CHN: What to Expect in the President’s Budget

On Monday, February 7 the President will send Congress his plans for next year’s budget. The White House has already begun disclosing information about what to expect – including cuts and freezes for programs serving the Americans most in need. This budget season may well be the worst in many years for low-income people and the services they need. A new report from the Center on Budget and Policy Priorities speculates that the President’s budget will place an unfair share of the burden for deficit reduction on programs that serve low-income people, even though these programs are not major contributors to the deficit.
In brief, here are some things you can expect to see:

  • Medicaid cuts . Earlier this week, Health and Human Services Secretary Michael Leavitt said the budget would propose closing “loopholes” in Medicaid that will save nearly $60 billion from the program over the next ten years. This morning’s CQ Today , however reports the budget may trim as much as $120 billion from Medicaid. Leavitt said the President would not transform all of Medicaid into a block grant but it is likely the budget will limit federal funds to states while allowing them to change benefits and eligibility requirements. The Administration has begun its “spin” of these deep cuts as eliminating waste, fraud and abuse and ending “accounting gimmicks.” But in coping with budget shortfalls up to now, many states have already made Medicaid cuts. According to the Kaiser Commission on Medicaid and the Uninsured, in each year between FY 2002 and FY 2004, 32 to 46 states took steps to control drug costs, 22 to 50 states reduced or froze provider payments, 8 to 25 states reduced or restricted eligibility for care, 9 to 18 states reduced benefits, and 4 to 21 states increased the amount poor people paid for medical services (see , page 3). Hitting states with large federal funding cuts is very likely to result in fewer people eligible for care, with less care covered.

Even while slashing Medicaid, the budget will include health care proposals to spend an additional $140 billion. But at least half of that expansion includes old proposals to create refundable tax credits people could use to buy health insurance and medical savings accounts that allow people to set aside savings tax-free for medical expenditures. Advocates for low-income families say tax credits such as these would do little or nothing to insure more Americans. In a November 2004 report , Families USA called tax credits “a ten-foot rope for a forty-foot hole.” Similar proposals in the past have never generated much interest on Capitol Hill.

Therefore, the President’s budget will seek substantial real cuts in Medicaid while simultaneously proposing what appear to be illusory health coverage expansions.

•  Cuts to community development. The administration has already indicated that it plans to cut 33 percent from the Community Development Block Grant (CDBG) which goes to states and cities for use in low-income communities to invest in projects including affordable housing, lighting, water and sewer, and community policing. CDBG is currently funded at $5.6 billion and the budget will propose spending $3.7 billion. The budget will propose consolidating CDBG with the Community Services Block Grant (which funds community action agencies) and several other housing programs. The new block grant would be managed by the Commerce Department.

•  A limit on Foster Care payments . The administration may propose to block grant the foster care program (Title IV-E) to limit federal investments over the long term and shift more of the burden to the states. Last year’s budget included a plan to allow states to choose a fixed amount of foster care funds over a five year window (a block grant). The current program is an entitlement program and states are guaranteed reimbursement from the federal government. A block grant would cap federal spending.

•  A freeze on discretionary programs . Veteran’s benefits, education, Head Start, WIC, child care, housing assistance, National Institutes of Health and environmental programs are all examples of discretionary programs. Congress must approve the funding levels for these programs each year. The President has said he will hold all discretionary programs at levels below inflation. Because discretionary programs also include national defense, homeland security and international programs – where there will be pressure to increase funding – the levels for the non-defense discretionary programs are likely to be even lower.

•  Cuts /eliminations of other programs. In his State of the Union address, the President said his budget would cut or eliminate 150 programs he described as inefficient. While it is not yet known what is on this target list, last year’s budget also called for the elimination or severe reduction of many programs. Congress rejected many of those proposed eliminations last year, but this year the budget-cutting climate is quite different.

•  Possible other limits on entitlement spending. At the moment it appears Medicaid will be a primary target for cuts to entitlement spending in the President’s budget. Entitlement programs automatically receive funding every year and can be cut only if Congress passes separate legislation. Entitlement programs include Social Security, Food Stamps, TANF, the Earned Income Tax Credit, Medicaid, Medicare, and foster care. Although it is unlikely the President will propose cuts to food stamps or Medicare in this budget in his resolution, Congress is expected take a stab at limiting entitlement spending in programs beyond Medicaid.

•  Possible changes to budget process. The President may propose changing the way Congress considers the budget to make it more difficult to increase spending on programs for low-income families while simultaneously making it easier to pass tax cuts that are not paid for. One change the President proposed last year was a one-sided “pay-as-you-go” rule that would require Congress to pay for increased spending on an entitlement program by cutting from the program elsewhere, while allowing tax cuts to go forward even if they are not paid for. The “pay-as-you-go” rule played a starring role in last year’s budget resolution meltdown, when the House of Representatives included the unfair rule in its budget resolution but the Senate could not agree.

Action Steps

The President’s budget is merely the first step in a long budget process. The House and Senate budget committees will each have to produce their own budget resolutions; they are aiming to finish before the recess that begins March 21. Then the resolutions must be passed on the House and Senate floor and the differences between the two resolutions must be ironed out in conference, for final passage by April 15. The primary priority for advocates should be to make sure Senators and representative know the importance of key programs and services to low-income families in their state. Advocates should seek meetings with their Senators when they are back in their district during the March recess or set up conference calls with the relevant staff.

The Coalition on Human Needs will provide updates and analyses on the federal budget, starting with the release of the President’s budget on Monday.  Also, the Coalition will hold a February 11 briefing in Washington on how the President’s budget would affect low- and moderate-income families. Details can be found on the CHN events page.

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