The Bipartisan Budget Act of 2013

Dec 16, 2013

Bipartisan Budget Act of 2013

Tuesday, December 10, 2013, Senate Budget Committee Chair Patty Murray and House Budget Chair Paul Ryan announced their conference committee had reached agreement on a budget deal. The Bipartisan Budget Act of 2013 was introduced as an amendment to H.J. Res. 59, the Continuing Appropriations Resolution, 2014. The bill would prevent another government shutdown and undo some sequestration cuts slated for 2014 and 2015, but leaves the full cuts in place from 2016 to 2021, and does nothing to address the larger disagreement over tax and spending priorities. If voted into law, this bill would allow the Appropriations Committee to complete the regular process of making decisions about funding allocations for at least some programs in 2014 and for every agency in 2015. While it is a significant step in the right direction, the Bipartisan Budget Act does not contain the real policy changes the country needs.

Discretionary Spending:

The Bipartisan Budget Act would set discretionary spending in FY2014 at $1.012 trillion and at $1.014 trillion in FY2015. The agreement replaces $62 billion of the sequestration cuts scheduled for the next two years, with $45 billion in relief allocated to FY2014 and $18 billion granted to FY2015. Critically, the budget relief maintains the parity established by the Budget Control Act (BCA) between defense and non-defense spending.

It is a triumph that the Murray-Ryan deal does not spare defense spending by shifting more of the burden onto non-defense programs. The House budget shifted the entirety of Pentagon sequestration onto non-defense domestic programs, which would have been devastating for communities around the country. Yet, despite this extreme starting point on the conference committee and concerted efforts from Pentagon contractors, this budget agreement divided the relief evenly.

This relief is good news for human needs programs around the country, as sequestration cuts last year threatened community programs’ ability to function. The extra funding brings FY2014 non-defense spending up to slightly more than pre-sequestration FY2013 funding levels. This level is not high enough to close the funding gaps created by years of budget cuts or to meet all of the needs in our communities. However, it does allow Appropriators the opportunity to give extra funds out at their discretion. In 2013, Meals on Wheels had to serve millions fewer meals to seniors and Head Start had to push 57,000 children out of their classes. If the housing voucher program does not receive more funding in this fiscal year, the program will be forced to help at least 125,000 fewer low-income families afford a home. More funding for these and other human needs programs would make a large difference in the lives of struggling and vulnerable people.

This budget agreement brings the Pentagon budget to slightly more than post-sequestration 2013 funding levels and ensures the Pentagon would avoid the $20 billion spending reduction that was to come in 2014. While this deal leaves sequestration cuts in place from 2016 to 2021, next year’s funding increase would ease the Pentagon budget reductions over the next decade. In 2016 and beyond, assuming sequestration stays in place, the Pentagon budget would then level off instead of dramatically decrease, as it would if this current agreement had not been reached. Unlike human needs programs, the Pentagon’s plush budget could take the amount of cuts proposed by sequestration. As analysts across the political spectrum have agreed, $1 trillion cut in Pentagon spending over 10 years is reasonable.

Mandatory Spending Cuts ($28 billion savings):

This bill extends the Budget Control Act sequestration cuts to mandatory programs by two years, including a 2 percent cut in Medicare provider payments. Like sequestration cuts to discretionary spending, these cuts were originally set to expire in 2021. This bill extends them into 2022 and 2023. In 2013, Medicare cuts meant, among other things, that cancer clinics turned away thousands of people with cancer, and some clinics threatened closure if they are not spared from more cuts in the coming years.

Federal Employee Retirement Plans ($12.2 billion savings):

  • All federal employees hired after December 31, 2013 with less than five years of service will have to pay 1.3 percent more into their retirement plan.
  • Armed Forces retirees under age 62 will see a cost-of-living adjustment that is equal to inflation minus one percent, gradually phased in through December 2015. Veterans who retired due to disability or injury would be exempt.

Changes to higher education loan services ($5.1 billion savings):

  • The amount of money agencies receive for rehabilitating a loan from the Federal Family Education Loan program is reduced, beginning July 1, 2014.
  • Payments to non-profit student loan servicers are shifted from being paid by mandatory spending to be paid with discretionary funds like other student loan servicers.

Changes Affecting Natural Resources ($4.5 billion savings):

  • The Mineral Leasing Act is amended to permanently require states to help defray the costs of managing mineral-generating leases.
  • The federal oil and gas royalty repayment interest rate is capped at 110 percent of the amount due.
  • An agreement with Mexico is approved to set up a framework to explore, develop and share revenue from hydrocarbon resources that lie in waters that do not exclusively belong to either country.
  • Provisions of the Energy Policy Act of 2005 that authorized direct spending for research on the development of certain oil and gas resources are repealed.
  • The unobligated balances currently available for purchase of oil for the Strategic Petroleum Reserve are permanently rescinded, and the bill repeals the Reserve’s authority to acquire oil using royalty-in-kind payments from companies that develop oil and gas resources under federal leases.

More New Revenues from Fees:

  • This agreement does not close a single tax loophole or make any changes to the corporate tax structure. The revenues in the deal all come from creating or expanding federal fees.
  • A new fee is created to offset the U.S. Department of Agriculture’s cost of providing conservation assistance to owners of private lands, for an estimated $40 million in revenues over ten years.
  • Transportation Security Administration (TSA) fees are increased, bringing them from their current rate of $2.50 per leg of a connecting flight, limited to $5 per trip, up to a flat rate of $5.60 each way on a trip. It is estimated to generate $12.6 billion over the next decade.
  • Premiums that private companies pay the federal government to guarantee their pension benefits would be raised, a change to the Pension Benefit Guaranty Corporation expected to raise about $8 billion.
  • The length of time the Bureau of Customs and Border Protection can continue collecting user fees would be extended to FY2023, for a projected $6.8 billion.

Miscellaneous Changes to Produce Savings:

  • The Treasury Forfeiture Fund and the Assets Forfeiture Funds certain unobligated balances are prevented from being spent.
  • The Federal Employees Health Benefits program is changed to include a “self plus one” coverage option as well as the “self plus family” option. This change is expected to be used primarily by retirees, and to raise the cost of the “self plus family” option for active federal employees. These two changes are expected to save approximately $4.16 billion.
  • This bill repeals the requirement that the Maritime Administration compensate the Department of Agriculture to transport food aid on ships registered in the United States, rather than ships registered in other countries, for an estimated $800 million in savings.
  • The bill limits how much a contractor can charge the federal government for an employee’s compensation – which will soon jump to $952,000 under current law – to $487,000 and would rise slightly based on inflation each year. This provision is a small start toward bringing down the absurdly high pay some Pentagon contractors take home each year.
  • This bill has a section titled “Prevention of Waste, Fraud, and Abuse” that would make changes to reduce fraudulent federal payments and increase recoveries of overpayments. The proposals are small bureaucratic changes expected to save $2.5 billion between 2014 and 2023. Ironically, none of these changes affect how the Department of Defense does business, even though it is infamous for its waste, fraud and abuse and has never successfully conducted an audit.

What's Missing?

This bill does not address the upcoming expiration of federal Emergency Unemployment Compensation (EUC), which would leave 1.3 million long-term jobless workers abruptly without assistance on December 28, 2013. Another 3.6 million people around the country will lose unemployment insurance in 2014 if the federal program is not extended. Long-term unemployment is higher now than it has been at any time that federal unemployment insurance was allowed to expire. With $11 billion in SNAP cuts beginning in November, and another significant reduction expected in January, jobless workers struggling to get by will be facing a harsh new year as they lose vital food and unemployment benefits this winter.

Leaving out an extension of unemployment – which has been renewed annually since the recession began – is extremely problematic because another provision with an impending expiration was renewed. During the Rules Committee markup of the Bipartisan Budget Act, the Medicare “doc fix” was added, a three month extension of a provision that prevents a cut in the payment doctors receive for treating Medicare patients. While it is traditionally renewed each year to prevent this cut to doctors’ payments, this extension of only three months is meant to give legislators the time to find a more permanent solution to the payment formula that requires this “fix.” Both an extension of federal unemployment benefits and the “doc fix” were offered during a Rules Committee meeting, but only the “doc fix” was attached to the final bill.

This bill does not raise federal revenue from raising individual or corporate taxes, or from closing a single tax loophole. There are an abundance of tax changes that could raise billions of dollars, make the tax code more progressive, and ensure corporations pay their fair share.

Finally, this bill does not address the underlying disagreements between taxation and spending priorities that have caused budget gridlock for years. While it will ease some of the sequestration cuts in 2014 and 2015, the overall funding levels are still too low to meet the great needs of this nation, and it does not make significant and much needed reductions in the Pentagon budget.

What's Next?

This bill would move the federal budget toward regular process, in which Appropriations Committee members make decisions about allocating funds to different programs. This budget framework takes the place of a budget resolution, and sets up Appropriators to pass their twelve bills by January 15, when the current Continuing Resolution (CR) runs out. It is likely that not all of the bills will be finished, and so some may be passed as continuing resolutions or CRs with some changes, called anomalies.

The bill was approved in the House on Thursday, December 12, 2013. The Senate is scheduled to vote on the Bipartisan Budget Act this week.

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