Appropriators have yet to announce plans for writing the massive Labor-HHS-Education spending bill, which is always among the last and most controversial funding measures to move.  The bill faces an additional challenge this year with the pending Supreme Court ruling on health care reform due in June.  House appropriators might wait until after the ruling to move the bill.  Meanwhile in the Senate expects the court will uphold the law and plans to write its spending bill assuming health reform will remain intact.

Tuesday

• The Senate Appropriations Committee will hold subcommittee markups of its Commerce, Justice, Science FY 2013 spending bill and its Transportation, Housing and Urban Development FY 2013 spending bill.
• The Senate Armed Services Committee will hold a subcommittee hearing on the health and status of the Department of Defense science and technology laboratories and enterprise.

Wednesday

• The House Appropriations Energy and Water Subcommittee will mark up its Energy and Water Development FY 2013 spending bill.
• The House Energy and Commerce Committee will hold subcommittee hearings on budget and spending concerns at the DOE and FDA User Fees 2012: How Innovation Helps Patients and Jobs.
• The House Science, Space, and Technology Committee will hold subcommittee hearings on NSF Major Multi-User Research Facilities Management and Growing the Wireless Economy through Innovation.

Thursday

• The House Homeland Security Committee will hold a subcommittee hearing on the Department of Homeland Security (DHS) and DOE National Labs: Finding Efficiencies and Optimizing Outputs in Homeland Security Research and Development.
• The House Science, Space, and Technology Committee will hold a subcommittee hearing on Impact of Tax Policies on the Commercial Application of Renewable Energy Technology.
• The American Chemical Society will hold a Capitol Hill briefing on Cybersecurity and Smart Infrastructure: Ensuring Resilience and Deterrence.

                          

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 Senate holds a test vote on an amendment offered by Majority Leader Harry Reid (D-NV) on a two-year surface transportation bill.  This procedure will help determine if the Senate can move toward final passage when they return from their President’s Day recess.

Both the House and Senate will be in recess next week for President’s Day.

                          

One of the most sensitive issues in the final negotiations was the question of how much Medicare should compensate hospitals for the bad debt accumulated when patients don’t provide their required co-pays for care (uncompensated care). Medicare currently compensates hospitals for 70 percent of their loss and the House proposed to cut this to 55 percent — saving more than $10 billion over 10 years. But this puts a heavy burden on hospitals that provide a lot of uncompensated care – like Harborview.  The final compromise lowers the bad debt cut to about $7 billion, which is better than the original proposal from a couple of months ago but it will still be a blow to hospitals with low-income patients.

                          

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.

                          

• If passed, the bill would expand and extend the existing payroll tax reduction for employees from the already reduced rate of 4.2% to 3.1%.
• Would reduce the payroll tax cut for employers to 3.1% – half of what it is now – for the first $5 Million of payroll. This applies to institutions of higher education, but is designed to primarily benefit small businesses – it will have a minimal impact on UW.
• A couple of tax credits for hiring veterans and long-term unemployed workers may carry a small financial benefit for UW.
• $30 billion for state aid, which would not apply to institutions of higher education, but the provision does contain a Maintenance of Effort provision designed to protect higher ed funding at the state level.

Portions of the bill have already drawn opposition from both parties, and it is unlikely that it will pass completely in its current form. We are more likely to see the tax credits enacted, while the state aid will be more contentious.

                          

Tax Cuts
- The President’s plan will cut in half the taxes paid by businesses on their first $5 million in payroll
- An Employer payroll tax holiday for added workers or increased wages
- Tax credit to employers for hiring long-term unemployed workers
- “Returning Heroes” hiring tax credit for veterans

Infrastructure and Local Aid
- Prevent up to 280,000 teacher layoffs, keep cops and firefighters working
- Modernize approximately 35,000 public schools around the country by investing $25 billion that will create jobs, improve classrooms, and upgrade schools
- An immediate investment in roads, railroads, and airports to help modernize the nation’s infrastructure, put construction workers back on the job, invest in NextGen Air Traffic Modernization efforts
- Expand access to high-speed wireless, especially in remote rural areas

Unemployment
- Ensure that 6 million people do not use unemployment insurance
- Expand job opportunities for low-income youth and adults

We will have further analysis on the details of this proposed package as more information is released from the White House in the coming days.

                          

Debt Negotiations Continue:  Yesterday, President Obama used a White House news conference to urge lawmakers to “do their job” and make the “tough choices” needed to get the nation’s fiscal house in order as the August 2^nd deadline for raising the debt ceiling approaches.  He said those choices might include a Medicare overhaul, cuts in defense spending, and increasing taxes.  Calling the early August date a “hard deadline,” Obama said lawmakers should scrap any recesses until they hammer out a budget deal.  The House has been in recess this week and has another recess schedule for the week of July 18^th.  The Senate is scheduled to be in recess next week.

Appropriations Update:  The Senate Appropriations Committee will hold its first markup of FY12 spending legislation today, starting with the least controversial of the 12 annual bills — the measure funding veterans’ programs and military construction.   The House passed its FY12 Military Construction-VA bill on June 14^th.  Additionally, the House has already approved FY12 bills for Agriculture and Homeland Security, and the Defense and Financial Services bills have been approved by committee and are ready for floor action. 

Pell Grant Program Vulnerable:  Amid a political climate in congress where virtually every corner of federal spending is in jeopardy, the Administration says it wants to protect Pell grants for low-income college students.   But the quasi-entitlement program faces a huge funding shortfall for FY12 and has become a tempting target for Republican budget hawks, who say that it is a prime example of overspending and “promises we can’t keep.”  Those close to talks on a debt reduction deal are saying little about which programs are likely to be on the chopping block, but education experts say the large increases required to sustain the Pell grant program make it particularly vulnerable.

The Pell grant program is one of the federal government’s largest education initiatives, and has been one of President’s top priorities.  The program faces a shortfall each year because it is partially funded through discretionary spending, not just mandatory dollars that would sustain it automatically.  With the economic difficulties of the past few years, more people are qualifying for the grant and more people are going back to school to earn degrees, leaving the program strapped for cash.  Program costs have more than doubled since 2008, from $16 billion to an estimated $35 billion in FY12.  In order to maintain the current $5,550 maximum award, lawmakers must make up for an estimated $11 billion shortfall.  Lawmakers in both parties are looking at proposals to restructure the Pell grant program to reduce costs, but those decisions are unlikely to be made until after the White House and congressional leaders negotiate a deficit reduction plan.

Bipartisan Support for Tax Reform:  Leaders of the Senate Finance Committee sounded a rare bipartisan note Wednesday on a tax issue.  They called for scrapping the current code and replacing it with a far simpler one that would help increase federal revenue.  Lawmakers said making it easier for individuals and businesses to pay taxes would go a long way toward closing the $300 billion gap between taxes actually owed and those that are paid.  The remarks came at the latest in a series of Senate Finance hearings on rewriting the tax code.

Congressional Pay Freeze:  Lawmakers in both the House and Senate have introduced nearly 20 pieces of legislation this year to try and slash or freeze their own paychecks for 2013.  Attacks on their six-figure salaries have become increasingly popular in recent years, as members face the wrath of constituents dissatisfied with the state of the economy and often plagued by personal financial challenges themselves.  With heated discussions under way on whether to raise the debt ceiling by August 2^nd, several lawmakers have introduced bills that would nix any congressional increase in pay for every year that the government runs a deficit.  The last pay increase members received was in 2009, when they got a 2.8 percent raise.  The House and Senate have frozen their salaries for 2011 and 2012 at $174,000.  But pay raises for 2013 are still in order.  Members of Congress, under current law, automatically receive a cost-of-living pay adjustment each year unless they vote against it, as they’ve done each year since 2010. 

Immigration Reform Legislation Begins to Emerge:  On June 22 Senator Menendez (D-NJ) reintroduced the Comprehensive Immigration Reform Act of 2011 (S 1258).  As in past years, his legislation focuses primarily on issues such as border security and guest worker visas, but it also includes language that would exempt individuals with an “advanced degree” in a science, math, or engineering field from visa caps.  Meanwhile, on June 14 Congresswoman Lofgren (D-CA) introduced the Immigration Driving Entrepreneurship in America (IDEA) Act of 2011 (HR 2161), which would ease green-card applications for non-immigrants with advanced STEM degrees, but would also protect fair wages.  The primary legislative driver, however, for comprehensive immigration reform in the Congress is the Development, Relief, and Education for Alien Minors Act of 2011, also known as the DREAM Act of 2011, which does not address foreign nationals studying in a STEM field.  The DREAM Act has been reintroduced in both the House (HR 1842) and the Senate (S 952).

DOE Offers $120 Million to Support Innovative Manufacturing Processes:  As part the Advanced Manufacturing Partnership launched June 24^th by President Obama, the Department of Energy is offering an investment of up to $120 million over three years to develop transformational manufacturing technologies and innovative materials.  The Advanced Manufacturing Partnership is a national effort bringing together industry, universities, and the federal government to invest in emerging technologies that will create high-quality manufacturing jobs and enhance US competitiveness.  For more information, see the funding opportunity announcement and the DOE press release.

Navy Increases Support for STEM Education:  Secretary of the Navy Ray Mabus announced the Navy’s commitment to improve science, technology, engineering, and math (STEM) education.  The Navy will increase funding for STEM education initiatives from $54 million in 2010 to over $100 million by 2015. The Navy views this as an investment in its future workforce.

                          

** Update ** Today, by a vote of 81-19, the Senate voted to pass the much discussed tax-extenders package. The bill now goes to the House for a vote. The $893 billion package would provide an extension of various Bush-era tax cuts that were set to expire at the end of December. The package includes several items of note to our community, including:

Tax incentives that would be extended for two years through 2012

• Section 127 Employer-provided education benefits
• Coverdell education savings accounts
• Student loan interest deductions
• American Opportunity Tax Credit (AOTC)

Tax incentives that would be extended for two years through 2011 (they expired in 2009)

• Deductions for qualified educational expenses
• Research and development credit
• Ability to “roll over” assets in Individual Retirement Accounts (IRA) to charitable organizations, including institutions of higher education

Additional items of note for employees

• Sales tax deduction in states with no income tax -retroactively for 2010 plus 2 additional years
• Social security payroll tax reduction from 6.2% to 4.2% of income for one year

Although the tax package will leave the Senate with rare bipartisan support, it’s path in the House is less clear. House Democrats have promised to amend the legislation, primarily the estate tax portion, which could send it back to the Senate. Senate Republicans have already signaled that they are unlikely to support House modifications. Nonetheless, it is expected that some form of a final deal will be struck by the end of the week -so that tax rates do not increase at the beginning of the year.

                          

The Office of Federal Relations is gathering information on the likely leadership structure of the incoming 112th Congress, as well as on prospects for legislation of interest. A Federal Report will be produced and available on this website during the week of November 7th.