Sessions-McCaskill Proposal to Establish Discretionary Funding Limits Would Impose Steep Cuts on Domestic Programs

PDF of this report (5pp.)

By James R. Horney

May 25, 2010

A proposal by Senators Jeff Sessions and Claire McCaskill to establish binding limits on discretionary appropriations for the next three years, which they are offering as an amendment to the supplemental appropriations bill now on the Senate floor, would necessitate much larger cuts in nondefense discretionary programs than many policymakers understand, in part as a result of recent developments related to funding for the Pell Grant program.

  • Compared to the funding levels President Obama has proposed, the Sessions-McCaskill caps would require cuts in nondefense discretionary programs of $16 billion in fiscal year 2011, $41 billion in fiscal year 2012, and $33.1 billion in 2013.
  • Compared to the totals assumed in the budget resolution for 2011 that the Senate Budget Committee has approved, the Sessions-McCaskill caps would require cuts in nondefense discretionary programs of $7 billion in 2011 and $32 billion over three years.

The required cuts would be still larger if Congress does not enact legislation to restore adequate resources to the Highway Trust Fund, in which case substantial funding for highways and mass transit will count against the Sessions-McCaskill funding limits. (This matter is explained below.)

In addition to imposing deep cuts in nondefense discretionary programs, the Sessions-McCaskill proposal — an amendment (SA 4173) offered on May 23 to the Supplemental Appropriations Act of 2010 (H.R. 4899)[1] — would pose several other problems.

  • It would make it less likely that the President’s National Commission on Fiscal Responsibility and Reform will be able to agree on, and that Congress then will pass, a package of reductions in discretionary and entitlement programs and revenue increases to substantially reduce future deficits. In a sharp departure from past deficit-reduction agreements, in which multi-year discretionary caps were part of a deal that included revenue increases and entitlement savings, the Sessions-McCaskill amendment would extract large savings from domestic discretionary programs without securing any savings in return from other parts of the budget. Its passage would make it less likely that opponents of any revenue increases would agree to move off that position in return for multi-year discretionary program savings as well as changes in entitlement programs, because they already would have secured substantial discretionary program savings.
  • The proposal also includes a striking — and highly undesirable — change in Senate rules by requiring a two-thirds Senate vote to change the binding limits that the proposal would impose on discretionary funding, regardless of subsequent developments in the economy or other factors that could make reconsideration of those limits important. The Senate already struggles with 60-vote requirements. Requiring a two-thirds supermajority for basic budgetary decisions would represent an unwise precedent.

The Depth of the Cuts

To determine the amount by which the Sessions-McCaskill amendment would require funding to be cut below the level the President requested for nondefense discretionary programs, one must take into account the appropriations needed for the Pell Grant program. The President’s budget proposed that all new funding for the Pell Grant program in 2011 and subsequent years be provided on the mandatory side of the budget (in 2010 and previous years, most or all of the funding was discretionary); as a result, the President’s budget proposed no new discretionary funding for the program.[2] CBO’s estimate of the level of discretionary funding the President proposed, therefore, includes no Pell Grant funding.

In enacting the health and education reconciliation bill earlier this year, however, Congress decided that the bulk of funding for Pell Grants — the amount needed to fund the basic $4,860 maximum Pell Grant award — will remain discretionary. [3] CBO estimates that the amount of discretionary funding required to cover the basic award is $23.2 billion in 2011, $30.9 billion in 2012, and $30.8 billion in 2013 — a total of $85 billion over the three years. [4] To avoid decimating Pell Grants, Congress will need to provide these amounts in Labor-Health and Human Services-Education appropriations bills, and the amounts will count against any limits set on nondefense discretionary funding.

If one moves the funding needed for the basic Pell Grant awards back from the mandatory to the discretionary side of the budget, the President has proposed a total of $560 billion in funding for nondefense programs in 2011, according to CBO’s estimates. The Sessions-McCaskill caps, after other adjustments the proposal authorizes, would limit funding to $543.7 billion. This would require a $16.2 billion cut below what the President proposed for nondefense programs. (See the table below.) The Sessions-McCaskill caps would require even larger cuts in the following two years — $41 billion in 2012 and $33.1 billion in 2013.

The Sessions-McCaskill caps also would require substantial cuts below the level of nondefense discretionary funding proposed in the budget resolution for fiscal year 2011 (S. Con. Res. 60) that the Senate Budget Committee approved on April 22, 2010. That resolution assumes that funding for nondefense discretionary programs will total $550.5 billion in 2011. The Sessions-McCaskill cap would require a cut of $6.7 billion below this level. In 2012 and 2013, the Sessions-McCaskill caps would require cuts of $14.1 billion and $11.6 billion, respectively, below the levels the budget resolution assumes.

The cuts in 2012 and 2013 (relative to both the President’s budget and the Senate Budget Committee resolution) would be larger still if Congress does not enact legislation to restore adequate resources to the Highway Trust Fund. In that event, transportation spending the President has proposed that would not ordinarily count as discretionary funding would be scored by CBO as $54 billion in discretionary budget authority, and the total discretionary budget authority needed to fund programs as the President has proposed would rise by that amount. [5]

TABLE 1:
Cuts Well Below President Obama’s and the Senate Budget Committee’s Funding Proposals Would Be Required By the Sessions-McCaskill Nondefense Discretionary Spending Limits
(By fiscal year, nondefense discretionary budget authority in billions of dollars)

 

2011

2012

2013

Sessions-McCaskill nondefense discretionary limits (Senate Amendment 4173)

    Limits set in the amendment

$540.1

$543.8

$551.7

    Adjustmentsa

3.7

3.7

3.7

    Total allowed

543.8

547.5

555.4

Obama nondefense discretionary level, with funding for basic Pell Grant awards on the discretionary (rather than mandatory) side of the budgetb

560.0

588.5

588.5

    Cuts required by Sessions-McCaskill limits

-16.2

-41.0

-33.1

Senate Budget Committee-reported nondefense discretionary levels

550.5

561.6

567.0

    Cuts required by Sessions-McCaskill limits

-6.7

-14.1

-11.6

a. The amendment specifies base amounts for the discretionary funding limits and also provides for adjustments to allow for additional funding for certain specified purposes. For instance, it provides for an upward adjustment to the limit on nondefense funding of up to $1.9 billion in a fiscal year if an appropriation bill includes funding for the Low-Income Home Energy Assistance Program (LIHEAP) in excess of $3.2 billion for the year.

b. Based on CBO’s estimate of the discretionary funding requested in the President’s budget, adjusted by adding CBO’s estimate of the cost of providing funding for the basic Pell Grant amount and subtracting the estimated discretionary budget authority for highways and transit that will not be counted as discretionary funding if resources in the Highway Trust Fund are sufficient to fund proposed spending.

The Supermajority Requirement

Exacerbating these funding problems, the Sessions-McCaskill proposal would also require a two-thirds vote in the Senate to make any change in the proposal’s caps or how those caps constrain appropriations. For instance, 34 senators would be able to prevent Congress from raising the caps to reflect the need for discretionary funding for the highway and transit programs if the Highway Trust Fund is not made whole. This would require an additional $54 billion in cuts in 2012 and 2013.

Alternatively, 34 senators could hold legislation to make such an adjustment in the cap hostage to new tax cuts (or other policies that a majority of the Senate opposes), thereby worsening the fiscal outlook.

Clouding Chances for a Deficit-Reduction Agreement

Establishing binding discretionary funding limits for the next three years would likely reduce the chances of reaching and enacting a bipartisan agreement on taxes and spending that would reduce long-term deficits. Placing multi-year caps on discretionary spending should be part of the broader debate that occurs in coming months among members of the President’s National Commission on Fiscal Responsibility and Reform; such multi-year discretionary spending caps were a key part of the 1990, 1993, and 1997 deficit-reduction packages. Had Congress established those limits separately in 1990, 1993, and 1997 — before developing those broad deficit-reduction packages — the President and Congress likely would never have reached agreement on those packages. The prospect of discretionary spending limits helped to convince some lawmakers to accept packages that also included tax increases and/or cuts in entitlement programs.

Furthermore, the savings from the multi-year discretionary spending limits in those deficit-reduction packages proved crucial to demonstrating that packages that included tax increases (as well as entitlement savings) reflected an appropriate balance between tax increases and spending cuts. If multi-year discretionary spending caps are enacted now, that will reduce the share of a broad deficit-reduction agreement that can come from spending and thus almost certainly make it more difficult to secure an agreement on a broad package that includes the changes in taxes and entitlement programs that are the real keys to long-term deficit reduction.

End Notes:

[1] The caps proposed in Senate Amendment 4173 are somewhat different from the caps proposed by Senators Sessions and McCaskill in amendments offered to other legislation earlier this year.

[2] In stating that his budget “freezes” non-security discretionary funding for fiscal year 2011 at the 2010 level, the President excluded the 2010 discretionary funding for Pell Grants from the 2010 freeze level, to be consistent with his request for no discretionary funding for Pell Grants in 2011 because that funding would be provided as mandatory spending. If the 2010 Pell Grant discretionary funding had not been excluded, the President’s request for non-security funding for 2011 would have appeared to be significantly below the 2010 level.

[3] The reconciliation legislation provides for a mandatory add-on grant amount (in addition to the $4,860 basic grant) that starts at $690 and increases over time, and provides mandatory funding for that additional amount. It also provides $13.5 billion in funding to help offset the shortfall in the Pell Grant program in 2010 and 2011 that otherwise might have had to come out of discretionary appropriations for fiscal year 2011.

[4] The amount needed in 2011 is less than the amounts for 2012 and 2013 because of the $13.5 billion that the reconciliation legislation provides in mandatory funding for Pell Grants in 2011 to help close a Pell Grant shortfall. In the longer run, as the economy improves and more jobs are available, the demand for and costs of Pell Grants are likely to decline in real terms. Pell Grant costs currently are up substantially because large numbers of people who can’t find jobs are seeking more education while they are out of work, in order to boost their future job prospects and job skills.

[5] If the Highway Trust Fund has adequate resources (in the past, Congress has generally acted to provide such resources), the spending on highways and mass transit set in annual appropriation acts through obligation limits on funds in the Trust Fund does not count as discretionary budget authority. In its estimate of the President’s budget, CBO counted $54 billion in highway and mass transit funding for 2012 and 2013 as discretionary. The budget resolution for 2011 reported by the Senate Budget Committee assumes that action will be taken to ensure that adequate resources are available in the trust fund and thus assumes the highway and transit funding would not count as discretionary budget authority. This analysis follows that assumption and adjusts CBO’s estimate of the discretionary funding proposed by the President down in 2012 and 2013 to reflect the assumption.

  1. Jobs
  2. RSS
  3. Contact Us
 

Sign Up for E-Mail Alerts

RSS Feeds

Multimedia

Browse Reports