FY 2017 Budget

McCain Amendment Would Undermine Appropriations Discipline

When the Senate considers this year's National Defense Authorization Act (NDAA), Senate Armed Services Committee Chairman John McCain (R-AZ) is expected to offer an amendment to increase authorized defense spending for fiscal year 2017 by $18 billion. Although the amendment would not technically break the discretionary spending limits because the funds would still need to be appropriated, adoption of the McCain amendment would set the stage for busting the caps in the defense appropriations bill.

Last year's Bipartisan Budget Act of 2015 partially reversed the effects of the sequester, which lowered the spending caps by $90 billion per year, by increasing caps on defense and non-defense discretionary spending by $50 billion in 2016 and $30 billion in 2017, equally divided between the two categories.  The increased spending was ostensibly offset by mandatory savings, but in reality only half of the increased spending was paid for.

The House version of the NDAA complied with the discretionary caps on paper while providing additional funding through a shell game with the Overseas Contingency Operations (OCO) account by only authorizing funding for seven months of true war spending, an approach we criticized. The House bill artificially reduces OCO spending by $18 billion and uses this “savings” to shift $18 billion of non-war defense spending to the OCO account. The $18 billion needed to cover the remaining five months of true war costs would be made up later in the year with supplemental appropriations.

To his credit, Senator McCain is taking a more honest and transparent approach to increasing non-war defense spending instead of using the OCO designation to hide new spending and circumvent the spending limits. Nonetheless, his amendment would undermine budget discipline in a few ways.

Zika Debate Provides An Opportunity to Discuss How Emergencies Are Funded

Currently, Congress is debating if and how to provide emergency funding to fight the Zika virus. While the President has requested $1.9 billion in emergency funding this February to fight the mosquito-borne illness, the Senate has offered $1.1 billion in emergency funding and the House would provide $622 million from already-existing funds.

Under current budget rules, the emergency designation exempting Zika from the budget caps is appropriate, though it is often abused – for example, to pay for the Census in 2000. The Zika outbreak has been sudden and unforeseen, and a funding response to mitigate its effects is both necessary and urgent but would not be permanent. 

Yet the fact that Congress continues to debate this is partially the result of a broken budget process that relies on an ad-hoc and somewhat inconsistent funding system for various emergencies. As Congress discusses ideas for improving the budget process, policymakers would be wise to develop a better system to budget for emergencies. 

One example comes from a paper by the Peterson-Pew Commission on Budget Reform, Budgeting for Emergencies, which proposes a fiscally responsible reserve fund that would require Congress to set aside money each year to be withdrawn in case of a emergency like the Zika outbreak. In the long term, a reform like this could prevent unnecessary debate over whether emergency spending should be offset by ensuring that it is offset well in advance of a crisis. 

Identifying the funds to pay for new Zika spending shouldn’t be that difficult – and all things being equal, doing so is almost always preferable, even if not required by budget rules. The House bill would offset its proposed Zika funds by reallocating unobligated funds from the 2014 Ebola outbreak and other unobligated funds from the Department of Health and Human Services. Even fully funding the President’s request would cost less than 0.2 percent of total discretionary spending for FY 2017. If paid for over ten years, costs could easily be covered through very small tax or spending changes, many of which have broad bipartisan support. 

Some examples of possible offsets include: 

Potential Offsets for Zika Funding
Policy Savings
Reduce FY 2017 budget caps by 0.17 percent $2.0 billion
Increase the Medicare sequester from 2.0 percent to 2.04 percent $2.0 billion
Eliminate enhanced Medicaid funding for prisoners  $2.0 billion
Reform inland waterway funding $1.3 billion
Increase customs and courier fees $1.2 billion
Reform oil and gas management and leasing as in the President’s Budget $1.2 billion
Rebase Medicaid DSH payments $700 million
Eliminate payments for abandoned mines $520 million
Require universities to report the amount that students must report to claim the American Opportunity Tax Credit $500 million
Properly account for lottery winnings and other lump-sum income when determining Medicaid eligibility $475 million
Increase agriculture user fees $472 million
Increase collection of non-tax debts owed to the federal government $400 million
Require businesses to withhold taxes on payments to certain contractors, similar to taxes withheld on wages $424 million
Use border-crossing data to prevent improper payments to those that have left the country $200 million
Reduce drug abuse in Medicare Part D $200 million
Strengthen state child support enforcement $174 million
Increase information sharing to administer excise taxes $151 million

House and Senate Move Forward on Appropriations

April 15 is the annual statutory deadline for passing a conferenced budget resolution though the House and Senate, which is intended to formally kick off the appropriations process. This year's deadline has already passed without a budget resolution coming from either chamber, but the appropriations season is still moving forward. How does the appropriations process move forward without a budget?

The budget resolution imposes discipline on the appropriations process by providing a topline number for discretionary appropriations known as a 302(a) allocation, which refers to that particular provision in the Congressional Budget Act of 1974 and is the total amount that the Appropriations Committees can spend. Once the 302(a) allocation is set through the budget resolution, the Appropriations Committees divide the topline amount among each of the twelve appropriations subcommittees using 302(b) allocations.

Without a budget resolution, there is no 302(a) allocation setting the total amount for the Appropriations Committees to spend, and in turn means the Appropriations Committees cannot establish 302(b) allocations to divide the topline spending among their twelve subcommittees. There is also no enforcement mechanism for violating these allocations, however there is a point of order against appropriations that exceed the statutory discretionary spending caps, applied to the appropriations bill that caused the excess (which is typically the last appropriations bill considered by the House).

Appropriations Watch: FY 2017

Last updated 5/27/16 to reflect the appropriations activity in Congress this week. 

The appropriations process has begun in earnest on Capitol Hill and even though Congress has not yet passed a budget, both chambers are moving forward with appropriations bills. The Senate has laid out its topline spending targets known as 302(b) allocations for the twelve Appropriations subcommittees to direct the appropriations process as provided in the Bipartisan Budget Act of 2015 (BBA). The House is pushing ahead without an official 302(b), though the House Appropriations Committee has said it will move forward with informal allocations based on the top line limit set in the BBA last year. As we did last year, we'll be tracking the bills as they move from committee to the House and Senate floor, and onto the President's desk.

The table below shows the status of each appropriations bill. To learn more about the appropriations process, read our report: Appropriations 101, and read here for more detail about how the House and Senate are moving forward without a Budget Resolution.

Item House Senate
Budget Resolution Approved by full committee 3/16 (20-16) Not yet introduced
302(b) Allocations  Not yet released  Approved by full committee 4/18 (29-1)
Agriculture Approved by full committee 4/19 (voice vote) Approved by full committee 5/19 (30-0)
Commerce, Justice, Science Approved by full committee 5/24 (voice vote) Approved by full committee 4/21 (30-0)
Defense Approved by full committee 5/17 (voice vote) Approved by full committee 5/26 (30-0)
Energy and Water Development Failed the House 5/26 (112-305) Passed the Senate 5/12  (90-8)
Financial Services and General Government Approved by subcommittee 5/25 (voice vote) Hearings held
Homeland Security Hearings held Approved by full committee 5/26 (30-0)
Interior, Environment Approved by subcommittee 5/25 (voice vote) Hearings held
Labor, HHS, Education Hearings held Scheduled for full committee markup on 6/9
Legislative Branch Floor vote expected (week of 6/6) Approved by full committee 5/19 (30-0)
Military Construction, VA Passed the House 5/19 (295-129-9) Passed the Senate 5/19 (89-8)
State, Foreign Operations Hearings held Hearings held
Transportation, HUD Approved by subcommittee 5/18 (voice vote) Passed the Senate 5/19 (89-8)

Sources: House Appropriations Committee, Senate Appropriations Committee, CQ, Congress.gov

As we explained in Appropriations 101, the House and Senate Appropriations Committees approve 302(b) spending levels for each subcommittee after the topline 302(a) levels are determined by the Budget Committees. Below is an excerpt (click here to read the full report).

Congressional Progressive Caucus Releases Alternative to House Budget

The Congressional Progressive Caucus (CPC) released their “People’s Budget,” an alternative to the House budget released last week. The budget offers a more liberal alternative than that proposed by the President and puts debt on a downward path. Major changes in the People’s Budget include dramatic increases in the infrastructure and education spending, and a wide range of tax increases focused on high earners.

The CPC's budget proposes both higher taxes and higher spending in most areas. It calls for $9.2 trillion of gross savings and $5 trillion in investments and other costs over ten years, resulting in $5.1 trillion of deficit reduction over the next decade, including interest savings. This deficit reduction would put debt on a downward path from 77 percent of Gross Domestic Product (GDP) in 2016 to 68 percent of GDP in 2026. By contrast, the Congressional Budget Office (CBO) baseline projects that debt will rise to 86 percent by 2026.

Republican Study Committee Publishes Alternative FY 2017 Budget

The Republican Study Committee (RSC) has released an alternative to the House Republican budget that outlines their vision for the country’s fiscal future. Their plan aims to balance the budget in eight years and reduce the ten-year deficit by $8.6 trillion. As a result, debt would decline faster than the House Republican budget, with debt at 53 percent of Gross Domestic Product (GDP) by the end of the next 10 years, down from 75 percent today.

By their own estimates, the plan would cut spending from 19.2 percent of GDP in 2017 to 17.9 percent by 2026. Revenues would remain at current law levels, remaining around 18 percent for most of the decade.

House Budget Confirms It Takes $8 Trillion to Balance the Budget

The Fiscal Year (FY) 2017 House budget resolution that advanced out of the House Budget Committee last week keeps up the recent tradition of targeting a balanced budget within ten years. To do so, the budget claims $6.5 trillion of policy savings, a number that is notably less than the $8 trillion we previously said would be needed to balance the budget by 2026. Upon closer inspection, though, the House budget ends up in about the same place that we did. Here's how.

Our $8 trillion number uses the Congressional Budget Office's (CBO) January budget projections as the baseline. The House budget, by contrast, makes a few adjustments to that baseline that it does not count in the savings. The first is that it assumes a drawdown of war spending after FY 2017 from $74 billion to $27 billion per year from 2018-2021 and zero after that. The second is that it assumes economic effects of $194 billion in reduced deficits from last December's tax deal, of which $150 billion comes from increased revenue and $44 billion comes from decreased outlays. The deal came after CBO had already prepared its economic forecast for the January baseline, and the agency said that when those effects were incorporated, it could add $100-$200 billion to revenue. These two adjustments (plus a minor adjustment to remove FY 2016 emergency spending from the baseline) reduce deficits by $900 billion over ten years.

House Budget Would Expand War Spending Gimmick

The Overseas Contingency Operations (OCO) designation has often been used to circumvent spending limits, and the budget resolution released by House Budget Committee Chairman Tom Price (R-GA) is no exception.

The budget goes beyond what the Bipartisan Budget Act of 2015 already did to explicitly rely on OCO to backfill the normal defense budget. Even more troubling, the budget appears to greenlight Fiscal Year 2017 appropriations that would underfund true war-related spending needs, setting the stage for a supplemental appropriations request next year to cover the shortfall.

Because the statutory limits on discretionary spending are automatically increased by the amount of spending designated as OCO spending, it is effectively exempted from spending limits. The OCO designation creates a loophole to circumvent discretionary spending limits when regular funding in the base defense budget is designated as OCO.

For many years, this loophole was used in small ways, with Congress providing slightly less than the administration requested for OCO needs and funding some items in the base defense budget through OCO to keep total spending in line with the administration’s request.

The bipartisan budget agreement last year relied on a much larger and more blatant use of the OCO gimmick to backfill both the defense and non-defense budget. The agreement called for OCO spending of $74 billion in Fiscal Years 2016 and 2017, $15 billion more than the President’s request for OCO in FY 2016. The increased spending above the caps was divided evenly between defense and international affairs function, effectively freeing up room to backfill the defense and non-defense appropriations by $7.5 billion in each of those years.

The President requested $74 billion for OCO for FY 2017, with $10 billion split equally to backfill non-war defense and international spending and the remainder for legitimate OCO needs. The budget resolution released by Chairman Price sets OCO spending at $74 billion, but supporting materials explicitly assume $23 billion of the OCO allocation is used to backfill regular defense needs. By increasing the amount of normal defense funding provided through the OCO designation while keeping the same total amount for OCO, the budget is effectively underfunding true OCO needs requested by the Defense Department by $18 billion.

Chairman Price Rolls out the FY 2017 House Budget

House Budget Committee Chairman Tom Price (R-GA) today released the FY 2017 House budget resolution to formally kick off the Congressional budget process. The budget proposes about $6.5 trillion of spending reductions, which along with a war draw down, economic effects, and interest would lead to $7.9 trillion of total savings -- enough to balance the budget by 2026.

Rep. Tom McClintock Proposes Changes to Improve Budget Enforcement

As House Republicans continue to discuss the Fiscal Year (FY) 2017 budget resolution, Rep. Tom McClintock (R-CA) has recommended budget process reforms in exchange for supporting the budget with FY 2017 discretionary spending of $1.070 trillion, as agreed to in the Bipartisan Budget Act of 2015.

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