January 8, 2004

• Preview of the State and Federal Legislative Environment for 2004

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Preview of the State and Federal Legislative Environment for 2004

Major state legislative and congressional activities concerning student financial aid, TG and the student financial aid community during this period will be:

• The Texas Sunset Advisory Commission review of TG and the State Legislative Environment
• The Reauthorization of the federal Higher Education Act
• The annual Federal appropriations process for FY2004, 2005, 2006

Absent dramatic changes, these events will be taking place in a highly partisan political environment in the state legislature and the Congress. An election cycle that will elect a president and new national administration in 2004, one-third of the US Senate in 2004 (33 seats are up) and 2006 (34 seats are up), the 435 seats in the US House of Representatives in 2004 and 2006, a state legislature in 2004 and 2006 (150 House members and 22 state senators), and a Governor, severe budget deficits, the economy, and the shifting national priorities away from social and education spending to spending on homeland security and national defense will frame the debates within these bodies.

The Texas Congressional Delegation may also change dramatically beginning with the 109th Congress in January 2005, from an evenly split moderate group of 16 Republicans and 16 Democrats who have, generally, behaved in a bipartisan manner — at least with respect to supporting student financial aid and the student loan programs — to a partisan delegation, with a new conservative majority, which may be more inclined to support reductions in programs funded through discretionary appropriations as offsets to fund other national priorities. Obviously, new members will mean new staffs that the student financial aid community will have to educate during the Reauthorization and appropriations processes.

At the state level, more incumbents than normal are facing primary challenges within their own party, which may result in a change in the makeup of the next Texas Legislature as well, and, consequently, in the priorities and agenda of the 79th Texas Legislature in 2005.

Election years often bring dramatic, often unexpected, proposals from candidates to address a major domestic policy issue to attract a segment of voters needed to win election or reelection. This recently occurred with the Administration proposing a quasi-amnesty program for illegal immigrants living and working in the U.S. The proposal may not be acceptable to a majority of the Congress, but it may increase electoral support among Hispanics in Florida and California.

Higher education, because the reauthorization of the Higher Education Act is taking place concurrently with a general election, is another area that may produce some election year campaign proposals which are designed to attract votes first, and eventually become law, second. Among the new, different, and dramatic proposals that may come forward during this election year may be something similar to the Texas State Comptroller's "TexasNextStep" proposal offered and rejected by the state legislature last spring to offer a "zero tuition" program to new high school graduates who a community college may be offered by the Administration during the current election year.

Texas Sunset Advisory Commission Review and State Legislative Environment
TG is in the process of its second review by the Texas Sunset Advisory Commission. The 79th Regular Session of the Texas Legislature considering legislation during January-May 2005 must pass legislation to "reauthorize" TG in order for TG to continue in existence beyond September 1, 2005. Usually, agencies are continued for 12 years.

The Sunset process asks a basic question:

Does an agency, or entity created by the legislature, need to exist?

The Sunset staff reviews the policies and programs of more than 150 state agencies and questions the need for each agency; looks for duplication of other public services or programs; and considers legislative and management changes to improve each agency's operations and activities.

The review of TG may very likely include a review of broader issues than TG's role and responsibilities with respect to the administration of the FFELP. The review may also include issues concerning the administration of student financial aid in Texas and in outreach and awareness services to students and families and the roles played by other state entities involved in delivering student aid.

The Sunset process is guided by a 12-member body appointed by the Lieutenant Governor (five senators and one public member) and the Speaker of the House of Representatives (five state representatives and one public member). Assisting the Commission is a professional staff that conducts the reviews and whose report provide an assessment of an agency's programs, providing the Legislature with information needed to draw conclusions about agency and program necessity and workability.

Staff of the Sunset Commission work closely with each agency under review and each agency's customer groups to evaluate the need for the agency, propose needed statutory or management changes, and develop legislation necessary to implement any proposed changes. Sunset staff uses specific standards set by the Legislature to evaluate each of the programs and functions of a state agency placed under Sunset review. These are:

1. the efficiency and effectiveness with which agency and its advisory committees operate;
2. the legislative intent in creating the agency, including the objectives and original need identified for the agency's creation, how well, or to what extent, the objectives and need have been met, and other activities undertaken by the agency and their relationship to the agency's legislatively defined mission;
3. the continuing need for the agency's function and alternative methods for performing the agency's functions;
4. the extent to which the agency uses advisory committees and encourages public participation in its decision-making;
5. duplication and overlapping of functions;
6. potential for consolidation;
7. method for responding to requests for public information and complaints;
8. policies concerning equal employment opportunity, privacy, use of HUBs, conflicts of interest;
9. recommendations from the agency to improve or expand its mission;
10. the potential loss of federal funds in the agency is abolished.

The receipt and use of state appropriations is not a review standard, and, considering the state budgetary environment and the concomitant political issues associated with it, it should be expected that the Sunset Commission will direct the staff to focus on recommendations that propose (or may be perceived) to achieve savings, or generate new revenue to the state treasury.

The staff review of an agency typically takes from three to twelve months depending on the size and complexity of the agency. Sunset staff gathers information from a broad range of sources. The review process begins during the summer of odd-numbered years (August 2003) following the adjournment of each regular legislative session, when each agency submits a Self-Evaluation Report (SER) to the Sunset Commission. The SER is essentially a questionnaire that provides the staff with an organizational picture of the agency, describes core agency functions, opportunities, and issues, and problems that the agency feels should be considered in the Sunset review, as well as a list of associations, agencies, organizations, etc., with which the agency interacts. The Sunset staff solicits input from interest groups, professional organizations, advisory committees, and encourages public input and discussion of agency functions.

TG submitted its SER on schedule in August 2003.

Once the SER phase of the review is completed, the Sunset staff develops a report in consultation with the agency's staff and other interested parties (September 2003-January 2004), and publishes a report containing statutory and management recommendations. The Commission holds two public hearings for each agency under review (February 2004-November 2004) once the report is published to receive its staff's recommendations and comment from the agency and public.

Sunset staff has been assigned to TG and the actual review will begin in April 2004.

The public hearings on each agency under review after publication of the staff report provide an opportunity for Sunset staff to discuss its recommendations, for the agency to formally respond to the staff recommendations, and for the public to comment on the report and agency operations and policies. This allows for broad public input into the Sunset process and begins the Commission's consideration of potential changes to recommend to the Legislature in the form of Sunset legislation. All information presented to the Commission at the public hearing, whether submitted orally or in writing, is reviewed and compiled. The Commission meets to review the input received and to make decisions on whether to abolish an agency, continue it with or without changes, or merge its functions with another agency. The Commission's report to the Legislature must include a recommendation to do one of these three options. If the Commission recommends continuation of an agency, the Commission must provide draft legislation to the Legislature to continue for up to 12 years, and correct other problems identified during the Sunset review (January 2005-May 2005).

While TG's Sunset legislation is of primary interest, it will be only one of about 4,500 bills introduced during the 79th Regular Session of the Legislature. If the composition and political and economic environment of the 79th mirrors that of the current legislature, political partisanship and a budget squeeze will dictate the next legislature's agenda and the extent to which it is able to address the needs of the state.

For programs that provide and promote access to postsecondary education, the recommendations generated by the Joint Interim Committee on Higher Education, the interim studies conducted by the House Higher Education and Senate Education Committees, and the student financial aid study to be completed by the Texas Higher Education Coordinating Board by November 2004 concerning, among other issues, college costs, automatic admissions, and student financial aid will form the basis for legislation to be considered by the legislature next year. But, again, any proposals that have an increased cost over the current fiscal year attached to them will have a difficult time achieving passage by the legislature unless they can be offset with cuts, or a new revenue source is identified and implemented by the legislature.

HEA Reauthorization
The funding authorizations for programs in the Higher Education Act (HEA) will expire at the end of the 108th Congress in the fall 2004. If the Act is not reauthorized next year, the Congress will approve a one year extension as a part of the FY2005 Labor-HHS-Education appropriations bill.

The current Reauthorization process is expected to continue throughout 2004, and to be completed during the 109th Congress in 2005.

This Act establishes the federal student financial aid programs which provide 90 percent of all direct, need-based student financial aid in Texas. HEA programs fall into four categories — student financial aid, programs to assist students complete high school and attend college, aid to institutions, and aid to improve K-12 teacher training programs.

The primary issues shaping up for this Reauthorization are — first and foremost — money. The continued increasing drain on federal revenues due to tax reductions, "the war on terrorism", new entitlements, and the cost of the interest on the federal debt make any new proposals that will add a new expenditure to the budget iffy propositions for passage by the Congress unless they can be offset.

The changing appropriations role of the federal government in providing access to postsecondary education — especially for historically underrepresented populations through targeted outreach and student aid programs, affordability of postsecondary education and cost containment — increasing funding for student financial aid vs. imposing federal controls on increases in tuition, accountability by institutions — graduation rates, employment placement, simplifying the student aid need analysis, application, and delivery processes, the quality of teacher education programs, and distance education are the major Reauthorization issues at this time.

The Administration is expected to incorporate some of its Reauthorization proposals in its FY2005 appropriations submission in February 2004. Included among proposals concerning institutional accountability, improving access, and controlling cost and increasing affordability, the Administration is expected to include a proposal to offer tuition incentives for up to two years to students who choose to attend community college. However, because of the growing federal deficit and debt, the Administration is also expected to propose only a slight increase in discretionary spending (three percent to four percent) — excluding defense and homeland security which will have proposed increases exceeding four percent — along with cuts and consolidations in other domestic programs. Discretionary spending composes about 35 percent of the total $2.4 trillion annual federal budget, which is the only part of the federal budget over which the Congress has direct control. Student financial aid and most all education programs are in this category.

For student loan programs, the primary issues are increasing student loan debt; the student loan consolidation program, reconsolidation, and repeal of the single holder rule; increasing student loan limits; and, for some on the Democratic side of the aisle, strengthening the Federal Direct Loan Program.

To date, the House leadership has decided to address the general Reauthorization topics of access, affordability, and accountability with multiple bills — possibly as many as ten — during the next year. Four House bills (HRs 438, 2211, 3076, and 3077) concerning teacher education, loan forgiveness for certain teachers and graduate education have been approved by the House.

It appears that there has been a bipartisan decision by the Senate Health, Education, Labor, and Pensions Committee to produce a single Reauthorization bill sometime next year.

The majority leadership in the House and Senate will likely not want to push any major Reauthorization legislation until the Administration submits its proposals early next year with its 2005 budget submission to Congress, which are expected to emphasize accountability and controlling higher education costs and deemphasize increases in authorized funding maximums for student financial aid.

In addition to the several Republican bills, HEA Reauthorization legislation filed so far include the House Democrat's bill, HR 3180, and the Senate Democrat's bill, S 1793, in addition to a few ad hoc bills concerning tuition cost containment. These are comprehensive bills and include changes to the entire HEA. Both will, no doubt, along with the several Democratic candidates' proposals out forward so far, be used during the campaign season as the Democrat's approach to increase funding for student financial aid, control the cost of education, increase support to minority serving institutions, and to establish new programs to assist graduate students, future teachers, and public service professionals.

Appropriations
The Congress is required to pass 13 separate annual appropriations bills each year. The largest of these is the Labor-HHS-Education bill ($350 — $400 billion), which is usually the last bill to be considered late in the year, and is usually one of several that is routinely rolled into a large "omnibus" appropriations bill that is passed one to several months after the new fiscal year has begun.

Title IV of the HEA authorizes the federal student financial aid programs.

The annual Labor-HHS-Education appropriation bill funds the programs authorized in the HEA. The HEA establishes the maximum funding levels and the annual appropriations bill provides the actual funding. The maximums have never been fully funded, e.g., the current authorized maximum annual Pell Grant is $5,800. The maximum actual annual Pell Grant is $4,050.

The last major appropriations increases in the federal Title IV programs was in 2001, e.g., the annual maximum Pell Grant was increased from $3,750 to $4,000. The $50 increase occurred last year.

The FY2004 Labor-HHS-Education appropriations bill will maintain funding for student aid programs at FY2003 (or FY2001) levels, except for small increases in the TRIO, GEARUP, and Title III (Historically Black Colleges & Universities), and Title V (Hispanic Serving Institutions).

Because much of the Labor-HHS-Education appropriations bill is funded through discretionary appropriations, this bill is often used as a budget reconciliation tool. That is, these appropriations are often, essentially, offset by the Congress to achieve a savings in order to balance the budget, to pay for another part of the budget, or, to offset a tax reduction bill. When this occurs, as almost occurred earlier this year when the House issued reconciliation instructions to its committees to find specified savings to help offset the cost of a proposed $750 billion tax reduction bill, the FFELP is always a target. In this most recent case, the FFELP was targeted for a $9.7 billion reduction. This did not occur because the Senate reduced the tax reduction bill by half. However, because of the increasing costs of the annual deficit, "war on terrorism", and other high profile election year entitlement legislation, e.g., the Medicare prescription drug benefit, the possibility for continuing to target discretionary funded programs for possible savings is still, and will remain, very much alive.

Because of the timing, the FY2005 appropriations process will be inextricably connected to the HEA Reauthorization process and the FY2004 election as a campaign issue, and will face tough competition for limited funds if the current budget environment continues.

Summary
Because about 90 percent of the student financial aid awarded each year to Texas postsecondary education students comes from federal programs (a much higher percentage than the national average and in other comparable states), obviously the federal reauthorization and annual appropriations processes take precedence over what happens at the state level with respect to student financial aid. However, with TG's Sunset review and the attention the legislature is paying to improving access to higher education, there are, at least for the time being, reasons and opportunities for the Texas student financial aid community to pay attention and be actively involved at the state level, as well as the federal level. And, because Texas and the Southwest region is fortunate to have active and organized student financial aid associations with dedicated professionals as members, this region has had in recent years an impact on its elected representatives.

We are also extremely fortunate to have something few states have in a research capability within TG that continues to produce high quality, well received and useful publications like "The State of Student Financial Aid in Texas" and the "School and Lender Fact Sheets" that set Texas and TG apart from most every other state and guarantor. This type of research used to support positions on issues has been acknowledged by both the student financial aid communities and congressional and legislative staff as among the most valuable products produced by TG.

In preparing for the challenges outlined in this newsletter TG and its partners continue to:

1. build strong relationships with each other and with staff in key state legislative and congressional offices primarily through anticipating their information needs and providing that information to them;
2. meet periodically with the Sunset Advisory Commission staff who will conduct the TG review and educate them about the FFELP and TG beyond what is included in the SER;
3. conduct student financial aid workshops for selected legislative, budget board, and comptroller staff;
4. update the comprehensive student financial aid community comprehensive HEA Reauthorization issue and position paper originally submitted to all appropriate parties last year;
5. maintain periodic contacts, e.g., TG's Legislative Report, with staff in key Texas Congressional Delegation offices with TASFAA and ATLE to update them on Texas Reauthorization and appropriations issues;
6. take positions on issues concerning student financial aid, the student loan program(s), and Reauthorization with the Texas SFA community and transmit these positions to state Congressional Delegations;
7. work with the Texas higher education community to develop recommendations to achieve efficiencies and savings that will be submitted to the Texas Legislature in 2005.

In summary, student financial aid and the student loan programs, along with most all domestic health, human service, and education programs supported by discretionary funding, face stiff challenges — for a variety of legislative and political reasons — in the near future at both the state and national legislative levels. With respect to the specific issues of interest to TG and the student financial aid community, because of the continual, day-to-day work TG and its association partners do to foster positive relations with congressional and legislative staff in educating congressional and legislative staff and providing them with reliable resources, we are in a good position with these groups. TG and the Texas and Southwest SFA communities are insuring that the appropriate state legislative and congressional offices know who we are, what the student financial needs of Texas are, and are fully informed to the best of our ability.

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Contacting TG Congressional and Legislative Relations
The Legislative Report is a publication of TG Congressional and Legislative Relations.

For information, please call (512) 219-4503 or write to:

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P.O. Box 83100
Round Rock, TX 78683-3100