February 3, 2004

• President Unveils $2.4 Trillion Budget

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President Unveils $2.4 Trillion Budget

President Bush sent Congress a $2.4 trillion election-year budget on Monday featuring big increases for defense and homeland security, a record $521 billion deficit for the current year, further tax reductions, and a decrease in appropriations and number of postsecondary grant and work-study awards.

To battle the soaring deficits, Bush proposed squeezing scores of government programs and sought outright spending cuts in seven of sixteen Cabinet-level agencies. The Agriculture Department and the Environmental Protection Agency were targeted for the biggest reductions.

The president declared that his spending blueprint, which will set off months of heated debate in Congress, advances his three highest priorities — winning the war on terror, strengthening homeland defenses and boosting the economic recovery.

Continuing to use the war of terrorism to push his agenda, the president stated in his budget message "Our nation remains at war,"... "This nation has committed itself to the long war against terror. And we will see that war to its inevitable conclusion: the destruction of the terrorists."

The president's plan for the 2005 budget year, which begins next Oct. 1, 2004, proposes spending $2.4 trillion for all government activities, up 3.5 percent from the current year. Revenues will total $2.04 trillion, a sizable 13.2 percent increase that the administration forecasts will occur from growing tax receipts powered by a stronger economy.

The president projects the 2005 deficit will be $364 billion, down from a projected record high deficit in dollar terms of $521 billion this year. He pledged to cut that in half over the next five years.

The president's budget states that stronger economic growth and reductions in general government spending will produce steady improvements in the deficit, which the administration projects will fall to $237 billion in 2009.

The proposal would make the 2001 and 2003 income tax cuts permanent by repealing the 2010 sunset provisions.

However, Democrats immediately attacked the spending proposal for what they viewed as harmful reductions in various government programs and the president's insistence on making his 2001 and 2003 tax cuts permanent at a cost projected in the budget of more than $900 billion over ten years.

"This administration pledged that its tax cuts and policy choices would not turn record surpluses into record deficits, but this budget shows that's exactly what's happened," said Senate Democratic Leader Tom Daschle.

Senator Ted Kennedy, D-Mass, called on Congress to reject Bush's spending plan, charging it was the "most antifamily, anti-worker, anti-healthcare, anti-education budget in modern times."

Bush would boost military spending by seven percent in 2005, but that does not include the money needed to keep troops in Iraq and Afghanistan. Officials said a supplemental request for these funds will be sent to Congress but not until after the November elections.

Congress last year approved an $87.5 billion wartime supplemental for the current budget year.

Homeland security, another top priority would receive a ten percent boost, including an eleven percent increase in FBI funding to support increased counterterrorism activities.

A firestorm of bipartisan criticism erupted last week when it was revealed the Administration had re-estimated the ten-year cost of the newly enacted Medicare prescription drug benefit program at $534 billion, far above the $400 billion figure Congress used in passing the measure two months ago.

The budget documents said the major reasons for the discrepancy were higher estimates for the number of participants in the program and new projections for health care price increases.

The president's budget proposes an ambitious program to return Americans to the moon as early as 2015 and eventually send a mission to Mars. However, the budget only contains $1 billion in new money for the effort over the next five years with another $11 billion reallocated from current NASA programs. In 2005, Bush proposes increasing NASA's budget by six percent to $16.2 billion.

Other programs that would receive boosts in Bush's budget include his No Child Left Behind education program; job training programs, including one that links community colleges with employers', and an $18 million increase for the National Endowment for the Arts.

Bush's budget proposes to hold the spending increase for all of the government's discretionary programs (which includes student financial aid) — those other than entitlement programs such as Social Security and Medicare — to 3.9 percent in 2005. That average rise includes big boosts for the military and homeland security.

Scores of government programs outside those two areas will be restrained to an overall increase of just 0.5 percent, below the rise in inflation, and some agencies will suffer outright cuts.

The Agriculture Department's budget authority for 2005 would be reduced to 8.1 percent while EPA's budget would be cut by 7.2 percent. The departments of Commerce, Health and Human Services, Justice, Transportation and Treasury would also see their funding for discretionary programs decrease in 2005 under Bush's spending plan.

For student financial aid available for students, the proposal does the following:

• Pell Grants — decrease by $239 million and maintains the $4,050 annual maximum grant for 8 million fewer students than FY2004
• SEOG — Funded at current year level of $975 million
• Work-Study — Funded at current year level of $1.196 billion
• Perkins Loan Program — Zero funded with a decrease of $126 million to be made through the program's revolving fund
• LEAP — Zero funded
• Title III and Title V — Increase by 30 percent over FY2004 to $336 million
• TRIO/GEARUP — Combined and funded at current year level of 1.13 billion

Within the president's budget submission, the Administration included some of its Higher Education reauthorization proposals. Among these are to:

• incorporate HR 438 and HR 647 into the proposal to increase student loan forgiveness to $17,500 for math, science, and special education teachers teaching in shortage areas;
• repeal the scheduled fixed interest rate change in 2006 to 6.8 percent and incorporate S 1742 into the proposal to retain the current student loan interest rate formula;
• increase annual student loan limits from $2,625 to $3,000 for first year postsecondary education borrowers;
• repeal special allowance payments to lenders that finance their loans through the issuance of tax exempt securities;
• incorporate part of HR 12 into the proposal to reinstate the ability for schools with low cohort student loan default rates to disburse loan funds to borrowers immediately and in a single disbursement;
• require FFELP guarantors to charge the currently permissive 1 percent loan guaranty fee to be used to offset the costs of other new postsecondary education-related programs;
• incorporate HR 3613 into the proposal to require the IRS and Education Department to verify the income of all recipients of federal student financial aid;
• incorporate HR 2956 into the proposal to direct the federal Advisory Committee on Student Financial Aid to conduct a study on simplifying the student financial aid application and need analysis;
• incorporate HR 696 into the proposal to restrict ineligibility for federal student financial aid for individuals convicted of drug offenses to students who are enrolled at the time of conviction;
• revise the federal campus-based student aid allocation formula to allow federal student aid funds to be targeted to those areas of the country where the most need is; and,
• use an $3 billion in unspecified revenues to fund, over ten years, additional unspecified programs which may include reduced fees, default prevention, and other related programs to be allocated among the Federal Direct Loan Program Account — $400 million, the FFELP Account — $1.2 billion, and the Federal Student Loan Reserve Account — $1.4 billion.

It is uncertain how much success the administration will have in persuading the Congress — especially the majority composed of Democrats and conservative Republicans — to adopt these proposals, which call for increased spending and decreased revenues, during an election year.

The full budget document can be accessed at http://www.ed.gov/about/overview/budget/news.html.

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