The Senate Appropriations Committee has again rejected a reorganization plan proposed by the House Committee. After yesterday's optimism that a compromise could be reached, Senate appropriators unanimously scuttled the plan. There seems to be little concern about redistributing to other subcommittees the programs contained in the District of Columbia Subcommittee and the Legislative Branch Subcommittee. However the third subcommittee that the House wants to abolish, VA, HUD, and Independent Agencies, has much stronger support in the Senate. House Chairman Jerry Lewis (R-California) seems committed to moving ahead with reorganization plans in the House when the full committee must approve the plan next week. Differences between the House and Senate subcommittee structure will virtually guarantee another omnibus appropriations bill later this year.

With the new appropriations subcommittees looking like a done deal, several new chairman have risen to power. The new chair of the House Appropriations Transportation, Treasury and Housing Subcommittee is Joe Knollenberg (R-Michigan).

Knollenberg represents the 11th District of Michigan. He's held office since 1992 after serving three years in the Army and most of his career as an insurance agent. Knollenberg has remained reliably conservative in his solid GOP district, winning re-election handily each time due to his solid pro-life, pro-business views and his ability to deliver over $60 million federal dollars to his district.

As an appropriator, Knollenberg has been vocal in his desire to see the gas tax ratio altered (Michigan is one of the donee states that only receives $.88 for every dollar contributed) and to encourage free trade, consistently supporting all of the free trade agreements the administration has proposed. He's also been staunchly pro-manufacturing throughout his tenure.

Knollenberg's strong focus on local issues will certainly serve his district and state's transit needs well with his new assignment. How it will affect the country's transportation systems as a whole remains to be seen.

News yesterday that earlier cost estimates for the Medicare Modernization Act were in fact low caused many members of Congress to demand changes in the law.

In January 2004, less than two months after Mr. Bush signed the law, the White House said it would cost $534 billion from 2004 to 2013. Of that amount, $511 billion was specifically for the drug benefit. For the same 10-year period, the administration now puts the cost of the drug benefit at $518 billion.

Lawmakers have begun reviving many of the issues they sparred over during the 2003 debate that led to enactment of the law. Members are looking at several options: imposing a cap on spending for the drug benefit, cutting the federal subsidy for wealthy beneficiaries, requiring the government to negotiate prices with drug manufacturers, legalizing imports of lower-cost medicines from Canada and other countries, and prohibiting Medicare coverage of “lifestyle drugs”.

Fiscal conservatives have said that they want to cap the cost of the drug benefit at $400 billion and have suggested that Congress rewrite the law to focus resources on low-income people who really need the help. The new drug coverage will be available to all 41 million Medicare beneficiaries, regardless of their income or assets.

The bipartisan leadership of the House Committee on Transportation and Infrastructure late yesterday (February 9) re-introduced their version of the re-authorization of the TEA-21 legislation. The legislation is still called "TEA-LU". In the 109th Congress it carries a new number -- H.R. 3 -- which is indicative of the high priority the House leadership places on its passage.

The package reflects the $283.9 billion funding level agreed to by the administration for the six-year period fiscal 2004 - 2009. House leadership appears committed to moving it quickly. The bill is slated for committee action the week of March 7 and floor action shortly thereafter.

Highway funding in this bill would escalate from $34.4 billion in fiscal 2004 to $41.0 billion in fiscal 2009. Transit funding would start at $7.3 billion in 2004 and increase to $10.3 billion in fiscal 2009.

The bill does not contain a provision on the minimum guarantee for states' return on gas tax contributions they make to the highway account of the Highway Trust Fund. This would appear to indicate the leadership has yet to decide how high the guarantee will be.

Of particular note is that the legislation continues to support the creation of a new program for Projects of National and Regional Significance at $6 billion. It also includes $11.1 billion for High Priority Projects.

The press release is right here. Some highlights include:

Executive Summary

• TEA LU reauthorizes the federal highway, public transportation, highway safety, and motor carrier safety programs for six years, from fiscal years 2004 through 2009. The policy features of the bill from the last Congress are retained.
• The legislation provides a total of $283.9 billion in guaranteed funding – a 42 percent increase over the guaranteed funding for TEA 21 (1998-2003).
• The bill’s funding level has been formally endorsed by the Administration. President Bush’s updated reauthorization proposal, which was submitted with the fiscal year 2006 Budget, supports a six-year reauthorization at $283.9 billion.
• The legislation’s guaranteed funding level of $283.9 billion reflects the same funding level that Congressional negotiations had centered on in the closing days of the 108th Congress.
• The bill’s guaranteed funding is $4.5 billion higher than that the guaranteed funding level of $279.4 billion passed by the House of Representatives in April 2004, due to recent tax law changes made in last October’s American Jobs Creation Act. The law restores ethanol-related losses to the Highway Trust Fund resulting from the 5.2 cents per gallon subsidy and revokes the diversion of 2.5 cents per gallon from the Highway Trust Fund to the General Fund.
• The legislation will continue and protect existing U.S. jobs in the transportation sector and related industries. Millions of new jobs will be created and sustained by the infrastructure funding increases in TEA LU.
• TEA LU grows highway obligation authority from $34.4 billion in 2004 to $41 billion in 2009; public transportation funding grows from $7.3 billion in 2004 to $10.3 billion in 2009.
• The same new highway programs authorized by the House last year are included in this legislation to improve congestion and move freight more efficiently. The bill authorizes a new $6 billion “Projects of National and Regional Significance” program to help States pay for high-cost highway projects that have significant national or regional benefits.

We've also got a copy of the legislation in .pdf format located on the analysis side of the website.

Yesterday, the House Education and the Workforce subcommittee on 21st Century Competitiveness voted 18-15 on a party line to approve the Job Training Improvement Act (H.R. 27), that would overhaul the Workforce Investment Act (WIA).

Sponsored by Subcommittee Chairman Howard McKeon (R-California), the bill would combine the funding stream for adults, dislocated workers and employment services into a single state block grant. This move would give governors more discretion over how the money is spent. There are concerns however that some served by those programs would lose funding while others could benefit.

An amendment offered by Rep. McKeon to authorize the President's budget proposal to fund partnerships between community colleges and businesses in high demand industries was approved by voice vote. However, an amendment offered by Rep. Robert Scott (D-Virginia), to strike language allowing faith-based groups to use religious preference in hiring, was rejected by a vote of 13-19. The full committee is expected to mark-up the bill on Feb. 16.

The House passed a similar bill in 2003. The Senate later amended and passed the House bill, but Senate Democrats would not allow it to go to conference.

Despite initial rejection, Senate appropriators appear ready to accept a plan proposed by the House to reorganize the Committee. Under the House proposal, the number of subcommittees would be reduced from 13 to 10. Gone are the subcommittees for the District of Columbia, Legislative Branch and VA, HUD and Independent Agencies. Their programs will be redistributed to other subcommittees. The Interior Subcommittee will gain jurisdiction over EPA and other environmental programs. HUD will be transferred to the Transportation and Treasury Subcommittee.

Assuming the 10 subcommittee plan is formally adopted by the House and Senate, House Committee Chairman Jerry Lewis (R-California) has announced the following chairman positions:

Yesterday the White House released data showing that the estimated cost to implement last year's prescription drug benefit would likely cost over $1.2 trillion.

This is a marked increase from previous estimates of $534 billion over a ten-year time frame. Some in Congress already had been displeased with that number, a revision to the originally proposed $400 billion mark.

We've managed to secure a list of the Fiscal Year 2006 New Starts from the Federal Transit Administration. It's currently located over on the analysis side of our website. Be sure to go check it out.

President Bush today (February 7) released his fiscal 2006 budget. This budget represents a forceful statement by the administration of its fiscal and policy plans for fiscal 2006 and the remainder of the President’s term in office.

Taking the broadest view, the budget is built on these basic principles:

• Funding for the War in Iraq and the War on Terror must be continued and will be accommodated at the necessary levels.
• The tax cuts enacted during the President’s first term should be made permanent.
• The Federal deficit in fiscal 2009 should be ½ what the administration projected it to be in fiscal 2004.
• Federal non-security domestic discretionary spending should be frozen.

In order to establish a baseline from which to make budget decisions, the administration began by settling on economic assumptions which would drive revenue and spending numbers in the budget. Among the key economic assumptions for the next five years are these:

• inflation (CPI increase) at 2.4%/year
• economic growth (GDP increase) at 3.2%/year
• civilian unemployment averaging 5.1%
• interest rates (10-year T-note) at 5.5%.

Starting with the budgeting principles noted above and plugging in these assumptions, the administration had before it a serious challenge. They needed to start on the path to the promised deficit reduction by focusing on a relatively small portion of the overall federal budget – non-security domestic discretionary spending. This category currently makes up less than 20% of total federal spending. Under the budget proposed today, spending on these programs would decrease in nominal terms by 1%. This is a proposal reminiscent of the Reagan administration’s efforts to rein-in domestic spending.

Among the reductions proposed by the President are these:

• A 1/3 cut in community and economic development programs and the consolidation of those programs under the management of the Department of Commerce.
• The elimination of operating subsidies for Amtrak.
• A 12.6% cut in bioterrorism preparedness funding.
• A 9% cut for the disease-fighting work of the Centers for Disease Control and a 6.5% cut in chronic disease prevention and health promotion at the Public Health Service.
• A 46% cut in law enforcement assistance grants to states.
• A $ 4.2 billion cut in a range of education programs, but with offsetting increases in other areas.
• Elimination of the Land and Water Conservation Fund state grant program.
• Elimination of the Railroad Rehabilitation and Improvement Financing program and the Next Generation High-speed Rail program.

Beyond the discretionary spending side of the budget, the administration also is looking to achieve savings in mandatory spending. The Medicaid program in particular would see its spending over the next ten years cut by $60 billion below the baseline level of current law.

The non-security domestic budget is not all about cuts, however. The administration proposes a new $1.5 billion high-school performance program and an increase of $304 million for a program to build new community health centers in rural areas.

The non-domestic and security side of the budget fares better, but still must face increases far below those advocates would have liked. Among the key programs, here is how the numbers come out:

• Homeland Security is up 7% to $342 billion.
• The State Department and International Assistance budget is up 18% to $ 13.3 billion.
• The Defense Department is up 5% to $419.3 billion.

It is important to note that the budget assumes that the $80 billion the administration is now requesting for the wars in Afghanistan and Iraq will be enacted. It does not, however assume any spending on those conflicts for fiscal 2006 and beyond. Those expenditures will have to be accounted for in future budget cutting exercises, if the goal of reducing the deficit by half is to be accomplished.

When all of these actions and the others called for in the Budget are tallied-up, the product is $2.57 trillion in spending and a deficit of $390 billion – this is down from the $427 billion deficit the administration now projects for the current fiscal year.

Reaction on Capitol Hill to this budget has been cautious. Democrats are largely critical of the administration’s proposals. Even some GOP members have cautioned that implementing some of the cuts will be very difficult. However, the administration has proven adept at getting – in general – the results they want and has shown flexibility on the details. It is in exploring the limits of that flexibility that Congress will be engaged over the next few months.

Please visit our analysis side to see detailed charts with projected spending on various programs of interest. We will have additional analysis for you in the days ahead.

The fiscal year 2006 budget was released this morning. We'll be updating our comparison chart over on the analysis side of the website throughout the day so be sure to check back often to get the latest information.

Yesterday the White House Office of Management and Budget (OMB) announced that in his fiscal 2006 budget which is scheduled to be released on Monday, President Bush will propose to consolidate 18 community and economic development programs from across the government into a single program entitled "Strengthening America's Communities Initiative." The new program would be administered at the Commerce Department and would be funded at a level of $3.7 billion, far below the roughly $5.3 billion the programs were funded at in fiscal year 2005.

The consolidated program will have new eligibility and accountability criteria.

One main program being consolidated is the Community Development Block Grant Program which is run out of the Housing and Urban Development Department. Chief advocates for the program, including the U.S. Conference of Mayors criticized the consolidation as there would be a major cut in funding at a time when city budgets are challenged. Cities use the program for low-income housing and business development projects.

The consolidation also includes programs from the Agriculture, Treasury and Health and Human Services departments.

The administration is promoting the plan as a way to remove waste and improve efficiency.

The plan is being received cautiously on Capitol Hill.

Alberto Gonzales was confirmed by the Senate last night in a 60-36 vote. Six Democrats joined all but one Republican to confirm the nominee, marking the lowest level of minority support for a president's choice since 1925, according to Senate historians.

Gonzales was praised universally for a compelling personal history, but came under fire from many Democrats for his role in the controversial Bybee memo that the administration later disowned last year.

In last night's State of the Union address, President Bush pledged to restrain "the spending appetite of the federal government". He vowed to press Congress to hold the growth rate of discretionary spending below the rate of inflation and to fully extend his first-term tax cuts. Other administration officials have indicated that the discretionary spending affected is non-defense or non-domestic security related.

Specifically, he said his FY2006 budget would cut or eliminate "more than 150 government programs". The domestic discretionary portion of the budget currently amounts to only 16% of the overall budget, limiting lawmaker's ability to save large sums of money through cuts.

Bush's call to renew the tax cuts passed in the first-term will have long term budget implications. Currently most of the recently enacted tax cuts are set to expire before 2010. Extending the cuts would impact many of the existing budget projections.

House Speaker Dennis Hastert (R-Illinois) shook up the House Ethics Committee yesterday, ousting the chairman and two other members.

The chairman's gavel will pass from outgoing chair Joel Hefley (R-Colorado) to current member Doc Hastings (R-Washington). Hefley had irked the GOP leadership by having his committee rebuke House Majority Leader Tom Delay (R-Texas). The two other departing members, Kenny Holshof (R-Missouri) and Steven LaTourette (R-Ohio) had both resisted changing rules to Delay's favor, and appear to have paid the political price.

According to House Majority Leader Tom Delay (R-Texas), the White House has agreed to sign onto an additional $43 billion worth of spending for the surface transportation bill under consideration.

This brings the total number to $299 billion as the high mark for what the administration has said it will accommodate. This also marks the level the House conferees were at when the conference with the Senate broke down last year. The Senate last year passed a $318.9 billion bill, well above the administration's request of $256 billion.

The administration has so far not commented on Delay's claim.

Earlier this week in a speech, newly sworn-in Secretary of Health and Human Services Mike Leavitt addressed the issues surrounding Medicaid reform, remarking that the problem is “big enough to see and small enough to solve”. During the speech, Sec. Leavitt did make several policy statements by saying there would be no block grants, no cuts in available resources, and mandatory populations would not have their coverage changed.

The Secretary also mentioned three Medicaid reforms that could save the federal government money. First, allowing states to purchase pharmaceuticals for less than they presently do, second, closing down loopholes that allow people to become eligible for Medicaid by giving away assets to their children and third, proposing an “uncomfortable, but necessary conversation” with states about shutting down financing loopholes.

Finally, Secretary Leavitt mentioned three opportunities in Medicaid reform. The first, an emphasis on home and community based care (as opposed to institutional care). The second is expanding access to more children. While details have not been provided, the President recently announced a plan to conduct a $1 billion outreach campaign designed to bring eligible but unenrolled children onto Medicaid and the State Children’s Health Insurance Program (SCHIP). The third is the opportunity to restructure coverage of Medicaid’s currently optional populations. The Secretary proposed allowing states to use SCHIP levels of benefits to provide “quality basic health coverage” for optional populations.

Some Senate Republicans helped derail a House leadership plan to overhaul the subcommittee structure of the House and Senate Appropriations panels.

The House plan would change the job descriptions of several Appropriations subcommittee "cardinals" stripping three of their positions altogether. With the Senate expressing clearly its wish to keep the status quo, the possibility now exists that the two chambers could begin FY06 budget negotiations with completely different appropriations panels. Such an outcome would significantly raise the chances of another end-of-year omnibus spending bill.

Rep. Ernest Istook (R-Oklahoma) acknowledged on Sunday (January 30) that he will not be chairing any subcommittee of the House Committee on Appropriations this Congress. Istook is the first casualty of the reorganization of the committee, which is reducing the number of subcommittees from 13 to 10.

The Transportation-Treasury Subcommittee will continue to operate largely as before. Under the reorganization plan, the Veterans Affairs and Housing and Urban Development, the Legislative Branch, and the District of Columbia subcommittees would be eliminated. Their jurisdiction would be spread out among the remaining 10 subcommittees.

It remains to be seen which other current subcommittee chairs will lose their status in the reorganization. We will keep you posted on further developments.