1931), which called for paying for the break by extending the current pay freeze for federal workers and shrinking the federal civilian workforce through attrition.  That proposal was rejected by Democrats.  Meanwhile, House conservatives are skeptical of any extension.  The White House has indicated it may be willing to negotiate alternative financing, but any offsets would have to satisfy a significant number of Democrats, who will be needed to pass the bill in the House and the Senate.

A plan to block pending cuts to Medicare physician payments due to take effect early next year is also on the table.  This is an issue faced annually by Congress.  House Republicans want to freeze current reimbursement rates for two years at a cost of $38.6 billion, while senators from both parties say a one-year “doc fix” may be more feasible at a lower cost of $21 billion.  A longer fix would buy more time for members to come up with a replacement for the current payment formula, known as the sustainable growth rate (SGR), but Congress would prefer the lower price since it’s not usually offset.

The Office of Federal Relations continues to monitor and weigh in on these issues with our Congressional delegation.  At the same time, we are looking ahead to the FY13 process and how we can best protect major federal research funding.

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