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Federal Budget and Revenue Update

President Releases FY 2007 Budget

February 7, 2006
Volume 12, No. 2

An Information Service of the NCSL Budgets and Revenue Committee

Back Issues Archive

Note:  This document is based on a preliminary review of the President’s FY 2007 budget.  Not all programs and activities are covered.

On February 6, 2006, President Bush released his (FY) 2007 budget. The President’s request weighs in at $2.77 trillion and continues efforts to reduce both mandatory and discretionary spending in an effort to cut the annual deficit in half by FY 2009.  In particular, the request:

• Proposes a net $65 billion in federal savings over 5 years in mandatory/entitlement programs.  Over half ($36 billion) of these savings would come from changes to the Medicare program with an additional $12 billion in federal savings in the Medicaid program.  Other programs targeted include:  the Food Stamp Program, Child Support Enforcement and Special Supplemental Nutrition Program for Women, Infants and Children (WIC).
• Increases defense and homeland security spending by 6.9 percent and 3.3 percent, respectively. 
• Reduces non-defense, non-homeland security spending by .5 percent (see table 1). The negative impact on states is exacerbated by state assumption of inflationary factors, adding another $4 billion in cost shifts.
• Identifies 141 programs to be terminated or significantly reduced in size, saving $15 billion.  This includes a number of block grants—the Community Development Block Grant (CDBG), Social Service Block Grant (SSBG), Substance Abuse Block Grant and Maternal and Child Health Block Grant. 
• Makes permanent the tax relief signed into law in 2001 and 2003. 
• Produces a $354 billion annual deficit, down from an estimated $423 billion annual deficit for FY 2006. 

Over the next few weeks, the House and Senate Budget Committees will craft their respective Budget Resolutions to guide spending choices, both discretionary and mandatory. The Resolution is not formally a law so it does not require the President’s signature.  The amounts set in the resolution are translated into allocations to the Appropriations Committees for discretionary programs and sets the stage for potential cuts and changes to mandatory or entitlement programs through a budget reconciliation bill.  The target date for completion of these decisions is the new fiscal year, which begins on October 1, 2006.  However, Congress has rarely met this date and often uses continuing resolutions during the interim. 

Below is a summary of select provisions in the President’s FY 2007 budget request.

Department of Agriculture

• Provides a $66 million increase in avian influenza efforts from FY 2006 levels.
• Provides an additional $700 million for the school lunch program.
• Makes several changes to the Food Stamp Program.
  • Proposes to exclude all retirement savings when determining if a household is eligible for food stamps.
  • Provides additional funding to the Food Stamp Program to provide benefits ($20 a month) to individuals 60 years of age or older who were receiving benefits under the Commodity Supplemental Food Program (CSFP). Benefits would be provided for up to six months or until individuals are determined to be eligible for the Food Stamp Program. (The President’s budget proposes to eliminate the CSFP and the Communities Food and Nutrition Program).
  • Includes a legislative proposal to limit Food Stamp Program categorical (automatic) eligibility to households which receive Supplemental Security Income or Temporary Assistance to Needy Families (TANF) cash assistance.
• Provides level funding for the Special Supplemental Nutrition Program for Women, Infants and Children (WIC).   Proposes to cap state administration at 25 percent beginning in FY 2008. Proposes a 20 percent state match on federal nutrition and administration spending beginning in FY 2008.  Prohibits the use of funds by individuals receiving Medicaid, or a member of a family in which a pregnant woman or an infant received assistance unless the individual’s family income is below 250% of the applicable non-farm income poverty level.
• Reduces all crop payments to farmers by 5 percent (federal savings=$4.9 billion over 10 years).  The request contains other proposal to reduce dairy price supports, crop insurance premium subsidies and the payment limit cap for individuals for commodity payments. (A number of these proposals were included in the President’s FY 2006 budget request).

Department of Commerce

• Creates a new program activity called the Regional Development Account (RDA) to implement the goals of the Strengthening America’s Communities Initiative (SACI). The RDA consolidates a number of economic development assistance programs.  The RDA, along with the planning grants and trade adjustment assistance, would be collectively funded at $5 million above FY 2006 levels
• Funds a number of programs established in the budget reconciliation legislation passed by Congress on February 1, 2006.   The programs will be paid for from revenues raised from the sale of spectrum.  These new programs include:

• A coupon program ($40 dollars) recently created to provide assistance to households to convert from analog to digital televisions.
• A grant program for public safety agencies to promote interoperability.  The president’s request would require a match of at least 20 percent.
• Funds to assist in the implementation of the E-911 Act of 2004.

Department of Education

• Provides modest increases for No Child Left Behind (NCLB) and the Individuals with Disabilities and Education Act (IDEA) ($100 million - $200 million).  The entire increase to NCLB will be devoted to schools in need of improvement.
• Eliminates Medicaid reimbursement for certain school transportation and administrative activities as it relates to students covered under IDEA.
• Creates a new $1.5 billion program to help states implement tests in language arts and math in high schools and to support a wide range of proposed interventions.  This is accomplished by eliminating the following high school programs—Vocation Education, TRIO Upward Bound, TRIO Talent Search and GEAR UP. (A similar initiative was proposed in FY 2006).
• Eliminates educational technology state grants.
• Eliminates funds for state grants administered by the Office of Safe and Drug-Free Schools.
• Provides $380 million for the American Competitiveness Initiative to fund programs designed to enhance math and science education for elementary and secondary school students.

Department of Energy

• Reduces Weatherization Assistance Grants by $78.4 million.
• Provides an additional $13 million for State Energy Program Grants.
• Doubles research investment under the American Competitiveness Initiative.  Advances nuclear power development.
• Includes $544 million to support the use of Yucca Mountain.
• Provides $505 million to the American Competitiveness Initiative. 

Department of Health/Human Services

• Provides $12 billion in federal Medicaid savings over 5 years. Some of these savings would be achieved through:
  • Intergovernmental transfer reforms ($3.8 billion).
  • Provider tax changes ($2.1 billion).
  • Tightening Medicaid policies for rehabilitative services ($2.3 billion).
  • Eliminating Medicaid reimbursement for certain school transportation and administrative activities as it relates to students covered under IDEA...
• Includes a legislative proposal to set the administrative matching rate for targeted case management services at 50 percent.
• Reduces Medicaid administration funding to reflect costs covered by the TANF block grant.
• Proposes to amend the Medicaid drug rebate formula to remove best practice pricing.
• Proposes to allow states to use managed formulary techniques to leverage greater discounts with pharmaceutical manufacturers. 
• Includes proposals to save an estimated $36 billion over five years in Medicare. This includes:
  • Reduces growth in payment rates.
  • Increases beneficiary cost-sharing.
  • Increases competition among providers.
• Proposes four-tenths of one percent reduction in all Medicare payments if Medicare spending funded by dedicated revenues fall below adequate levels.
• Creates a $500 million competitive grant program for states to receive funds to implement innovative policies to promote insurance among the chronically ill.
• Encourages the use of Health Savings Accounts. 
• Recommends establishment of Association Health Plans.
• Provides $100 million annually in grants for a national outreach campaign to enroll additional eligible children in Medicaid and SCHIP. 
• Proposes legislation permitting the purchase of health insurance across stateliness creating a national marketplace.
• Provides for two new PACE grants for all-inclusive care of the elderly.
• Seeks legislation to introduce an option for all states so they can choose an alternative system for foster care.
• Provides level funding for the Substance Abuse Block Grant Program.
• Provides level funding for Payments to States for the Child Care and Development Block Grant.
• Reduces funds for the Social Services Block Grant by $500 million.
• Reduces funds for health professions training by $136 million.
• Continues the President’s commitment to obtain $7.1 billion to improve pandemic influenza preparedness.
• Expands the current drug, animal drug and medical devices export certification fee to include food and animal feed.  Proposes new fees for reinspection.
• Provides $100 million for Family Formation and Healthy Marriage State Grants.  This is in addition to the $150 million for Healthy Marriage and Fatherhood Grants authorized in the Deficit Reduction Act.
• Provides full funding for the TANF contingency fund.
• Continues the authorization for TANF supplemental grants through 2010.  The Deficit Reduction Act continued these grant in its reauthorization provisions, but only through 2008. 

The President’s FY 2007 budget request proposes to eliminate the following health programs:

• The Community Services Block Grant ($630 million).
• The Preventive Health Block Grant ($99 million).
• Emergency medical services for children ($20 million).
• Universal newborn screening (10 million).
• Rural health flexibility grants ($64 million).

Department of Homeland Security

The President’s FY 2007 budget proposal focuses state and local support according to risk and need assessment outlined in Homeland Security Presidential Directive 8 and a reprioritization under PART. The risk assessment restructures grant award to meet these goals (see table 2).  In addition, the request:

• Requires states to develop an interoperability communications strategy as a condition of receiving FY 2007 DHS Homeland Security grants.
• Decreases from $629 million to $293 million funds for the Firefighter Grants Program.
• DOES NOT include a waiver from the Cash Management Improvement Act (CMIA). A waiver from the CMIA allows states to draw down funds in advance of spending them, up to 120 days.  The FY 2005 and FY 2006 appropriations bills for homeland security provided a waiver from the CMIA for certain homeland security grants.
• DOES NOT provide additional funding for implementation of the REAL ID Act.

The President’s FY 2007 budget request proposes to eliminate the following programs:

• The Local Law Enforcement Terrorism Prevention (states may use up to 20 percent of SHGP and UASI funds for LLETPP)
• The State and Local Training Program
• Commercial Equipment Direct Assistance Program (CEDAP)
• Metropolitan Medical Response System
• Reimbursable Buffer Zone Protection Program (BZPP)

The President’s FY 2007 budget increases immigration funds for the following programs:

• Increases funds for the Sec. 287(g) program to provide state and local law enforcement with training in immigration law.  Section 287(g) is a voluntary initiative under which state and local law enforcement agencies are authorized to work with U.S. Immigration and Customs Enforcement (ICE) to identify and detain immigration offenders who may pose criminal or national security threats.
• Provides an increase of $446.7 million for detention and removal activities:
  • 6,700 new detention beds
  • 560 new detention officers and agents 
  • 18 new Fugitive Operations Teams
• Includes $41.7 million for worksite enforcement.
• Includes $38.5 million for 257 new immigration attorneys to process detainees.

Department of Housing and Urban Development

• Consolidates the Brownfields Redevelopment grants, Rural Housing and Development, and Section 108 Loan Guarantees with the Community Development Block Grant (CDBG).   Reduces CDBG funds to entitlement cities by $515 million.  Reduces CDBG funds to non-entitlement cities by $1 billion.

Department of Interior

• Proposes to terminate funding for the Land and Water Conservation Fund (LWCF) State recreation grants.

Department of Justice

• Increases funds for the Project Safe Neighborhoods by $154 million, which includes:
  • $59 million grant assistance for prosecution of criminal misuse of firearms and illegal gang activity.
  • $29 million to update criminal records.
  • $15 million to assist states in combating gangs.
  • Assistance to deploy ATF Violent Crime Impact Teams to assist states in combating violence.
  • Increases funds for the DNA Initiative by $68 million.
• Increases assistance for prisoner reentry by $9.9 million over FY 2006 levels.
• Increases funds for the Capital Litigation Improvement Grant program by $14 million.
• Increases funds for cleanup of methamphetamine labs sites seized by state and local law enforcement by $20 million.
• Creates a $20 million dollar grant program designed to improve state and local investigation and prosecution of trafficking of persons.

These increases are accomplished by eliminating:

• State Criminal Alien Assistance Program (SCAAP)
• Byrne Justice Assistance Grants
• Juvenile Accountability Block Grants (JABG)
• Several activities funded through the Community Oriented Policing Services program and by reducing funds for Violence Against Women by $3.9 million

Department of Labor

• Eliminates funds for dislocated worker assistance, adult and your training, and employment services state administration and creates in its place Career Advancement Accounts—self-managed accounts for certain workers in need of new skills/training.
• Increases civil monetary penalties for violations of law administered by the Mine Safety and Health Administration (MSHA).
• Establishes the use of Association Health Plans (AHPs) for small businesses.  Allows a broad range of other organizations to offer health benefits to their members through similar AHPs.

Department of Transportation

• Reduces Amtrak funds to $900 million for FY 2007 (a reduction from $1.29 billion in FY 2006).
• Increases the highway obligation ceiling by $3.4 billion.
• Increases by .5 percent funds for mass transit.
• Reduces funds for the State Airport Improvement Grants by $700 million (20 percent).

Environmental Protection Agency

In general, the President’s FY 2007 budget request for the Environmental Protection Agency reduces funds for State programs by $24 million from FY 2006 levels.  In particular, the proposal:

• Assumes a .476 percent rescission for FY 2006 for Infrastructure/State Tribal Assistance Grants (STAG) project financing in addition to the 1 percent across-the-board cut contained in the FY 2006 Defense appropriations bill.
• Reduces funds for the Clean Water State Revolving Fund (SRF) by $199 million.
• Increases funds for the Drinking Water SRF by $4 million.
• Increases funds for the Superfund Program by $17 million.
• Reduces funds for the State Tribal Assistance Grants (STAG) by $416 million.
• Increases funds for the Underground Storage Tank Program by $26 million.
• Provides $50 million to implement grant programs that reduce emissions from diesel engines.
• Directs EPA to develop a standardized template that all states will use to develop and submit their State grant agreements.
• Provides incentives for states to implement or improve their National Pollutant Discharge Elimination System (NPDES) fee programs, while ensuring that total federal and state water quality resources do not decline following a state’s adoption of a fee system.

Budget Process Reforms

The President’s FY 2007 budget request includes several proposals to reform the budget process.  The majority of these provisions were part of the President’s FY 2006 budget request.

Mandatory Spending

• Requires that any legislated increase in mandatory spending be offset by a reduction in other mandatory spending.  Legislation that violated this requirement would be subject to a three-fifths point of order in the Senate.
• Requires the Office of Management and Budget to reduce spending across-the-board in non-exempt programs to eliminate overage, in the event that cumulate legislation enacted increases mandatory spending.
• Establishes a new measure to analyze the impact of legislation on unfunded obligations of major entitlement programs beyond the usual 10-year scoring window.  Requires a three-fifths vote in the Senate to pass such legislation.

Discretionary Spending

• Establishes statutory limits on discretionary spending for each year through 2011.
• Any appropriations bill that would cause these limits to be exceeded would be subject to a three-fifths vote in the Senate. 
• Requires OMB to make across-the-board cuts in the event that accumulative appropriations action breached the spending limit.

Other Reforms

• Reinstates the President’s line-item veto authority linked to deficit reduction; allows for it to be applied to other spending.  The proposal supports enhanced rescission authority as a supplement or alternative to the line-item veto.
• Requires a Joint Budget Resolution (this would require the President’s signature which currently is not needed on the Budget Resolution).
• Establishes a new provision to prevent a government shutdown because of Congress’ failure to adopt an appropriations bill.  Funding would automatically be approved at the lower of the President’s budget or the prior year’s level.
• Proposes the establishment of a biennial budget.

The overall budget can be found on the White House website at: http://www.whitehouse.gov/omb/budget/fy2007/

Sources: 

Fiscal Year 2007 Budget of the U.S. Government

Fiscal Year 2007 Budget of the U.S. Government:  Analytical Perspectives

Fiscal Year 2007 Budget of the U.S. Government: Historical Tables

Fiscal Year 2007 Budget of the U.S. Government: Appendix

Various Federal Department Press Releases

Includes excerpts from the above sources

For additional information contact NCSL staff:  Molly Ramsdell (molly.ramsdell@ncls.org, 202-624-3584) or Garner Girthoffer (garner.girthoffer@ncsl.org, 202-624-7753).

1 2006 and 2007 Urban Area Security Initiative participants will be required regional to develop an emergency interoperability plan.

2 Allocation was previously spread across a number of transportation assets and other critical infrastructure, including the trucking industry, intercity bus and rail transit, and buffer zone protection.