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Proposed Discretionary Caps Would Hit States Hard

The Senate Budget Committee on June 20 approved legislation (S. 3521) crafted by Budget Committee Chairman Judd Gregg (R-NH) that would make a number of far-reaching changes in the federal budget process.[1]  Included in the legislation, which the full Senate may consider this summer, are provisions that would establish statutory caps for each of the next three years on overall levels of funding for discretionary programs (i.e., programs that are non-entitlements).  These caps, covering fiscal years 2007, 2008, and 2009, would be set at the overall level for discretionary programs proposed for each of those years in the budget that President Bush submitted to Congress in February. [2]

These caps likely would lead to substantial cuts in a range of domestic discretionary programs that would have far-reaching effects in every state.  The Gregg bill would enforce these caps by triggering automatic across-the-board cuts in discretionary programs if the caps would otherwise be exceeded.

Chairman Gregg’s proposal does not specify what program areas Congress would cut, but it is designed to lock in the overall discretionary funding and levels in the Bush budget over the next three years.  Thus, the President’s proposals for those years represent the only detailed blueprint available of funding levels that would comply with the proposed caps.  The Bush budget contains cuts over the next three years in every domestic discretionary program area in the federal budget except for science, space, and technology.  This analysis examines how the cuts proposed in the President’s budget to stay within the cap levels would affect a selection of programs, nationwide and by state.

Overview of Proposed Cuts in Domestic Discretionary Programs

Under the President’s plan, total funding for domestic discretionary programs (annually appropriated programs outside of defense and international affairs) for the next three years (fiscal years 2007 through 2009) would be reduced by nearly $66 billion below the Congressional Budget Office (CBO) baseline projections.   The majority of the cuts would occur in years after 2007.  By 2009, the cut would be $31.2 billion (7.6 percent) below the amount needed to keep pace with inflation.  (Unless otherwise noted, all cuts discussed in this analysis are measured relative to the CBO baseline, which equals the 2006 funding levels adjusted only for inflation.[3])

The impact of the President’s proposals can be seen by looking at the proposed levels of funding for individual programs.  In Table A, we compare the funding levels that the budget proposes for a number of domestic discretionary programs for 2007 through 2009 with the amounts needed to maintain the 2006 level of funding for each program, adjusted for inflation.   (This analysis uses the proposed funding levels for 2007 that were published in the President’s budget and the funding levels for 2008 and 2009 that were provided in supplementary materials released by the administration in February.)

As the results in Table A indicate, the proposed cuts in domestic discretionary funding would have a significant effect on programs that provide services many Americans regard as important.  For example, funding in 2009 for the National Institutes of Health, which describes itself as “the Federal focal point for medical research in the United States,” would be cut by 8.3 percent (or $2.5 billion) below the 2006 level, adjusted for inflation.

Similarly, funding in 2009 for the Community Oriented Policing Services (COPS) program, which helps support state and local government efforts that the Director of the Department of Justice’s Office of Community Policing Services says are “a critical component in responding to crime, gang activity, and homeland security,”[4]  would be cut by 75.3 percent.

Table: A
Selected Discretionary Programs Facing Cuts If Congress Adopted the President's Budget Plans



Fiscal Year 2009


Proposed funding level

Change relative to baseline

Percent change from baseline

Cut over 3 years



Commodity Supplemental Food Program





Food Safety Inspection Service





Special Supplemental Nutrition  Program for Women Infants and Children





Rural Development







Impact Aid





K-12 Education for the Disadvantaged*





Pell Grants





School Improvement Programs*





Special Education*





Vocational and Adult Education*







Energy Conservation







Clean Water and Drinking Water Funds





State and Tribal Assistance Grants







Child Care and Dev. Block Grant





Children and Families Services (including termination of Community Services Block Grant)





Children and Families Services (excluding Community Services Block Grant)





Health Resources and Services Administration





Indian Health Facilities





Indian Health Services





Low Income Home Energy Assistance**





National Institutes of Health





Social Services Block Grant







Community Development Fund





Housing for Persons with Disabilities





Housing for the Elderly





Public Housing Capital Fund







Community Oriented Policing Services







Employment & Training Services and Other Labor Services*







Peace Corps





Note: Unless otherwise noted, cuts are measured relative to the Congressional Budget Office baseline projection of the amount of funding needed in 2007 through 2009 to provide the same level of funding as in fiscal year 2006, adjusted for inflation.

 *Adjusted to reflect the method of funding some education and other programs by program year (with advance appropriations and with regular appropriations that first become available at the beginning of a school year, which occurs more than half way through the fiscal year)

**CBO’s baseline projection of 2006 funding was adjusted to reflect $1 billion originally provided outside the appropriation process for fiscal year 2007 but subsequently made available in fiscal year 2006.

Even some programs that the President appears to believe are inadequately funded in 2006 —programs for which he proposes to increase funding in 2007 — would be cut below the 2006 level adjusted for inflation in subsequent years, in order to produce the overall level of domestic discretionary funding reductions that the President’s budget calls for.  For example, total federal funding for elementary and secondary education (comprised of K-12 Education for the Disadvantaged, Special Education, School Improvement Programs, and Impact Aid) would be increased in 2007 by $1.2 billion, relative to the CBO baseline.  In each successive year, however, funding for these programs would be cut under the President’s plan, with the cuts growing larger every year.  In 2009, the programs would be cut $1.4 billion below the 2006 funding level adjusted for inflation.

The cuts proposed in the President’s budget to stay within the overall levels of discretionary spending for 2007, 2008, and 2009 that the budget assumes, and that the Budget Committee legislation would lock in, would lead to substantial reductions in services provided and people served by various programs.  For three programs — the Special Supplemental Nutrition Programs for Women, Infants, and Children (WIC), Head Start, and the Commodity Supplemental Food Program — the cuts are likely to be achieved through reductions in the number of beneficiaries served (rather than reductions in what is provided to each beneficiary).[5]  As shown in the following chart, the cuts would result in a substantial reduction in the number of people these programs could serve.

Under the proposal crafted by Senate Budget Chairman Gregg and approved by the Budget Committee, Congress need not adopt the President’s detailed proposals; it could choose to make a different set of cuts.  Any alternative set of cuts, however, would have to reach the same dollar total.  Assuming that funding for defense and international activities are set at the President’s levels, a lessening of any of the cuts discussed in this analysis would have to be offset by deeper reductions in other domestic discretionary programs.

Overview of Effect on States

A cap on funding for discretionary programs that followed the blueprint proposed by the President would have a substantial impact on state and local governments.  Implementing these cuts would force states to reduce the services they provide or increase their own taxes (or cut other state programs) to make up for the federal costs being shifted to them.

Many of the programs that the President proposes to cut are administered by state and local governments, with funding provided through grants-in-aid to those governments.  In 2007, some $7.5 billion of the $16 billion reduction in domestic discretionary funding proposed by the President (relative to the Office of Management and Budget’s projection of the 2006 level of funding, adjusted for inflation) would come from grants-in-aid to state and local governments.[6]  It is likely that cuts in those grants-in-aid would represent something close to the same share of the total cuts in domestic discretionary funding in 2008 through 2009 as they represent in 2007 — 47 percent — but information provided by the Administration does not allow a calculation of the share for years after 2007.

Cuts proposed by the President in these grant-in-aid and other programs would put additional pressure on state and local government budgets.  Reductions in real (inflation-adjusted) funding from the federal government would force states to decide among reducing the important human and other services they are providing with these federal funds, raising their own taxes, and cutting other state and local programs to make up for the lost federal funding.

For example, the reduction in federal funding for elementary and secondary education grants to states that the President has proposed would cost Texas an estimated $103 million in 2009.  If that cut were to occur, Texas would have to decide whether to reduce what it spends on education by $103 million or to increase state taxes or cut state funding for other purposes to offset the reduction in federal funding.

While state and local governments are in better fiscal health now than they were a few years ago, they generally continue to face problems providing the resources needed to meet growing state needs for education, transportation, and health care.

Detailed Analysis of Domestic Discretionary Cuts by Program

Under the President’s budget, discretionary funding by 2009 would be below the current level, adjusted for inflation, for all but one of the 15 major federal budget categories (or budget “functions”) that include domestic discretionary programs.  Only the General Science, Space, and Technology category has a proposed increase in discretionary funding in 2009.  Furthermore, in 2009, the President’s budget calls for reductions below the inflation-adjusted 2006 level in funding for discretionary programs in 48 of the 57 budget subcategories (or “subfunctions”) that include domestic programs.

Below we examine some of the programs included in Table 1 and the effects that the proposed cuts in these programs would have.

Click here to view the full report with State-by-State Tables (33pp.)

End Notes

[1] For an analysis of the major proposals included in the legislation, see Robert Greenstein, James Horney, and Richard Kogan, “Gregg Bill Would Make Far-Reaching Changes in Budget Rules: Bill Would Aim Budget Knife at Domestic Programs While Shielding Tax Cuts from Fiscal Discipline,” Center on Budget and Policy Priorities, revised June 26, 2006.

[2] For further discussion of the proposed discretionary caps and their implications for the budget process, see James Horney, Robert Greenstein, and Richard Kogan, “Discretionary Caps in Gregg Bill Would Lead to Overly Deep Cuts: Proposed Caps Could Actually Hinder Enactment of Large-scale Deficit Reduction.” Center on Budget and Policy Priorities, June 19, 2006.

[3] The “baseline” projection of funding for future years — the amount appropriated for the current year, adjusted for inflation — generally represents the amount of funding needed for programs to keep providing the same level of services as is currently provided; a cut below the baseline level represents a real cut in the services a program can provide.

[4] Statement by Carl R. Peed posted on the home page of the Office of Community Oriented Policing Services. .

[5] See the discussion on page 13 of the reasons why this is the case.

[6] Iris J. Lav, “Federal Grants to States and Localities Cut Deeply in Fiscal Year 2007 Federal Budget,” Center on Budget and Policy Priorities, February 7, 2006.