Looking Ahead to the End Game
Halfway through a consequential election year in Washington, the Republican-led House and Democrat-led Senate have shown little appetite to tackle a number of pending weighty issues before the November elections. That reality means a post-election lame-duck Congress will be charged with delaying, extending, altering or letting expire a number of tax provisions, and allowing or legislatively changing a scheduled automatic cut of $109 billion to federal spending ordered by last year’s Budget Control Act (BCA) –a hefty agenda which will occupy political dialogue and the press corps throughout the summer.
The stakes are high because, according to Federal Reserve Chairman Ben Bernanke and the Congressional Budget Office, if this combination of policies were allowed to occur as current law requires, the national economy could fall off a “fiscal cliff” and revert into recession, a threat that reverberates now more than ever in the wake of signs of a weakening recovery. While both political parties have regularly employed this crisis language in political messaging, legislative gridlock abounds. The House has primarily considered only “message” bills intended as political vehicles heading into the summer conventions and fall elections, while the Senate is stymied by a procedural need to reach 60 votes for even seemingly noncontroversial measures.
Given the abundance of conflicting, and at times confusing, reporting coming out of Washington we wanted to provide a general update of what is happening as it pertains to University interests, what we are facing on questions of federal spending and expiring tax policies, and where things may be headed in this shortened legislative season.
Budget Bills and Process: Resolution Unlikely
Despite the political roadblocks of an election year, the appropriations committees of the House and Senate have been busy writing and advancing annual FY 13 funding bills for consideration on the floor of each chamber. However, few if any seem destined for enactment by the beginning of the fiscal year on October 1, since the House and Senate are formulating their respective appropriations bills under completely different budget assumptions. The House has unilaterally adopted a budget cap that is lower than that necessitated by the previously negotiated BCA and is imposing total spending level of $1.028 trillion that will require a $27 billion cut for non-defense spending in order to both stay within their cap and provide an $8 billion increase in defense spending. The Senate, on the other hand, is proceeding under the BCA-deemed level of $1.047 trillion. The gap between the branches is likely to be unbridgeable in a hot political year and President Obama has issued a veto threat on any bills that get to his desk based on the lower House funding levels. However, unlike last summer, we do expect the Congress (loathe to replay the messy government shutdown fights of past years) to consider and pass without much controversy continuing resolutions to level fund the government on a short-term basis through the fall elections and potentially the calendar year. From there, the measures moving now will likely serve as a starting point for the negotiations to come in this fall’s lame-duck session and the details emerging will serve as guide posts for the negotiations leading to the final funding numbers.
Tough Funding Environment
To date, the House has approved five of the twelve annual spending bills, while the Senate has yet to bring any to the floor. Many of the bills the House advanced through the Appropriations Committee have attracted politically charged policy amendments, which are sure to further complicate the endgame on these bills—like an amendment to eliminate funding for political science programs at the National Science Foundation. However, as individual bills have been litigated, there continues to be evidence of a reservoir of support for federal research in the largely positive numbers we have seen to this point, given the tough fiscal environment—and conversations surrounding the political science amendment lend added support for this point of view.
The House’s lower cap on non-defense discretionary makes protecting the agency budgets that support science – which notably fared comparatively well in last year’s constrained environment, where small increases stood out – that much more difficult. Yet bipartisan support for those agencies generally continues in the early stages of the appropriations process: notably, NSF received a 3.8% boost from FY12 appropriations to $7.3 billion in the House-passed Commerce-Justice-Science bill and DOD’s basic research program was given $1.9 million more in appropriations than in FY12. However, some agencies and programs did not fare as well in House-passed appropriations bills, which is cause for concern and has the attention of our advocacy partners. Among those are NASA’s Education program, which was appropriated at $100 million – $38.4 million less than FY12; the Department of Energy’s Office of Science, Environmental and Biological Research program which was funded at $542 million – $68 million less than FY12; and ARPA-E which was funded at $200 million – a 30% cut from FY12 appropriations for the program. Also, during the full House consideration of NSF funding, amendments were adopted eliminating funding for political science and climate research. The House has not yet tackled one of the most difficult measures that funds education, NIH and other key social service programs.
While the Senate has not yet advanced any appropriations measures to the floor, the numbers coming out of committee provide additional evidence of support for individual science agencies. In the Commerce-Justice-Science bill, the NSF received a funding bump of 7.3% to $7.3 billion over last year’s numbers. NASA also received a 9.2% increase in appropriations; however, many of its funding programs were cut – Science by 1.4%; Aeronautics by 3.2% and Education by 9.7%. The numbers coming out of subcommittee on the Energy and Water appropriations were modestly larger than in FY12. The Office of Science at the Department of Energy received a 0.4% boost to $4.9 billion. Within the Office of Science, the Biological and Environmental Research program fared the best, receiving a boost of 2.5% over FY12. However, High Energy Physics and Nuclear Energy were cut by 1.2% and 1.7%. Most notably, ARPA-E received a 13.5% boost to $312 million, reflecting Democratic support for this presidential initiative. Although no programs got a huge boost and the House is yet to take up the bill, the numbers coming out of the Labor, Health, and Human Services subcommittee were reassuring because none of our priority programs were cut and there were small increases in some accounts, including an increase of $21 million for NIH.
As the appropriations process continues, we are working to identify key House and Senate members who are raising their voices in support of science in the hope of calling on them to similarly intervene on behalf of science funding in any end-year negotiations.
Legislative Necessities: Issues to Deal With Prior to the Elections
The Congress faces several legislative deadlines in the coming weeks, including the scheduled increase in the federal student loan interest rate. The interest rate on undergraduate subsidized Stafford loans is set to double on July 1 from 3.4% to 6.8% if Congress does not act to prevent the automatic increase – the result of legislation passed in 2007 that temporarily reduced interest rates on loans for undergraduates. Both Democrats and Republicans support keeping the rate at 3.4%, but disagree on how to pay for the estimated $6 billion cost. Various proposals have been floated, but it is unclear if there will be agreement before July 1. As this important issue to those seeking to pay back their student loans lingers, it serves as a magnet for heated rhetoric as well as the related issues of student indebtedness and college affordability continue from both sides and from President Obama who is working to mobilize students around the country. Other issues that may come to a head in the short term include the reauthorization of the major transportation bill and farm bill – both seen by many as important jobs bills.
The Lame-Duck Session: So Little Time, So Much to Do
After the elections on November 6, the 112th Congress will confront a substantial to do list as issues deemed too politically charged to handle in an election season require action prior to the swearing-in of the 113th Congress, namely:
- The expiration of key tax provisions:
- The BCA’s sequestration; and
- FY13 funding measures.
Without congressional action, provisions of current law would radically alter the funding and scope of the federal government in the first days of January 2013:
- Federal tax rates for every income group will rise to 2001 levels as the 2001 and 2003 Bush tax cuts and the Alternative Minimum Tax Patch expire.
- Payroll taxes for employees will increase by two percentage points and unemployment benefits for some three million Americans will be cut off as President Obama’s short-term initiatives to address the recession lapse.
- Under the BCA’s sequester, federal spending accounts will be immediately cut by $110 billion with the Pentagon and non-defense discretionary spending, which covers federal funding of education and university-based research, each cut by $55 billion.
This substantial increase in taxes and the precipitate drop in government spending are estimated to equal an economic contraction of more than $500 billion, or more than three percent of G.D.P.
The lame duck session of the 112th Congress will have to be incredibly productive to tackle all these issues, many of which are considered critical to the economy. However, this Congress is not known for its ability to work together and no signs have suggested that the tax hikes or sequestration will be resolved in some larger end-of-year budget negotiations or even delayed, although both are options much speculated about in Washington.
Given Harvard’s involvement in federal programs (both research and education), we remain very engaged in these issues and are working with senior university leaders as well as peer institutions and other advocacy groups to create the environment and pressure for solutions – solutions that safeguard the critical investments of education and research. We will stay in touch as these issues continue to develop. Please feel free to be in touch with me or Christine, or with Suzanne Day or Jon Groteboer in Harvard’s Washington office (at 202 863-1292) should you have questions or concerns.