Understanding All the Talk Around the Federal Budget

If it's fall, then chances are that most of the talk in Washington is connected to the discussions around the federal budget. But this is no ordinary year. Discussions around the raising of the debt ceiling this summer led to the passage of the Budget Control Act which created the Deficit Reduction Commission. This group of 12 Members of Congress is charged with identifying approximately $1.5 trillion in cuts from the federal budget over the next decade. They have until the end of November to produce their recommendations. At the same time, Congress is working on putting together and passing the 12 appropriations bills that fund all discretionary programs (not mandatory programs such as Social Security, Medicare and Medicaid). Although these are two separate discussions, they are connected and make for a complicated budget process this year. Every policy decision made on Capitol Hill this fall will be driven by this deficit reduction climate. It's clear that dollars will be cut, the question remains from where?

Budget recap
In April of this year, the House of Representatives passed a 2012 Budget Resolution that provided a roadmap of spending priorities as well as spending caps for the various Congressional committees. It proposed cutting $6 trillion from federal spending over the next decade with almost a third of these savings resulting from cuts to the Medicaid program and from repealing provisions of the Affordable Care Act. The Senate rejected the House budget resolution in May. Although this resolution did not pass the Senate, you will see, as you continue to read, why it is relevant to the budget outlook.

FY 2012 and the role of the Budget Control Act
The Budget Control Act of 2011, also known as the deficit reduction agreement, was signed into law by President Obama on August 2. This legislation allowed for an increase in the federal debt ceiling, prevented the government from defaulting on its loans, and included significant deficit reduction that will cut close to $2.5 trillion from the federal budget over the next 10 years.

The Budget Control Act is relevant to the FY 2012 budget process for a variety of reasons. First, the legislation sets a cap on total discretionary spending for FY 2012 that translates into a 1.4% cut relative to current spending levels this year. It is also higher than the spending caps proposed under the Budget Resolution that passed by the House in April. The higher level of the cap passed as part of the Budget Control Act may help to reduce the size of cuts to the Labor-HHS-Education appropriations bill this year relative to what had been expected if the cap proposed in the House Budget Resolution was enforced.

Second, the House will have to reconcile the difference between the lower spending cap included in the Budget Resolution and the higher cap in the Budget Control Act. While this could present another opening for conservative House members to oppose the higher cap, key Republican leaders in the House have endorsed the higher in an effort to move the appropriations process forward to avoid another risky government shutdown fight.

Budget outlook and next steps
Because Congress has not passed the appropriations bill and the new fiscal year begins October 1, Congress will need to pass a Continuing Resolution (CR) that will keep the government operating until a full year funding bill is worked out. The CR, which was introduced in the House on September 15, includes across the board cuts to programs of 1.409% and continues government operations at the rate agreed to in the Budget Control Act. The House and Senate will likely vote on this CR the week of September 19. This CR would fund the government through November 18, giving Congress additional time to negotiate full-year 2012 appropriations.

In the meantime, the House has started crafting an Omnibus funding bill that combines all their 12 annual appropriations bills in one single omnibus package. This strategy has been utilized in the past when Congress anticipates challenges in passing each appropriations bill individually. The Omnibus package will be designed to meet the original spending goals that were set in the Budget Control Act. The House and Senate will look to craft, debate and possibly vote on the bill before November 18, when the CR expires.

What all of this means for our community is that while we are aware that every policy decision made this fall, whether through the Joint Committee or FY 2012 spending bills, will be driven by concern for the federal deficit, the exact outcomes are unclear at this time as we are unsure of the total dollar amounts available to fund (or not fund) programs that are of importance to us. What is apparent is that everything is up for discussion and large cuts will inevitably be made.