February 5, 2008 ANALYSIS: PRESIDENT’S FISCAL YEAR 2009 BUDGET PROPOSAL
Soon after the President and Congress hash out a plan for priming the economic pump, lawmakers will turn their attention to the President’s $3.1 trillion budget proposal for fiscal year 2009—a proposal notable both for what it does and does not include. The President has called on Congress to expand opportunities for America’s workers by approving free trade agreements with Colombia, Panama and South Korea: his budget proposes to eliminate $800 million from worker employment and training programs. In his State of the Union address President Bush urged Congress to keep America competitive by strengthening scientific education and research, and to support ethical stem cell research: under his budget, the National Institutes of Health—the lead federal agency for biomedical research—would be level-funded, making this the sixth year in a row that research support has failed to keep pace with inflation. The President has asked Congress to make tax cuts passed in 2001 permanent: his proposed budget, however, does not include a permanent fix to the alternative minimum tax that now threatens millions of middle-income taxpayers. The President calls for making health care more affordable through association health plans and by allowing individuals to purchase health insurance coverage across state lines: the budget also proposes to make health insurance premiums taxable above a certain level.
Congress will spend the next several months debating these and thousands of other proposals contained in the President’s budget blueprint. In the end, however, politics will likely trump policy-making. Last year, President Bush insisted on his bottom line for discretionary spending—the pot of money that Congress can actually control. And although Congress managed to make changes on the margin, the President prevailed. With national elections just nine months away, neither side may want to engage in a protracted debate over spending priorities. As 2007 proved, the President has the upper hand on spending, so congressional Democrats, anticipating a new, possibly Democratic president and big gains in the November elections, may be inclined to settle for a continuing resolution that keeps the government functioning until February or March of 2009. Growth in national security; freeze on domestic discretionary programs President Bush described his budget proposal as sound, saying it makes keeping the nation safe a top priority, holds federal spending in check and balances the budget by 2012. While it projects
huge budget deficits, the proposal President Bush sent Congress on February 4 boosts military spending, promotes tax cuts and largely freezes spending on domestic programs. As in years past, the largest increases in the President’s proposed budget are slated for national security programs: defense spending would rise 5 percent to $515 billion and homeland security would grow by nearly 11 percent, primarily for border security and enforcement. The budget includes an additional $70 billion to fund the Iraq war. Modest increases also are proposed for selected education and veterans’ health programs. But those gains would be offset by sizable savings proposed in Medicare and Medicaid—almost $200 billion over the next five years— along with cuts to most other domestic discretionary programs, setting up a confrontation that may be even less productive and perhaps more unsatisfying than the just-completed legislative cycle. The budget request for the Department of Health and Human Services is $70.4 billion, about $1.5 billion lower than current funding, while the Education Department’s budget would grow by 3.5 percent to $59.2 billion. Following is a sampling of other major budget proposals: Increased discretionary funding: • Commerce Department. The president’s fiscal 2009 budget request is set at $8.2 billion, a $1.3 billion — or 18.4 percent — increase over the fiscal 2008 spending level. • Energy Department. The budget seeks $25 billion in discretionary spending, an increase of $1.1 billion over the fiscal 2008 level of $23.9 billion enacted by Congress. That represents a 4.7 percent increase over current year spending. • Department of Homeland Security. The president has requested $37.6 billion for fiscal 2009, a rise of $2.7 billion, or 7.7 percent, over the 2008 enacted amount. • Department of Housing and Urban Development. The President’s fiscal 2009 budget seeks $38.5 billion in discretionary funding, which is $1.1 billion, or 2.9 percent, more than the fiscal 2008 enacted level. • Treasury Department. President Bush is requesting $12.5 billion for the Treasury Department, an increase of $500 million or 3.9 percent over current spending. Of that total, $11.3 billion is dedicated to the Internal Revenue Service, more than half of which — $7.5 billion — is earmarked for enforcement, an increase of 7 percent over 2008. • Veterans Affairs Department. In the wake of highly publicized problems in care for Iraq War veterans, the VA would receive the third biggest dollar bump of any department or major agency. The President’s budget proposal calls for $93.7 billion, an increase of $3.4 billion over current funding. Of the total, $47.2 billion is for discretionary programs, most health care. • International operations. The president is requesting $38.3 billion — a $5.4 billion increase, or 16.5 percent higher than current spending. Requested funding for the U.S. Agency for
International Development rose from an estimated $630 million in 2008 to $767 million in 2009 — a 21.7 percent increase. • National Aeronautics and Space Administration. The president is seeking $17.6 billion in fiscal 2009, a $500 million increase over the space agency’s fiscal 2008 appropriated level. That amounts to a 2.9 percent increase. Decreased discretionary funding: • Agriculture Department. The president is seeking $20.8 billion in discretionary funds for fiscal 2009, $1 billion less than what Congress approved for fiscal 2008. That amounts to a 4.8 percent reduction in discretionary spending. The overall request for USDA is $94.7 billion when mandatory spending for farm programs and nutrition services such as food stamps is included. • Environmental Protection Agency. The budget seeks $7.1 billion in discretionary funds, a roughly $400 million reduction from the approved fiscal 2008 level of $7.5 billion. That is a 4.4 percent reduction below current spending. • Interior Department. The budget seeks $10.6 billion in discretionary funds for fiscal 2009, a roughly $400 million reduction from what the department was given in fiscal 2008. That amounts to a 3.7 percent decline. • Justice Department. The budget seeks $20.3 billion in discretionary funds for fiscal 2009, a roughly $2.4 billion, or 10.7 percent, decrease from current levels. • Transportation Department. The President’s fiscal 2009 budget request is $11.5 billion, which is $4 billion, or 25.7 percent, less than spending for fiscal 2008. Following are highlights of the President’s budget proposal. PUBLIC HEALTH Food and Drug Administration - The President is proposing $2.4 billion for FDA, an increase of $130 million, or 5.7 percent over current funding, made up of $1.7 billion in federal appropriations and $628 million in user fees collected from drug and medical device manufacturers. The bulk of the increase is focused on food-safety initiatives and monitoring the safety of drugs and devices already approved and on the market. Health Resources and Services Administration - The President’s budget proposes $5.9 billion for HRSA programs, a net decrease of $992 million below current funding. Most of the savings are achieved by eliminating support for health professions training (-$255 million) including primary care medicine, diversity programs, area health education centers and advance nursing education; cutting support for rural health initiatives (-$150 million); and terminating graduate medical education aid to children’s hospitals (-$302 million) and newborn hearing screening programs (-$12 million). The budget includes modest increases for programs supporting direct
medical care, including $21 million more for Community Health Centers and $11 million for National Health Service Corps recruitment. Centers for Disease Control and Prevention - The budget contains $8.8 billion for CDC, $433 million below current funding. The request calls for $76 million more to enhance biosurveillance and bioterrorism preparedness and a $64 million increase for children’s vaccines. The budget also proposes to eliminate support for preventive health block grants (-$97 million), while providing $326 million for worker safety programs (-$111 million), $805 million for chronic disease prevention and health promotion (-$29 million), and $271 million for environmental health and injury prevention (-$1 million). National Institutes of Health - The budget proposes to level-fund NIH at $29.4 billion. If adopted by Congress, this budget would essentially negate the funding gains made during the five-year doubling of NIH, between 1998 and 2003. While the total NIH budget remains the same as FY2008, the budget proposes to redistribute funds to selected institutes, including $1.1 billion for the National Center for Research Resources (+$11 million), $4.6 billion for the National Institute of Allergy and Infectious Diseases (+$8 million) and $4.8 billion for the National Cancer Institute (+$5 million). Most other institutes would see an increase of $1 - $2 million, while the Common Fund would grow to $534 million (+$38 million). Overall, the request would support 15,523 research project grants, or 14 fewer new and competing grants than this year. Additional information can be found at http://officeofbudget.od.nih.gov/ui/2009budget_IC_links.htm Substance Abuse and Mental Health Services Administration - The budget proposes $3.2 billion for SAMHSA, a decrease of $198 million below current funding. The budget includes $1.8 billion for substance abuse block grants to states, an increase of $20 million to reward states that demonstrate superior performance in preventing and treating abuse; $40 million for treatment courts; and $114 million for children’s mental health services, an increase of $12 million. The budget also includes $34 million specifically targeted to prevent suicide. Agency for Healthcare Research and Quality - The budget includes $326 million for AHRQ, a $9 million reduction below the FY2008 level. Within that total, the budget proposes to allocate $268 million to support improvements through research on the cost-effectiveness and quality of health care; $30 million for a program to help clinicians and patients determine which drugs and treatments work best for certain health conditions; and $4 million for a value-driven health care initiative. MEDICARE, MEDICAID and SCHIP The budget includes a series of legislative and administrative proposals to cut nearly $200 billion from Medicare and Medicaid over the next five years, although total spending for both programs would continue to grow in FY2009 to $638.1 billion. For Medicare, the budget proposes to lower the program’s annual growth rate over five years from 7.2 percent to 5.0 percent, saving $182.7 billion. Among the proposals recommended are:
Adjust provider payment updates by providing no percentage update in 2009-11 for inpatient and outpatient hospitals, long-term care hospitals, skilled nursing facilities and hospices, followed by a full update minus 0.65 percent annually thereafter; a similar proposal is recommended for rehabilitation facilities and ambulatory surgical centers in 2010 and 2011, and home health agencies for 2009-13. Prohibit Medicare payment for so-called ―never‖ events, i.e. preventable adverse events such as surgery on the wrong body part. Eliminate duplicate indirect medical education (IME) payments to hospitals for Medicare Advantage beneficiaries, and adjust the IME add-on from 5.5 percent to 2.2 percent over three years, beginning in 2009. Align payment rates for certain dialysis services in hospital-based and freestanding facilities, starting in 2009, and bundle payments for dialysis services and re-base the first year of the new payment system starting in 2011, saving $1 billion over five years. Also, extend Medicare Secondary Payer status for end-stage renal disease patients from 30 to 60 months, saving $1.1 billion. Allow Medicare provider payments to be included in an IRS program that matches delinquent tax debts with payments disbursed by the government, i.e., allow the government to levy a portion of a provider’s Medicare reimbursement against an outstanding tax debt. Apply a sequester of -0.4 percent to all Medicare provider payments when general fund contributions exceed 45 percent.
For Medicaid, the budget proposes savings of $17.4 billion over five years, slowing the program’s growth rate from 7.4 percent to 7.1 percent. Changes include: Remove the state option to increase the $500,000 home equity limit to $750,000. Allow states greater flexibility in coordinating care for special populations. Expand states’ flexibility to offer private sector-type coverage to certain Medicaid populations. Replace the ―best price‖ component of the Medicaid drug rebate formula with a budget neutral flat rebate. Implement Medicaid pay-for-performance, requiring states to report on performance measures and link performance to federal Medicaid grant awards. Align all reimbursement rates for administrative activities at 50 percent.
For the State Children’s Health Insurance Program (SCHIP), the President proposes nearly $4 billion more in each of the next five years, or nearly four times the amount he proposed last year. However, the budget proposal includes many of the policy proposals that have drawn considerable fire from Congress, including capping participation at 200 percent of the federal poverty level, with some states allowed up to 250 percent if certain conditions are met. SCIENCE The President’s budget request for the National Science Foundation (NSF) totals $6.85 billion, an increase of $822 million, or 13 percent, over the agency’s current funding level. In addition to maintaining current investments in the physical sciences and engineering, the proposal promotes investments in new technologies and infrastructure. The budget also fosters enhanced opportunities for young researchers, proposing $182 million to support early career development awards for those faculty members likely to become academic leaders in the future, and a 30 percent increase in fellowships for graduate students who are expected to significantly contribute to research, training and future innovations in science and engineering. Of the total requested for NSF, $675 million is proposed for biological sciences, an increase of $63 million, or 10.3 percent, over the fiscal year 2008 funding level. The proposed increase for both disciplinary and interdisciplinary research will help restore funding rates and numbers of research awards to fiscal year 2007 levels, following a decrease in funding rates in fiscal year 2008. EDUCATION While the President has called upon Congress to extend the No Child Left Behind program, his budget proposes to freeze Department of Education programs at $59.2 billion and eliminate 48 programs, including career and technical education grants to states (-$1.2 billion), supplemental college educational opportunity grants (-$757 million), educational technology state grants ($267 million), and a host of smaller categorical programs such as Reading Is Fundamental and Ready to Teach. Most of these proposals have already been rejected several times by Congress. Key priorities in the FY2009 proposal include: $14.3 billion, an increase of $406 million or 2.9 percent, for Title I grants to local educational agencies. $16.9 billion for Pell Grants, an increase of $2.6 billion, to raise maximum grant awards to $4,800. $11.3 billion for the Individuals with Disabilities program, an increase of $337 million that would maintain the federal contribution at 17 percent of the national average. $1 billion for the controversial Reading First state grants, an increase of $607 million, a program that uses research-based instructional methods to improve the reading skills of children from disadvantaged families.
$800 million for the 21st Century Learning Opportunities program to enable poor students to enroll in high-quality after-school and summer school programs. $300 million for Pell Grants for Kids, a new program that would allow low-income students to transfer to local private schools or out-of-district schools.
SOCIAL SERVICES, EMPLOYMENT AND TRAINING The President’s budget proposes to continue a number of social services programs, many of which are overseen by the Administration for Children and Families. The budget plan, for example, includes $7 billion for Head Start programs serving an estimated 895,000 low-income children, and $191 million to continue abstinence-only education activities provided through community-based organizations. As a result of the constraints imposed on domestic discretionary spending, the President’s budget takes a hard line on a number of programs that are especially popular with Congress. The President proposes to cut energy assistance for lowincome families by 22 percent to $2 billion. In addition, he proposes to eliminate the Community Services Block Grant program, which is currently operating at $654 million, and cuts Social Services Block Grants by $500 million, or 30 percent. The budget proposed for the Department of Labor totals $10.5 billion, a reduction of $857 million or 7.5 percent below current funding levels. The budget would provide $3.0 billion for training and employment services, a reduction of $484 million, or 14 percent, most of which would come from programs to aid dislocated workers and adult employment and training activities. In addition, the budget cuts $703 million from grants to states for job search assistance and information services. DEFENSE President Bush proposes to boost defense spending by about 7.5 percent to $514.5 billion in fiscal year 2009, although military spending could increase later this year if the costs of fighting the wars in Iraq and Afghanistan escalate. In total, the administration requests $70 billion to fight those wars, or less than half this year’s costs. The budget document explains that a lesser amount is being sought for FY2009 in large part because it is unclear how many troops will remain in Iraq after the military reassesses its troop levels in March 2008. Most of the funds requested would be directed toward operations and maintenance and military personnel costs. Part of the personnel costs, $20.5 billion, will be used to help the active-duty Army continue to grow to 547,400 soldiers and the Marine Corps to 202,000 troops—force levels designed to alleviate some of the burden on ground forces serving overseas. The budget also proposes to spend $104 billion to purchase equipment in 2009, and another $80 billion to develop new weapons. On the missile defense front, the administration is asking for
$10.4 billion to continue building a layered system to defeat ballistic missiles in all three phases of flight. Other defense items include: $49 billion to recruit, train and equip National Guard and Reserve forces; $17.3 billion to recapitalize the aircraft fleet; $12.7 billion for the purchase of warships; and $1.8 billion to develop and purchase unmanned aerial vehicles. TRANSPORTATION AND INFRASTRUCTURE Record delays for airline passengers during 2007, the collapse of an interstate highway bridge in Minnesota due to neglected maintenance, and increased congestion at the nation’s ports and trade corridors all point to a significant need for investments in national transportation infrastructure. The blue-ribbon National Surface Transportation Policy and Revenue Study Commission recently issued a call to action, reporting that ―The future of our Nation’s well-being, vitality, and global economic leadership is at stake.‖ The Commission recommended an annual investment of at least $225 billion annually, pointing out ―We are spending less than 40 percent of this amount today.‖ Even the U.S. Chamber of Commerce has called for the first gas tax increase in 15 years to offset a possible $5 billion shortfall in federal highway funding next year. But Secretary of Transportation Mary Peters dissented from the Commission’s report, and the FY 2009 budget submission for the Transportation Department recommends the largest percentage reduction of any Cabinet department. Federal Aviation Administration – The President’s budget proposes $14.6 billion for FAA operations, capital and research programs, a reduction of nearly $300 million below FY2008. Federal Highway Administration – The budget recommends $35.5 billion for FHA, a reduction of nearly $6 billion below the FY2008 level. Federal Transit Administration – The President’s budget proposes a slight increase for mass transit projects in the FTA, recommending a spending level of $10.1 billion, a nearly $600 million increase over the FY2008 level of $9.5 billion. Amtrak is proposed for a reduction from $850 million to $525 million, with an additional $275 million dependent upon ―efficiency incentive grants‖ which would have to be enacted by Congress. U.S Army Corps of Engineers – Funds to the Corps of Engineers, which is responsible for America’s navigable waterways and for major flood control projects, is recommended for reduction from $5.6 billion to $4.7 billion. An additional $5.8 billion in emergency funding is proposed to provide flood protection for New Orleans. The Corps budget proposes a ―performance-based, earmark-free construction program‖ but Congress traditionally enumerates funding amounts for studies, construction, and operations and maintenance projects.