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Weekly UpdatesPresident Bush submitted his $2.9 trillion budget request for FY08 to Congress in early February The President's budget proposal was not offered in the spirit of compromise many experts anticipated in light of the new Democratic majority in Congress. Instead, the FY08 budget remained true to the President's priorities of security-related spending, including defense, homeland security;, and international relations ($700 billion in FY08), permanently extending the 2001 and 2003 tax cuts (a cost of $1.62 trillion over 10 years) and eliminating the deficit by 2012. At the same time, the budget proposal squeezes domestic discretionary spending for programs supported by Democrats by limiting growth to a 1 percent annual increase, and substantially cuts entitlement programs such as Medicare and Medicaid.
Many congressional Democrats expressed their dismay over the President's proposed cuts to domestic discretionary spending as well as to entitlement programs. Democrats have begun to put their own touches on the budget process as the House and the Senate begin moving forward with the FY08 budget resolution that will provide the framework for the upcoming appropriations process.
EFFECTS OF THE PRESIDENT'S PROPOSAL
Below is a brief overview of some important state and local government programs impacted by the FY08 budget proposed by President Bush.
Homeland Security
The President's budget proposes cuts in the Department of Homeland Security's (DHS) first-responder grant programs, which include grants for states, cities, and local law enforcement agencies, such as the State Homeland Security Grant Program, the Urban Area Initiative Program, the Law Enforcement Terrorism Prevention Program, and the FIRE Grants Program. Under the budget proposal, state and local programs would be funded at $1.9 billion, down from $2.7 billion in FY07. In particular, the State Homeland Security Grant Program faces a proposed 63 percent reduction from $509 million in FY07 to $187 million. Funding for these programs would continue to be based on risk and vulnerability to threats of terrorism. In addition the budget proposal would cut $125 million in state and local preparedness initiatives to combat bioterrorism. Funding would be reduced from $823 million in FY07 to $698 million. The proposed budget also freezes grants to provide transit security for passenger and freight rail systems at $175 million (FY07 levels).
The FY08 budget requests no additional funding for the Public Safety Interoperable Communications Grant Program, which was funded at $1 billion in FY07. The DHS and the Department of Commerce are responsible for coordinating the administration of this grant program.
Public Safety
The President's budget proposes cutting in half federal assistance to state and local law enforcement from $2 billion in FY07 to $1 million in FY08 by consolidating several law enforcement grant programs. In particular, the Byrne Justice Assistance Grant Program, the State Criminal Alien Assistance Program, and the Juvenile Accountability Block Grant Program would be eliminated and replaced with several new discretionary grant programs.
Housing
The President requested that Congress fold several grant programs into the Community Development Block Grant (CDBG) Program and proposed funding CDBG at $3 billion, a decrease of $1.2 billion from FY07. CDBG funds housing and other improvements in low-income neighborhoods and helps local communities spur economic development.
The budget also proposes large cuts to other housing programs, including housing for the elderly, which would receive $575 million, $151 million less than in FY07, and housing for persons with disabilities, which would receive $125 million, approximately $100 million less than in FY07.
Transportation
The President proposed reducing funding for Amtrak from $1.294 billion in FY07 to $800 million in FY08--a cut of almost $5 million. However, the Federal Highway Aid Program would be funded at $39.6 billion in FY08, an increase of $500 million from FY07.In the area of aviation, the President has proposed new aviation fees to replace airline ticket taxes. Details of this proposal will continue to emerge over the coming months.
Education
The President requested $56 billion in discretionary spending for education, $2.4 billion less than in FY07. The No Child Left Behind Program would receive $13.9 billion, an increase of 8.6 percent from FY07, for expanding the law's testing requirements into high school. In the area of college affordability, the President's budget proposal seeks the largest Pell grant increases in three decades--proposing to raise the maximum Pell grant to $4,600 in 2008 and to $5,400 by 2012.
Tax-Preferred Savings Vehicles
The President's budget once again proposes a significant expansion of taxfree savings accounts, including the creation of Lifetime Savings Accounts and Retirement Savings Accounts (at a cost of $592 million over 10 years),as well as the Employer Retirement Savings Account (at a cost of $1.48 billion over 10 years).The GFOA and other associations representing the interests of state and local governments and retirement systems have consistently cautioned against the use of Employer Retirement Savings Accounts, which would consolidate 401(k), 457, and 403 (b) retirement accounts, maintaining that a one-size-fits-all approach may not necessarily address the needs of the public sector's diverse workforce and legal framework or increase retirement savings.
Health Care
The President's expanded health care initiative would cost approximately $5.3 billion over 10 years. This new proposal recommends a $15,000 annual tax deduction to married couples ($7,500 to singles) whether they purchase health insurance through their employer or on their own. As a result, current law would be amended to require that individual workers report as income the amount that their employers pay to insure them. The President's proposal also would expand the use of tax-advantaged Health Savings Accounts at a cost of $10 billion over 10 years.
Medicare/Medicaid
Medicare, the government health care program for seniors and individuals with disabilities, would be cut by $66 billion over 5 years and $252 billion over 10 years. Most of the savings would come from cuts in payments to hospitals and other providers. Medicaid, the federal-state health program for the poor, would be cut by approximately $13 billion over 5 years. On a more positive note, the State Children's Health Insurance Program (SCHIP),which provides health insurance coverage for low income children, would see an increase of about $5 billion a year--a 15 percent increase from FY07.
Environment
The President's budget proposes significant cuts to the Clean Water State Revolving Fund Program, which provides loan to states and local communities to help meet water quality standards and upgrade and replace pipelines and treatment plants. The program would be funded at $688 million, about $300 million less than in FY07. Other cleanup programs, including Brownfields ($162 million) and Superfund ($1.245 billion), were frozen at or near FY07 levels.
On a positive note, the President's budget contains a proposal to remove the volume cap on tax-exempt qualified private activity bonds for water and wastewater infrastructure facilities, effective for bonds issued after December 31, 2008. Under current law, there is an overall cap on the volume of private activity bonds that each state may issue.
Human Services
The President's budget request proposes cuts to some programs for the poor and redirects this money toward combating bioterrrorism and plagues. The Low-Income Heating and Energy Assistance Program (LIHEAP) would experience a cut of nearly $400 million from FY07 funding levels to be funded at $1.8 billion in FY08. in addition, the $630 million Community Service Block Grant would be eliminated. At the same time, funding to the Centers for Disease Control and the National Institutes of Health to combat infectious diseases and bioterriorism would both increase in FY08.
Job Training
The President's budget targets training and employment programs for cuts, in particular, those set forth in the 1998 Workforce Investment Act, requesting $4.3 billion for these programs, a 17 percent cut from FY07. The President also proposes a new block grant--Career Advancement Accounts, which would consolidate several existing job training and youth grant programs into one and provide states with increased flexibility to administer this program.
Social Security
The President's budget proposal would permit the creation of private accounts starting in 2012 and projects $29 billion for this proposal.
DEMOCRATIC RESPONSE
Overall, the Democrats did not respond favorably to the President's budget, and many commented specifically about cuts to many of the programs important to states and local governments. In particular, reductions to state and local governments in the areas of homeland security and public safety met with resistance, as Democrats talked about the President "short-changing" these grant programs.
In addition, many Democrats oppose any efforts to cut entitlement spending and were particularly put off by the large cuts in Medicaid and Medicare. Many even argued that the increases to the State Children's Health Insurance Program (SCHIP) were too insignificant ($5 billion) and that the program needs closer to $15 billion in additional funding.
Finally, Democrats have expressed concern about the President's health care reform initiatives, arguing that requiring employees to include the cost of their health insurance as part of their income effectively amounts to a tax increase for all those workers who receive employer-provided health insurance.
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