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Federal Budget and Revenue UpdateMarch 9, 2006 FY 2007 BUDGET RESOLUTION The Senate Budget Committee is expected to finish work this week on Chairman Gregg’s (R-New Hampshire) budget blueprint for FY 2007. In the House, debate on Chairman Nussle’s (R. Iowa) budget blueprint has been delayed and it is unclear if it will be considered prior to the St. Patrick’s Day recess. A final resolution is not expected until April recess, at the earliest. In a March 6th letter to U.S. House and Senate Budget Committees, NCSL urged committee members to include language in the FY 2007 budget resolution to: (1) reduce the volume of current unfunded mandates (or relax the requirements of the mandates); (2) avoid any new unfunded mandates; (3) include language directing standing committees, in collaboration with state and local government, to conduct hearings and undertake studies of each intergovernmental mandatory and entitlement program to examine program services and administration; and (4) reinstitute fiscal discipline tools and apply them to both revenue and mandatory/entitlement programs. The letter was signed by NCSL President, Senator Steven Rauschenberger (Illinois) and NCSL President-elect, Senator Leticia Van de Putte (Texas).
FY 2006 TAX RECONCILIATION Conferees have been appointed for the unfinished FY 2006 tax reconciliation legislation (H.R. 4297). Three major issues will be the focal point of the negotiations: (1) extension of the Alternative Minimum Tax (AMT) exemption; (2) the extension of current tax rates regarding capital gains and dividends; and (3) the deductibility allowance for state and local sales tax in lieu of state and local income taxes. The one-year extension of the AMT exemption will require approximately $31 billion in offsets. The two-year extension of the current capital gains rates (currently set to expire in 2008) will require $21 billion in offsets. Offsets are measures used to compensate for the expected loss of revenue by either raising additional revenue or reducing spending. As it currently stands, the deductibility allowance for state and local sales tax in lieu of state and local income taxes expired on December 31, 2005. The Senate has instructed the conferees, on the motion of Senator Hutchinson (R-Texas), to make the allowance permanent. The House’s version of H.R. 4297 extends the allowance until January 1, 2007; the Senate version extends the allowance until January 1, 2008. The conferees hope to conclude negotiations by mid-March. In a March 3rd letter to conferees, NCSL expressed its strong support for the permanent deduction of state and local sales taxes. The letter was signed by Delegate John Doyle (West Virginia), Chair of the NCSL Budgets and Revenue Standing Committee. STATUTORY DEBT LIMIT INCREASE NEEDED On February 16, 2006, and again on March 6, 2006, Treasury Secretary John Snow advised Congress that the public debt limit, currently $8,184 billion, will be reached by mid-March and the Secretary urged Congress to increase the statutory debt limit by an unspecified amount. SUPPLEMENTAL FUNDING On February 16, President George W. Bush sent Congress two requests for supplemental emergency funds for FY 2006— $19.8 billion for Gulf Coast states and hurricane victims and $72.4 billion for Iraq, Afghanistan, international aid and intelligence communications activities. Final congressional action is unlikely to occur before late April.
DEFICIT PROJECTIONS In a March 3, 2006 letter sent to the Chairman Thad Cochran, House Committee on Appropriations, the Congressional Budget Office estimated that the projected budget deficit for FY06 would reach $371 billion (which includes the supplemental requests made by the President for operations in Iraq and Afghanistan). CBO estimates that the FY 2007 deficit could reach as high as $355 billion, if funding for Iraq and Afghanistan are insufficient (the President’s supplemental funding request for Iraq and Afghanistan in FY07 is $50 billion).
REAL ID ACT In a February 22 letter to U.S. House and Senate Budget Committees, NCSL urged committee members to include language in the FY 2007 budget resolution “affirming the federal government’s commitment to fully fund (federal and state) implementation of the REAL ID Act.” The letter was signed by Senators Don Balfour (Georgia), Richard Moore (Massachusetts), Michael Balboni (New York) and Mary Margaret Haugen (Washington), who each hold leadership positions on NCSL committees and task forces.
CUNO UPDATE On March 1, 2006, the U.S. Supreme Court heard oral arguments in DaimlerChrysler v. Cuno, which involved two issues of concern for states: (1) whether a state investment tax credit violates the Commerce Clause and (2) whether the plaintiffs (Cuno, etal.) have standing to challenge the constitutionality of the tax credits. The expected date for a decision is unknown. Links to the briefs submitted by the parties are provided below. Petitioner, Daimler-Chrysler Brief: Petitioner, Wilkins (Ohio Tax Commissioner) Brief: Respondent, Cuno Brief:
KATRINA REPORTS White House Report On February 23, 2006, the White House released its account of lessons learned in response to the Katrina disaster and its recommendations for responding to future disasters. The report, The Federal Response to Hurricane Katrina: Lessons Learned, provides 125 recommendations, of which 11 critical actions must be implemented by June 1, 2006, the start of the hurricane season.
GAO Report On February 1, the Government Accountability Office (GAO) issued a preliminary report on federal responses in the wake of Hurricanes Katrina and Rita.
House Government Reform Committee Report The House Government Reform Committee, chaired by Tom Davis (R-Virginia), released a 520-page report enumerating 90 findings and laying blame with all levels of government and the private sector. The report, A Failure of Initiative, lays the groundwork for restructuring FEMA and the federal flood insurance program. In addition, the report attempts to set clear lines of intergovernmental responsibility for emergency planning and response. House Democrats, who did not participate in the Government Reform Committee’s investigation, have named Mississippi Representative Gene Taylor to head up a minority party investigation.
Senate Governmental Affairs and Homeland Security Committee Report The Senate Governmental Affairs and Homeland Security Committee is expected to issue its comprehensive report late March 2006.
SAVE THE DATE: April 6-8, 2006
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