CHN: The President’s Budget: Important Strides Forward After Years of Cuts

President Obama released his budget for Fiscal Year 2011 on February 1.  It proposes investments in education, training, child care, and child nutrition.  The budget recommends income assistance for people with low incomes and a number of job creation proposals.  Many of the programs receiving at least modest increases in the President’s budget have been shrinking for years.  Especially because the recession has increased the need for services and income support while causing severe state budget shortfalls, above-inflation growth in federal programs is essential.  The President’s budget achieves such growth in quite a few program areas affecting people in need, but there are still cuts in services needed by vulnerable people, including children at risk of abuse or neglect and children in the juvenile justice system.
Children a Budget Priority.  The budget includes important investments in meeting children’s needs.  The President maintains his commitment to end child hunger by 2015, and includes $10 billion in new child nutrition funding ($1 billion a year for 10 years) to be added to school meals, summer food, and other nutrition assistance when Congress reauthorizes child nutrition programs (hopefully) this year.  The President’s request also reorganizes K-12 educationfunding, providing new funding to encourage effective teaching.  Some other education programs are reduced; in particular, large amounts of education funding included in the American Recovery and Reinvestment Act (ARRA) for spending over FYs 2009 and 2010 are not renewed in the President’s proposal.  While these funds were meant to be temporary, their two-year duration was designed when the severity of the recession was not well enough understood.

Another important increase in funding for children is $1.6 billion in new funds for child care subsidies for low and moderate income families, bringing total child care funding to $6.6 billion, and allowing another 235,000 children to receive low-cost care.  This is the largest increase in the program’s history.  In addition, Head Start receives an increase of $989 million, bringing its total to $8.224 billion, and adding 66,500 children beyond the FY 2008 level.  There is also an increase in the Child and Dependent Care Tax Credit, which nearly doubles the help to middle income families.

Helping poor and near-poor children and their families with income assistance is also a priority in this budget.  The proposal would make permanent the improvements in the Child Tax Credit and Earned Income Tax Credit that were part of the economic recovery legislation.  The Child Tax Credit will remain available to families if their earnings exceed $3,000 (providing 15 percent of each dollar of earnings over $3,000, to a maximum of $1,000 per child).  The change in the Earned Income Tax Credit allows families with three or more children to receive a higher amount than families with one or two children.  Both credits are refundable – that is, families can receive refund checks even if their incomes are too low to owe federal income taxes.  Another partly refundable credit made permanent is the American Opportunity Tax Credit, which provides $2,500 a year towards the cost of four years of college education.  The Savers Credit is also made refundable, matching 50 percent of an individual’s or couple’s savings for retirement, to a maximum of $500 – $1,000.  In addition to these tax credits, the budget provides $2.5 billion in new funding for the Temporary Assistance for Needy Families (TANF) Emergency Fund, which is available to states for cash assistance if their caseloads are rising or for providing subsidized jobs.  States only have to provide a 20 percent match for funds used for cash assistance; no match is required for funds used to create subsidized jobs.  The FY 2011 request would allow the TANF Emergency Fund to continue beyond FY 2010; $5 billion had been provided for the fund in ARRA for FYs 2009 and 2010.  Prior to the ARRA funding, there had been no increases in TANF since its creation in 1996.  The President’s budget also provides $500 million in TANF for a new Fatherhood, Marriage, and Family Innovation Fund, which would expand the $150 million previously available for fatherhood and marriage programs to include support for custodial families with severe barriers to employment.  Also included in the President’s proposal is the continued restoration of incentive payments to states for good performance in the Child Support Enforcement program.  The budget also increases the Low Income Home Energy Assistance Program (LIHEAP) and proposes to move $2 billion of the $5.3 billion total to a mandatory fund, access to which will be triggered automatically by increases in energy prices and increases in households receiving SNAP benefits (formerly known as food stamps).

Job Creation.  The President’s budget identifies $262 billion over 10 years for job creation, most of which would be spent this year and next.  Many of the proposals are continuations of programs or tax credits begun under ARRA.  The budget would continue extended Unemployment Insurance benefits, provides a six-month extension of higher Medicaid funding to help states prevent cuts in jobs and services, provides a $250 payment for retired and disabled people, invests in infrastructure and renewable energy projects, continues the Making Work Pay tax credit for a year, and provides a number of business tax credits.  Although included in the budget, the intention is for these items (as well as the TANF Emergency Fund mentioned above) to be enacted as part of jobs legislation well before the budget and appropriations are approved.  The items placed in the category of job creation are intended to spur economic growth by increasing disposable income (UI, Making Work Pay credit, and $250 payments, for example) and by providing incentives for business to hire.  The budget does not specifically call for direct hiring measures, except for some youth employment funding increases through YouthBuild and the Workforce Investment Act and the subsidized jobs provided through the TANF Emergency Fund.

Moves Towards Deficit Reduction.  The budget assumes a deficit of more than $1.2 trillion in FY 2011, declining to a low of $706 billion in FY 2014, and then starting to rise again through FY 2020.  Although the dollar amounts rise, the deficit as a share of GDP declines from 8.3 percent in FY 2011 to a low of 3.6 percent in FY 2018, and rising to 4.2 percent in FY 2020.  The budget includes a number of strategies for deficit reduction.  The continued assumption that health care reform will be enacted and will rein in health care costs is an important part of federal deficit reduction.  Economic recovery itself is the main contributor to reduced deficits.  The President also imposes a freeze in annual appropriations, limited to “non-security” agencies – that is, not applied to military, international, veterans, or homeland security.  “Security” agencies are proposed to increase from nearly $684 billion in FY 2010 to $719 billion in FY 2011.  The freeze is expected to continue for three years, after which the non-security programs would be allowed to grow with inflation for the next seven years.  The freeze is not imposed through across-the-board cuts; instead, funding decisions are made program by program.  To a large extent, low-income and human needs programs are spared in the President’s FY 2011 budget, despite the fact that funding for “non-security” agencies actually declines from $446.3 billion in FY 2010 to $441.3 billion in FY 2011.  Many human needs programs (some described above) are provided above-inflation increases.  A number of factors make it possible for the President to cut over-all spending while preserving or expanding many human needs programs – notably, FY 2010 includes a large expenditure for the decennial Census which is not repeated in FY 2011.  However, not all human needs programs are spared.  Many annually appropriated child welfare programs show reductions from their FY 2009 levels, when inflation is taken into account.  Child Welfare Services, for example, is cut 3.6 percent below FY 2009 levels, adjusting for inflation, after a reduction of nearly 12 percent from FY 2005 through FY 2009.  Juvenile justice programs are also subject to cuts.  Although new programs are started in FY 2011, their funding levels do not replace the amounts cut from older programs.  For example, Title II State Formula Grants are reduced 7.6 percent below FY 2009 levels (inflation-adjusted), on top of cuts of 18.5 percent from FY 2005 through FY 2009.  Advocates are disappointed that cuts have been applied to such vulnerable groups.

Still, it is important to highlight areas in which the President’s budget reverses years of cuts.  Job training for adults, dislocated workers, and youth all receive increases over FY 2009.  Youth training, for example, rises by 6.8 percent, counting inflation, after reductions of more than 15 percent from FY 2005 to FY 2009.  Many mental health and substance abuse treatment programs show increases, making up at least some of the lost ground from FY 2005 through FY 2009.  (For example, total funding for the Center for Mental Health would rise by 2.1 percent from FY 2009 to FY 2011, after an inflation-adjusted cut of 2.6 percent from FY 2005 through FY 2009.)

(For a listing prepared by the Coalition on Human Needs of many annually appropriated human needs programs with funding trends from FY 2005 through the President’s request, click here. Comparisons of the President’s budget to FY 2010 and FY 2009 are available here🙂

Although the President makes many good choices despite the FY 2011 funding freeze, if the freeze is extended for the next two years, it will be increasingly difficult to avoid cuts in services or benefits.  If the FY 2010 funding for non-security agencies’ budgets were to rise with inflation, it would total $457.7 billion in FY 2012 and $463 billion in FY 2013, an increase of $11.4 billion in FY 2012 and $16.72 billion in FY 2013.  Since the freeze does not allow that increase, something will have to be cut.

Another strategy at least for talking about deficit reduction is the President’s proposal to create a deficit reduction commission, with appointees selected by the President, and by the House and Senate majorities and minorities.   The President has already established the commission, with former Wyoming Republican Senator Alan Simpson and former Clinton Administration chief of staff Erskine Bowles as co-chairs.  President Obama has also appointed Dave Cote (CEO of Honeywell), Ann Fudge (former chief executive of Young and Rubicam Brands), Alice Rivlin (formerly of the Federal Reserve and OMB), and Andy Stern (President of SEIU) to the panel.  Senate Majority Leader Harry Reid has appointed Senators Baucus (D-MT), Conrad (D-ND), and Durbin (D-IL).  No others have yet been appointed.  The commission is expected to look into possible revenue increases and spending reductions.

House and Senate Budget Committees have held hearings to question Administration officials about their budget assumptions.  Congress is supposed to agree upon a Budget Resolution with its own annual appropriations total as well as with assumptions about mandatory programs and revenues by April 15.

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