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TG's Legislative Report

August 5, 2004

White House Releases Mid-Session Review, Democrats Respond

Last week, the administration released its highly anticipated "Mid-Session Review" (MSR), a report containing revised budget projections (e.g. deficit, receipts, outlays, etc.) from its FY 2005 budget request submitted earlier this year.

The MSR estimates a $445 billion deficit for FY 2004, a record in nominal terms. As a percentage of GDP, a $445 billion deficit (3.8 percent of GDP) would fall below the past 25-year peak of 6.0 percent that occurred in 1983. The FY 2005 request that was sent to Congress in February estimated a $521 billion FY 2004 deficit, roughly $76 billion more than the mid-year estimate.

After calling the MSR's deficit projection "unwelcome" during a press conference, OMB Director Bolten asserted that the "budget picture has improved significantly," and that the administration is "well ahead of pace" in its pursuit of cutting the deficit in half over five years. Bolten pointed to the administration-backed 2001 and 2003 tax cuts and spending restraint as the catalysts behind the "improved budget outlook."

Bolten also reiterated the administration's intent on halving the deficit over five years in both nominal terms and as a percentage of GDP. The White House's starting point for cutting the deficit in half is its February estimate of $521 billion (4.5 percent of GDP). The MSR estimates an FY 2009 deficit of $229 billion, or 1.5 percent of projected GDP.

The MSR incorporates the $25 billion in supplemental spending contained in the FY 2005 Department of Defense appropriations bill in its five-year budget outlook, but does not include future emergency spending for military operations in Iraq and Afghanistan. House and Senate Budget Committee Ranking Members Spratt and Conrad criticized this exclusion as a budget-gimmick Friday afternoon, and accused the administration of overstating the FY 2004 deficit projection earlier this year in order to show improvement in the current fiscal outlook.

"I believed they were cooking the books," Conrad argued, "with the exact idea in mind that as we got closer to the election, [the administration] would then say, even though they deficit's bigger than last year... it's not as big as we said it was going to be, and then claim there's improvement."

In reaction to Bolten's remarks regarding the need to reign in spending, Spratt countered that the White House and Republican leadership in Congress called for the lion's share of the increased discretionary funding in recent years. "So the huge, big increases in discretionary spending have been in programs that the administration itself has come and sought our support for, and we have responded with support, because our national security is at stake."

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Framing the Debate

Below is a brief summary of how the administration and House/Senate Budget Committee Democratic Ranking Members Spratt and Conrad have framed the budget debate in light of the recent release of the Mid-Session Review.

Causes of Current Deficit
The administration cites an inherited recession, emergency spending after the September 11, 2001 attacks, additional spending on homeland security, and a crisis in investor confidence in light of corporate scandals.

Congressional Democrats argue that 68 percent of the current deficit can be attributed to decreased revenues resulting from the 2001 and 2003 tax reductions, and 32 percent can be attributed to increased spending.

Improved Budget Outlook
The administration cites the improved economic performance as a direct result of the tax cuts, and the improving economy has (and will continue) to generate higher than expected tax revenues, which, in turn, will reduce the annual budget deficits, and, eventually, reduce the national debt.

Democrats argue that the deficit has improved largely because revenues have finally bottomed out after three years of decline and no matter how one views the issue, the most recent OMB estimate of a FY2004 on-budget deficit of $445 billion is the largest in U.S. history.

Halving the Deficit
The administration says that it is ahead of schedule in its efforts to cut the annual budget deficits (in nominal and as a percentage of the GDP) in half over a five year period by 2008.

Democrats cite the fact that the administration is not including future costs of the "war of terrorism" and reconstruction costs in its projections, and that the original OMB budget deficit figure of $521 billion for FY2004 released in February was purposefully vastly overstated to make the most recent update of $445 billion look good.

Spending
The administration is telling Congress that it must hold the line on discretionary spending (including spending for student financial aid) as a way reducing the deficits.

Congressional Democrats point out that most of the increase in discretionary spending in recent years has been for national defense and homeland security. Which were requested by the administration.

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Appropriations Update

Before recessing for the month of August, the House of Representatives Appropriations Committee approved on a voice vote the FY2005 Labor, HHS, and Education appropriations bill. Ranking Member David Obey (D-WI) again called for an increase in the overall budget allocation by $18 billion; his amendment would have provided an additional $5.5 billion for education. The amendment failed on a party-line vote of 25-31.

Two amendments specific to higher education were offered and passed. Rep. Randy "Duke" Cunningham (R-CA) offered an amendment which directs the Secretary of Education to withhold policy changes to the single-holder program — which specifies that students should pursue loan consolidation through the primary holder of their underlying loans — until the Education and Workforce Committee complete their work on reauthorization of Higher Education Act. It was accepted by voice vote. The committee also agreed to a manager's amendment submitted by Rep. Ralph Regula (R-OH) that would increase the ceiling from $25 million to $50 million in the U.S. Department of Labor budget to help fund the community college initiative announced earlier in the spring by President Bush.

Otherwise, the legislation remains fundamentally the same as that passed earlier by the subcommittee. That is to say, the only student aid program slated for an increase for FY2005 is the Supplemental Education Opportunity Grant with a proposed $24 million jump. While the Committee added $823.3 million to the Pell Grant program, this will be enough to continue funding a maximum annual Pell Grant of $4,050. All other federal student aid programs would continue to be funded at 2001 levels in the House bill.

That being said, the bill authorizes increases of $10 million for the TRIO program ($842 million), $20 million for GEAR-UP ($318 million), and $17.7 million for Title III institutions ($240.5 million).

It is expected that all appropriations bills will be rolled into a single bill and sent to the Senate, where most likely it will not be acted upon until late fall.

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Kerry/Edwards Include Student Financial Aid In Campaign Plan

The KERRY/EDWARDS plan for expanding access to postsecondary education is included in the ticket's publication "Our Plan for America" beginning on page 93.

It states the following:

"The centerpiece of our plan is a college opportunity tax cut for middle-class families and a new bargain with the states. We will:

  • Offer a College Opportunity Tax credit for $4,000 of tuition for all four years of college that will dramatically reduce college costs for millions of students, especially those who pay their own way and can least afford college now;
  • Simplify the student aid process, with shorter forms and better information about how to get aid;
  • Offer states $10 billion for higher education, if they will keep tuition increases in line with inflation for the next two years;
  • Offer hundreds of thousands of young people the opportunity to pay for college by serving our country for two years. We will pay for that initiative by reforming our student loan system — making sure that the profits of banks are set by an auction in the marketplace, not by lobbyists in Congress."

The plan further states that:

  • The GEAR-UP program will be expanded "to reach 2 million children a year";
  • A "College Completion Fund" will be established to reward colleges that "graduate more of the students who have the highest risk of dropping out";
  • Improved math and science teaching in high schools will be achieved "by giving teachers special training and partnering schools with colleges and science-based businesses";
  • National Science Foundation scholarships will be doubled for graduates in math, science, and engineering.

The Administration's initial proposals for the reauthorization of the Higher Education Act can be found in the March 12, 2004 Legislative Report, much of which are included in the House Republicans reauthorization bill, HR 4283 and in HR 4201.

All three can be accessed at www.tgslc.org/reauth/index.cfm.

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Texas Higher Education Interim Committees to Meet

The Joint House/Senate Interim Study Committee on Higher Education and the Joint Legislative Oversight Committee on Higher Education will convene in public hearings on August 10th in Room E1.036 of the Capitol Building Annex. The Higher Education Committee will convene at 9:00 am and the Oversight Committee will convene upon adjournment of the Higher Education Committee.

Meeting posting notices can be accessed at www.capitol.state.tx.us.

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For more information, contact:

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

 

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