On April 10, the White House released its FY 2014 budget request, almost two months late. The administration’s proposal, which was delayed in part due to the unusually late wrap up of the FY 2013 spending bills, comes after both the House and Senate passed their own budget resolutions for the fiscal year that begins this October 1.

Not surprisingly, the President’s budget looks much more like the Senate version than the more austere approach taken by the House. It would replace significant spending cuts required by the Budget Control Act of 2011 (BCA) with a mix of new revenue and targeted spending reductions and result in $1.8 trillion in deficit reduction over 10 years ($600 million in addition to the $1.2 trillion contained in the BCA), but would not reach balance over the 10-year budget window. However, it does include some provisions designed to reach out to Republican House and Senate members, including a change to the way the government calculates cost of living increases (through so-called “chained CPI”) and modest entitlement reform. Additionally, it suggests changes to the tax code, including a cap on tax deductions at the 28 percent rate, which many say would reduce incentives for charitable giving by high-income donors, including gifts to colleges and universities. 

While the administration’s budget would increase education spending by $3.1 billion (4.5 percent) over the FY 2012 level, most of that increase is earmarked for new programs such as a “Race to the Top” for higher education, a new early childhood program, and funding for K-12 school improvement and redesign. In general, the proposal is very similar to the one the president made for FY 2013, and most higher education programs, including SEOG, TRIO, GEAR UP, and aid for Hispanic-Serving Institutions (HSIs) would be funded at the FY 2012 level (which would mean an increase over the post-sequester FY 2013 amounts).  Of particular interest to the CSU, the budget request would allow for an increase in the maximum Pell Grant award from $5,635 to $5,785 and retain Pell Grant savings in the program for use in future years, increase Federal Work-Study funding from $976.7 million to $1.127 billion, increase international education and foreign language studies from $74 million to $81 million, and expand Income-Based Repayment for student loans to provide borrowers with a more flexible loan repayment option. In addition, the budget proposes a long term fix to student loan interest rates which would move them from a fixed rate to a variable, or market rate, based on the yield on 10-year Treasury Bonds. For subsidized Stafford loans, the new rate would be the 10-year bond rate + .93 percent, unsubsidized Stafford loans would carry a rate equal to the 10-year bond yield + 2.93 percent, and PLUS loans would have a rate equal to the 10-year bond + 3.93 percent. While these interest rates would currently be lower than the existing rates, there is concern, particularly among student groups, that they would prove more expensive for borrowers in the long run, as the proposal does not include a limit on the amount that interest rates could rise when Treasury Bond rates increase.

Also of interest to the CSU, the budget proposes making permanent the American Opportunity Tax Credit (AOTC), which helps middle-income families pay for college, and creates a new “America Fast Forward” bond, similar to Build America Bonds, to reduce the cost of financing repair and construction of public school and university infrastructure.  Funding for AmeriCorps would remain level at $345 million, and funding for the National Science Foundation (NSF) would see an overall increase of 8.4 percent.

While the outlook for any proposed funding increases remains bleak in light of spending reductions already in law as part of the BCA, some in Washington are hopeful that a “Grand Bargain” on spending and deficit reduction – which could undo some of the BCA’s cuts - may yet be found. Some Republican senators, including John McCain (R-AZ), and Lindsay Graham (R-SC) have expressed hope that the President’s willingness to accept chained CPI, some entitlement reform and some sort of tax overhaul might yet lead to an overarching agreement. Should such an agreement occur, it will likely come about as a result of negotiations over the nation’s debt ceiling, which currently looks like it will need to be increased in the September-October time frame.

Just prior to leaving town for a two week spring recess, both the House and Senate passed budget resolutions for FY 2014 on near party-line votes, outlining their respective priorities for the fiscal year that begins this October 1, and for the next decade. Both chambers set overall (defense and non-defense) discretionary spending for FY 2014 at $966 billion, in line with the caps set forth in the Budget Control Act (BCA) of 2011, which is where the similarities end.

The House’s budget plan envisions eliminating the federal deficit over ten years by cutting spending another $4.6 trillion (beyond the $1.2 trillion already enacted as part of the BCA), making substantial reforms to entitlement programs such as Medicare and Medicaid, and reserving any revenue generated by closing tax loopholes (possibly including the charitable deduction) to lower overall tax rates. H.Con.Res.25 would also protect overall defense discretionary spending from post-BCA caps (in violation of the BCA, which would need to be amended) by shifting $55 billion in FY 2014 non-defense money to the defense side, thereby further increasing competition for even scarcer funds among domestic priorities such as cancer research, unemployment insurance, and education funding. From an education perspective, such a move would further reduce resources available to CSU priority programs such as TRIO, GEAR UP, Work-Study, SEOG and Hispanic-serving Institutions programs, as well as research priorities in agriculture, NIH, and NSF, to name a few.

To meet its targets, the House budget assumes several significant reductions to higher education programs. Of particular concern to the CSU are changes calling for the elimination of recent expansions to the formula that determines eligibility for federal student aid programs; the elimination of fees paid to institutions of higher education for administering the Pell and campus-based aid programs; the elimination of student aid for students attending less than half-time; and a rollback of recent improvements in the terms of Income Based Repayment for student loan borrowers.

With respect to the Pell grant program, the House budget recommends continuing the maximum award amount at $5,645, but eliminating future inflation increases called for by law. It also directs the House Education committee to eliminate mandatory funds used to supplement Pell grants, making those funds discretionary and increasing the discretionary caps accordingly (this would also violate the budget agreement, and require statutory changes to the BCA). The House budget also recommends a maximum income cap for Pell grant recipients. The cumulative changes outlined above would almost certainly reduce the number and overall amounts of Pell grant awards. Finally, the House budget also recommends the elimination of the Corporation for National and Community Service (CNCS).

By contrast, S.Con.Res.8, the budget passed by the Senate, does not envision the elimination of the deficit within ten years, though it would reduce it by $650 billion beyond the $1.2 trillion called for in BCA. This would be accomplished by replacing BCA cuts to discretionary spending (both defense and non-defense) with a mix of both spending cuts and tax increases. Further, the Senate budget does not envision major entitlement reform, nor does it entail significant changes to student aid programs. Of interest to the CSU, the Senate budget does contain a provision that could allow for a delay or replacement of the interest rate increase scheduled to take effect later this year with respect to subsidized student loans.

With such significant differences, it is not expected that the House and Senate will reconcile their budgets anytime soon. The vast gulf in spending approaches between the two bodies may also stall the appropriations process for FY 2014. However, some are hopeful that the two different budget plans could help lead to some sort of larger bargain in the context of increasing the nation’s debt ceiling, which must happen in mid-May. At a minimum, it seems likely that the appropriations process will force the House somewhat closer to the Senate’s spending levels. As one senior House member is fond of saying, “a budget resolution is like a new year’s resolution. Every year you make one, and you break it a month later.”

On March 21 the Congress passed and sent to the president HR 933, belatedly finalizing government spending allocations for fiscal year 2013 (FY13), which began last October 1. The measure averts a government shutdown and incorporates the once “unthinkable” sequester, an across-the-board cut of over 5% to most non-defense discretionary programs for FY13, and over 8% for defense discretionary programs. HR 933 is a hybrid that includes a “continuing resolution” for seven of the usual twelve annual appropriations bills, meaning it for the most part replicates funding levels from last year (FY12) before applying the across-the-board cut. The legislation contains updated appropriations levels for the other five bills (Agriculture; Commerce, Justice, Science; Defense; Homeland Security; and Military Construction, Veterans Affairs), but all of them are also subject to the sequester.

Because most higher education-related programs are forward funded, the full impact of these cuts will not be felt by students and institutions until the new academic year that begins this fall. While details of how the cuts will be allocated remain to be worked out, there will certainly be harm across the CSU, which anticipates losses exceeding $20 million in just this fiscal year. Although the Pell Grant program is exempt from sequestration, other essential student financial aid programs are not. At the CSU, Supplemental Educational Opportunity Grants (SEOG) and Work-Study will lose roughly $1.5 million, which equates to awards for more than 1400 students. TRIO and GEAR UP, vital K-12 pipeline programs, will be cut a combined $2.1 million, curtailing services to approximately 3300 students. Cuts to critical Department of Education Title III and Title V (e.g., Hispanic-serving and Strengthening Institutions) programs that assist first generation and under-represented minority students could see a reduction of half a million dollars across the CSU. Most research programs – in agencies like USDA, Department of Energy, the Defense department, to name a few – also face the sequester. HR 933 did slightly diminish the blow to the National Science Foundation (NSF) and National Institutes of Health (NIH) but the net result will still be fewer or smaller grants for their programs too. 

The Senate added a couple of last minute higher education-related amendments to HR 933. One precludes the Department of Defense from halting the Tuition Assistance Programs that support servicemember education, while the other limited the ability of the NSF to make grants for political science research.

These cuts come on top of severe cuts to many education programs adopted in 2011-12, which included the elimination of numerous programs, such as the “year round” Pell Grant program, plus cuts to many others (e.g., reductions to benefits in student loan programs which increased the cost of borrowing for many). Future prospects for CSU priority programs look grim absent a much broader political bargain that includes entitlement and tax reform. Otherwise, stringent caps on discretionary spending mandated by the Budget Control Act of 2011, a complicated package to temporarily raise the nation’s debt limit and reduce the federal deficit, will force student aid programs like the Pell Grant to compete for reduced funding with cancer research, job training and other labor, health and education programs in the next fiscal year and beyond.

On March 6, a delegation of  CSU officials led by new Chancellor Timothy P. White promoted system priorities for 2013 in Washington, DC.  In calling for maintaining federal higher education investments in human capital through student aid and in problem-solving research, CSU representatives highlighted the remarkable value provided by the system in terms of return on federal dollars. CSU advocates also outlined ongoing innovation efforts, including the use of online and other technology-assisted learning and resources, to improve student accessibility and outcomes.  The CSU group engaged in a discussion with House Majority Whip Kevin McCarthy (R-Bakersfield), an alumnus of CSU Bakersfield. McCarthy noted that recent cuts had shrunk discretionary programs about as far as they could be and suggested that entitlement and tax reforms were the better approach going forward; he also called for retaining any short-term savings in the Pell Grant program for future years, when the program is expected to run a deficit.  Chancellor White met with members of the Calfornia Congressional delegation on both sides of the aisle, and taped an episode of the television program Higher Education Today, where he discussed the role and future of the CSU system.

As the 113th Congress was sworn in earlier this month, redistricting, coupled with the new “top two” primary system, brought about the most significant changes to California’s 53 member House delegation in 20 years. 14 new representatives took office. Overall, the delegation got bluer, as Democrats added 4 seats to bring their total to 38. The group is also much greener, in that the 14 departing members averaged over 20 years in Congressional experience, including such veterans as Pete Stark (40 years), Jerry Lewis (34 years), David Dreier (32 years) and Howard Berman (30 years). Rep. Zoe Lofgren (D-San Jose) remains chair of the Democratic caucus, while Rep. Ken Calvert (R-Corona) has taken over for Dreier as leader of the California Republican group. The changes also mean that several CSU campuses have new local representatives. Two new CSU alumni joined the delegation: Rep. Paul Cook (R-Yucca Valley) has an MPA from CSU San Bernardino, while Rep. Doug LaMalfa (R-Richvale) earned his BS at Cal Poly San Luis Obispo.

Leadership and committee assignments reflect the delegation’s loss of seniority and heavy minority-party status in the House. Still, Californians figure in a number of prominent positions. Rep. Kevin McCarthy (R-Bakersfield) continues as Majority Whip, Rep. Buck McKeon (R-Tujunga) remains chair of the Armed Services committee, and Rep. Ed Royce (R-Fullerton) is the new chair of Foreign Affairs. Rep. Nancy Pelosi was re-elected as Minority Leader, while Rep. George Miller (D-Martinez) stays on as the Ranking Minority member of the House Education committee.