The Debt Deal: Issue by Issue

The Debt Deal: Issue by Issue

By Fawn Johnson, Chris Strohm, Coral Davenport, Meghan McCarthy, Megan Scully, James Kitfield and Sara Jerome

Updated: August 2, 2011 | 1:45 p.m.
August 1, 2011 | 9:30 p.m.

AFP/GETTY IMAGES

Education

The debt-ceiling deal includes $17 billion for Pell Grants for fiscal 2012 and 2013, which puts it several billion dollars short of what will be needed to give everyone who is eligible the $5,500 per year benefit that helps them pay for college. The Pell Grant provision marks the beginning of a fight between budget hawks and education gurus who insist that Pell Grants are the last place to cut costs if the United States hopes to remain competitive in the global market. It could get nasty. The regular appropriations process is just beginning.
Under the debt deal, Washington Research Group analyst Teddy Downey estimates, the Pell Grant shortfall over the next two years would be just under $3 billion if the annual congressional appropriation for 2012 and 2013 remain stable. But that’s a big if. Keeping Pell Grants funded at their current rate could cost upward of $20 billion for 2012 alone, and there is no guarantee that Congress is feeling generous with its purse strings.

House Budget Committee Chairman Paul Ryan, R-Wis., has called for drastic cuts in Pell Grants to “pre-stimulus” levels, which could more than halve the money available. The debt deal negotiated by House Speaker John Boehner and the White House doesn’t go nearly that far, but Ryan’s sentiment that the Pell Grant program is on an “unsustainable path” isn’t likely to die.

Rank-and-file House Republicans were whining about the Pell Grant provisions in several drafts of the debt deal last week.

The cost of the Pell Grant program has escalated in the past two years because the population of eligible recipients has swelled from 6.2 million to 9.4 million, according to the Education Department. Almost three-fourths of the administration’s requested budget increase for education is designated to meet those Pell Grant needs.

Homeland Security

The deal to address the nation’s debt could result in more funding in fiscal 2012 for the Homeland Security Department—especially for states and cities to deal with natural disasters—than House Republicans wanted.

House Appropriations Committee ranking member Norm Dicks, D-Wash., said that the agreement will provide more discretionary funding next fiscal year than established in the budget bill that House Republicans have already passed.

And that has some House appropriators, including David Price, D-N.C., ranking member of the Homeland Security Appropriations Subcommittee, eyeing more money for their subcommittees.

The debt deal would also change the formula for determining how much funding in the Homeland Security spending bill should go toward disaster relief. It would require Congress to provide disaster-relief funding equal to the average amount that has been spent on disasters over the past 10 years. The spending would not have to be offset and would not count against whatever cap is placed on the annual DHS spending bill, according to a key Democratic aide.

The House approved a bill in June that would provide the Homeland Security Department $40.6 billion in discretionary funds next fiscal year, which was about $2.5 billion less than President Obama requested and about $1 billion less than provided in the current year.

Price said he was especially concerned that the Republicans’ bill cut money for homeland-security grants and science and technology programs. He told National Journal that the debt deal could make more funding available for DHS spending in fiscal ’12.

“What I’ve seen indicates that this should give us a workable situation,” he said. “What I mean by that is that the Senate can pass a bill that has more adequate numbers in these areas that I’m concerned about, and therefore we can get together in the end. Based on what I’ve seen so far, I believe that’s possible.”

Energy and Environment

The debt-ceiling deal likely will lead to a decade of spending cuts in energy research, environmental regulatory programs, land and water conservation funds, and foreign aid to help countries struggling with the impacts of climate change. And it could mean an end to billions of dollars in government tax breaks and subsidies for ethanol, wind power, and oil and gas, as a congressional super committee seeks $1.5 trillion more to cut by November 23.

While they don’t yet know specifics, lawmakers familiar with federal energy and environment spending policy said it’s clear that the immediate top-line cut of $917 billion over 10 years will slice deeply into the budgets of the nation’s energy and environment agencies.

In the House, Republican appropriators will target spending on all programs connected with climate change and regulation of the oil and coal industries, including Environmental Protection Agency programs to measure, monitor, and reduce emissions of greenhouse gases and pollutants like sulfur dioxide and mercury from power plants. In the Senate, Democratic appropriators will fight fiercely to limit damage to those programs and to initiatives promoting clean-energy research.

Also in danger is State Department funding to help poor countries adapt to the ravages of climate change, such as drought and flooding. The administration had pledged to the United Nations $20 billion annually by 2020 for the initiative, with at least some of that funding expected to come from tax dollars.

And as the super committee meets this fall to find another $1.5 trillion in deficit reduction, it undoubtedly will consider ending at least some of the $4 billion in annual tax breaks enjoyed by the oil industry, and the longstanding 45-cent-per-gallon subsidy for the ethanol industry, whose death knell was heralded when the Senate voted in June to let the subsidy phase out by the end of the year.  

Health Care

The debt-ceiling deal would not enact any immediate cuts to Medicare, the $491 billion federal health program for the elderly.

But if a 12-member committee fails to save the government $1.2 trillion by January 15, or if Congress does not send a balanced-budget amendment to the states, then the Office of Management and Budget is tasked with trimming Medicare payments to hospitals, doctors, and insurance companies.

Congressional aides, who spoke anonymously due to the sensitivity of the deal, estimated that the Medicare cuts could lead to a $11 billion reduction in fiscal 2013 and end up totaling $150 billion to $200 billion over 10 years.

OMB can cut 2 percent or less from Medicare providers, depending on how much is needed to meet the $1.2 trillion target.

For the specific rules guiding automatic Medicare cuts—known as a “sequestration” in Congress-speak—the deal-makers in the debt-ceiling talks turned to a 1985 budget law that also threatened automatic cuts to Medicare if Congress didn’t get its fiscal house in order.

The automatic cuts would reduce established payment formulas to hospitals, doctors, and other providers, such as nursing homes, with a cut of 2 percent or less to reimbursement. It would also reduce payments to Medicare Advantage plans and prescription-drug plans under Medicare Part D by 2 percent or less.

The debt-ceiling deal does not address a perennial Medicare doctors’ pay problem, under which a flawed formula has doctors scheduled to take a 29 percent payment cut in 2012. Any potential sequestration would deepen that cut by 2 percent.

Medicaid is exempted from any automatic cuts if the deficit committee fails to get $1.2 trillion in savings. The debt-ceiling deal also protects one of the few Medicare items Democrats and Republicans can agree on: protecting the program from fraud and abuse.

Defense

The debt-ceiling compromise aims to cut $350 billion from the defense budget over the next 10 years as part of an immediate agreement to reduce federal discretionary spending by $900 billion over the next decade.

That number is largely in line with a proposal offered by President Obama to cut $400 billion from security accounts, which includes the Defense Department and other agencies, over the next 12 years.

On Monday, Pentagon spokesman Col. Dave Lapan said the Pentagon is still engaged with the Office of Management and Budget and other parts of the administration to determine how the debt deal would line up with the amount that Obama already announced he would cut from the defense budget. “At this point,” Lapan said, “I don’t have specifics.”

But there could be more cuts to the Defense Department’s accounts. Under the deal reached over the weekend, a bipartisan committee would be charged with finding another $1.5 trillion in savings to reduce the deficit—with Defense Department coffers a likely target for more cuts. If that committee fails to find the savings by Thanksgiving, defense spending would get another cut between fiscal 2013 and 2021 of nearly $500 billion, bringing the total for cuts to the Pentagon’s bottom line to roughly $850 billion. But that is meant to be a worst-case scenario designed to force both parties to compromise—meaning that the total reduction in the Defense Department’s bottom line would likely be somewhere south of $850 billion.

Foreign Affairs

When Congress looks for savings in generic “security spending,” the denizens of Foggy Bottom instinctively reach for their wallets. That’s because on Capitol Hill, spending on the military and intelligence agencies is far more popular than spending on foreign aid and diplomatic operations. So when the proposed Budget Control Act talks about capping “security category” spending at $684 billion in fiscal 2012, or $50 billion below anticipated levels, “soft power” advocates were heard to groan.

“The problem with tossing in international-affairs accounts with the Defense Department, Homeland Security, Veterans Affairs, the Nuclear Security Administration, and the intelligence community is that Congress would much rather spend in those areas than in foreign aid,” said John Isaacs, executive director of the Council for a Livable World. Even though spending on international affairs accounts for less than 1.5 percent of the federal budget, he said, the public thinks that outlays for foreign aid and international operations are much higher. “My fear is that because foreign aid is never popular, Congress will cut it disproportionately as it looks for savings.”

The details for remaining under the proposed spending caps have yet to be worked out, but the House State-Foreign Operations Appropriations Subcommittee recently tipped its hand on where cuts might fall. In its fiscal 2012 markup, the subcommittee voted to slash spending on non-war-related international-affairs programs by roughly 20 percent below 2010 levels. State Department and USAID operations, along with multilateral development-assistance programs, bore the brunt of the cuts. For its part, the House Foreign Affairs Committee recently voted to cap fiscal 2012 State Department and foreign-assistance spending at 2011 levels, representing deep cuts from the administration’s request.

Technology

In a significant victory for broadcasters over their rivals in the tech and wireless industries, spectrum measures were not included in what may be the final version of the debt bill. 

Tech lobbyists and lawmakers on both the House and Senate the commerce panels have been negotiating for weeks over whether airwave auctions should be folded into the debt package as a revenue-raiser.

Spectrum auctions could raise almost $12 billion, according to a Congressional Budget Office analysis of a debt proposal released last week by Senate Majority Leader Harry Reid, D-Nev., before spectrum was dropped from the deal.

Cellular service providers want Congress to authorize auctions in which TV stations can sell their airwaves to wireless companies and go out of business. Wireless companies with increasing data demands could buy the spectrum to improve their networks. Revenue would go to broadcasters and the government.

“It was a missed opportunity but not a wasted one,” Jonathan Spalter, chairman of Mobile Future, an AT&T-backed wireless group, said in an interview. “Lawmakers are now more aware than ever of the incredible potential of spectrum auctions.”

It may not be the end of the line for spectrum auctions in this Congress.

A Senate Commerce aide and telecom analysts said spectrum proposals will likely reemerge in a package proposed by the prospective bipartisan deficit-reduction panel created by this week’s debt bill. The panel is slated to recommend ways to bring down the deficit later this year.

“It seems like a no-brainer to include spectrum. It’s a way to raise revenue without raising taxes,” the aide said.