January 16, 2004

• High Priority Legislation in 2004, A Look Ahead
• CBO Sees Deficits, Entitlements, Defense Spending March Higher
• California Governor Proposes Record $750 Million Reduction in Higher Education Spending

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High Priority Legislation in 2004, A Look Ahead

As the Second Session of the 108th Congress closes in, unfinished high-priority legislation pending from 2003 — on top of a compressed election year schedule — may result in Congress performing catch-up work for the first few months of 2004.

Two high-priority conference reports that have passed the House remain stalled in the Senate — the omnibus energy bill (H.R. 6) and the omnibus appropriations bill (H.R. 2673). When Congress convenes on Tuesday, January 20, 2004, a cloture vote on H.R. 2673 is expected in the Senate.

If the Senate fails to invoke cloture on the omnibus appropriations bill, two possible scenarios may play out:

• An enrolling resolution is adopted by both chambers containing language that modifies several controversial provisions contained in the conference report (e.g., overtime pay, country-of-origin labeling, etc.). If the Senate does in fact adopt an enrolling resolution, the House is not expected to follow suit, which would leave the next scenario.
• Congress passes a continuing resolution (CR) that extends funding — at FY 2003 levels — through the end of FY 2004 for agencies and programs funded under the following appropriations bills: Agriculture, District of Columbia, VA-HUD, Commerce-Justice-State, and Labor-HHS-Education.

The Senate last November failed to end debate on the omnibus energy conference report by a 57-40 roll call vote, and it is likely that Majority Leader Frist will not bring the measure back to the floor until he is certain that 60 votes exist in order to invoke cloture. Senate Minority Leader Daschle stated during a press conference last week that "I have said on more than one occasion — and I will repeat my offer today — I believe that I can produce four, five, maybe even six votes for the energy bill if the MTBE liability legislation is taken out. So far, for whatever reason, the Republicans in the House and apparently in the administration have refused to take me up on that offer."

After the Senate completes its work on the remaining unpassed FY 2004 spending bills, Congress may turn its attention to two other high profile measures left pending from 2003 — the TEA-21 and welfare reform reauthorization bills.

• TEA-21 Reauthorization — The House version (H.R. 3550) was officially introduced on November 20th, and the Senate version (S. 1072) was reported by the Environment and Public Works Committee on November 12th. The current TEA-21 reauthorization extension expires on February 29, 2004.
• Welfare Reform Reauthorization — The authorization for the Temporary Assistance for Needy Families (TANF) block grant program originally expired in September 2002. There have been four temporary extensions since then, the latest extension expiring on March 31, 2004. The House passed its welfare reform reauthorization bill (H.R. 4) in early 2003, and the Senate Finance Committee reported the measure — with a substitute amendment — last September.

Aside from the budget resolution and thirteen must-pass annual spending measures for FY2005, other priority legislation that will likely drive the House and Senate floor agendas this year may include:

• Class Action
• Education — Head Start, IDEA, and Higher Education.
• Asbestos Litigation
• Uninsured Health Care
• Reconciliation Bill — May include debt limit increase, and possible FSC/ETI tax provisions.

Since 2004 is an election year, don't expect the administration and Republican leaders in Congress to launch any grand legislative crusades on hot-button issues. Instead, look for the Republican leadership — especially in the Senate — to focus on completing its work on time as its primary objective.

  

CBO Sees Deficits, Entitlements, Defense Spending March Higher

The January Monthly Budget Review CBO notes growth in both receipts and outlays when comparing the first three months of FY 2004 to the first three months of FY 2003. However, while receipts have risen by $12 billion over that period, outlays have increased at a substantially higher rate — rising $30 billion over the same period. This $18 billion increase in the deficit over a comparable period from last year means that the deficit for the year so far has reached $126 billion.

Budget Totals Through December
(In billions of dollars)

	Actual FY2003	Preliminary FY2004	Estimated Change
Receipts	427	439	12
Outlays	536	565	30
Deficit	-108	-126	-18

Sources: Department Of The Treasury; CBO.

The increased receipts can be found largely in rising corporate income taxes and other miscellaneous taxes (which CBO classifies as Federal Reserve earnings, excise taxes, estate and gift taxes, customs duties, and fees and fines). Individual income and social insurance taxes remained relatively steady over the same period in the last fiscal year.

Increases in outlays can be traced to the same "usual suspects" that have crunched the budget over the last few years. Defense spending leads the way in increased outlays with 15.6 percent growth over last year. CBO notes that defense has been the fastest growing section of the federal budget for the past two years.

Medicaid growth, 7.7 percent over last year's level, was also a major contributor to the deficit. However, Medicare growth over the first three months of the fiscal year was unexpectedly slow — rising by only 4 percent. Despite the lower level of growth, CBO still expects Medicare outlays to increase by an estimated 7 percent over the entire fiscal year.

Overall, federal spending grew by about 6.3 percent, excluding a decrease in spending on the interest on the public debt. Aside from defense and entitlement spending, CBO points to a $5 billion payment to states for emergency fiscal relief, and increased outlays at the Department of Veterans Affairs, Postal Service, and Public Health Service as causes for the increased level of spending. Increases in spending were partially offset by decreased outlays for unemployment benefits and Temporary Assistance for Needy Families.

Look for CBO to release new ten-year budget estimates later this month. The release is tentatively scheduled for January 26th. Among those numbers will be the first look at CBO's baseline estimate for FY 2004 since the passage of the Medicare bill (and possibly the omnibus and the energy bill depending on what Congress does when it returns on the 20th). The new ten-year numbers will also be important because they come just before the administration releases its FY 2005 budget in the first week of February.

Get a copy of the January Monthly Budget Review at http://us.gallerywatch.com/docs/news/US/agdocs/01-04-MBR.pdf.

  

California Governor Proposes Record $750 Million Reduction in Higher Education Spending

Record budget deficits have finally touched student financial aid in California, resulting in a similar, albeit more serious, budget situation to that in Texas.

California's Governor Arnold Schwarzenegger's initial proposed state budget submitted to the California legislature would make it more difficult to obtain a college degree in that state.

The budget proposal includes a $750 million hit for the state's three tiered higher education system, which is regarded as the nation's most accessible and affordable public higher education system. This proposed reduction would be in addition to the $1 billion reduction for higher education in 2002 and 2003, and, for the first time, includes a constriction of the state's student financial aid programs.

Fees for everyone — more than one million undergraduates and graduates at the University of California (UC) and California State University (CSU) and three million community college students — would rise from ten percent and as much as 44 percent under the governor's proposal.

For the first time, state-funded financial aid would serve fewer students by lowering the income eligibility cap in the generous $700+ million per year Cal Grant program that guarantees free tuition to eligible students.

Classroom construction and renovation projects would be put on hold at UC and CSU, diverting an estimated 7,000 students (and their costs) to the state's 108 community colleges.

The timing of the governor's plans for higher education, which still needs legislative approval, could be troublesome as California produces record numbers of high school graduates who will be college-bound.

The governor has said that all segments of state government need to make sacrifices, and higher education, which accounts for 11 percent of the general fund, was no exception, despite his campaign pledge to the contrary. The governor's pledge to stabilize student fees by tying increases to growth in personal income would be postponed at least until 2005-2006.

Although the governor's proposal limits college fee increases to no more than ten percent in one year, his promise won't extend to thousands of UC and CSU graduate students and millions of community college students. Many graduate students would pay 40 percent more next fall, an increase that would follow a 40 percent hike in fees since December 2002.

The governor's plan exempts the state's community colleges from most of the reductions. The plan pledges $125 million to fund enrollment growth of three percent in the three million-student system. Still, community college students would pay higher fees as well, up 44 percent by fall.

Students already pay $18 per unit — up from $11 last spring. The proposal calls for the two-year colleges to charge $26 per unit, compared to the national average of $64.

According to the governor's budget office, the higher community college fees would for the first time make students eligible for the maximum federal Pell Grant award. The governor's proposal also keeps intact the state's fee-waiver program for the poorest students.

The governor wants to reduce Cal Grant awards for students who attend private schools from $9,708 to just over $5,000.

The Proposal

Fees

• 10 percent increase proposed for University of California and California State University undergraduates — UC fees would be $5,482 per year and CSU fees would be $2,251.
• 40 percent increase proposed for graduate students in academic programs — UC fees would be $7,307 per year and CSU fees would be $3,158.
• Governor proposes that state support of professional schools such as law and medicine be reduced by an average of 25 percent. UC estimates that the resulting fee increase would cost students about $5,000. Nursing would be exempt.
• 20 percent increase for non-resident students — UC undergraduates would pay $16,474 per year, and CSU undergraduates would pay $10,152.
• Community college fees would rise to $26 per unit from $18. Students who already have a bachelor's degree would be required to pay $50 per unit.

Enrollment

• 10 percent reduction in freshman enrollments next year, keeping 3,200 students out of UC and 3,800 students out of CSU.

Financial Aid

• Reduce the maximum Cal Grant award for students who choose private college from $9,708 per year to $5,482.
• Freeze Cal Grant award levels for UC and CSU students.
• Lower income levels for Cal Grant eligibility by 10 percent, e.g.; for a dependent college student from a family of four the annual income ceiling would be reduced from $67,600 to 60,840 and from $78,100 to $70,290 for a dependent student from a family of six or more.
• Higher fees at community .colleges would allow eligible students to qualify for maximum federal Pell Grant award of $4,000 per year.

Spending Cuts

• $372 million in overall cuts to the UC, including total elimination of funds for college prep programs that help bring poor and minority students to UC.
• $240 million in overall cuts to California State University, including total elimination of funds for college prep programs for poor and minority students.

  

For more information, contact:

TG Congressional and Legislative Relations
(512) 219-4503
P.O. Box 83100
Round Rock, TX 78683-3100