March 29th, 2012
The House kicked off the FY 13 budget process on March 29 by passing, with no Democratic votes, a budget resolution authored by Budget Committee Chairman Paul Ryan (R-WI). Dubbed by Ryan “The Path to Prosperity,” the proposal would set total discretionary spending at $1.028 trillion for the fiscal year that begins on October 1, or $19 billion below the $1.047 trillion cap that had been set as part of last August’s budget deal. It would also avoid that deal’s broad array of across-the-board cuts to both non-defense and defense discretionary programs (”sequestration”), scheduled to take place in early January, eliminating the cuts to defense programs entirely and finding savings elsewhere. It proposes reducing mandatory spending by roughly $261 billion over 10 years, including via significant reductions in Medicare and nutrition program spending. The resolution further envisions a revenue neutral “simplification” of the federal tax code, which could have significant ramifications for many individual tax breaks, including those which favor education spending and philanthropic giving.
While non-binding, the Ryan budget report lists “assumptions” as to how authorizing and appropriations committees would reach their respective savings targets. Of particular interest to the CSU is guidance surrounding higher education programs. For example, the budget recommends a Pell maximum award of $5,550 (the same as the current year). It would eliminate automatic inflationary increases, such as the one scheduled for the upcoming award year (resulting in an increased maximum of $5,635). It would also make all Pell funding discretionary, which would place finding funding to maintain the current maximum grant in competition with other discretionary programs like cancer research and education programs for disadvantaged children. In order to maintain the current maximum grant, the budget recommends further Pell eligibility cuts, including elimination of grants for students enrolled less than half-time; a reduction in the amount of income that is assumed to be necessary for living expenses; a reduction in the amount a student can earn to automatically receive the maximum Pell award; a cap on the total income that a Pell recipient’s family can earn; and an elimination of Pell Grant program administration fees paid to institutions.
Other recommendations include elimination of the in-school interest subsidy on student loans for all undergraduate students and allowing the interest rates on such loans to increase from 3.4 percent to 6.8 percent; elimination of the new administration-backed expansion to the income-based loan repayment program; elimination of mandatory funding for College Access Challenge Grants and Community College Trade Adjustment Act Grants; and the elimination of mandatory payments to loan servicers (placing all of these programs into competiton for funds with other discretionary programs). In addition, the Ryan budget recommends the elimination of federal funding for the Corporation for National and Community Service (AmeriCorps), the National Endowments for the Arts and Humanities, and the Institute of Museum and Library Services.
While the Ryan budget will not get beyond the House this year, it will further complicate an already difficult budget year by changing the way the costs of federal credit programs, such as student loans, are accounted for by the House. This new process, called “fair-value” accounting, would more closely incorporate market risk when assessing changes to federal lending programs, and would make changes to student loans such as those proposed by the administration appear more costly, which could complicate future efforts to offset anticipated shortfalls to the Pell Grant program. In addition, by adopting lower discretionary spending caps than those assumed by the Senate, the House budget will set up an end of the year showdown between House and Senate appropriators, who will be working from vastly different overall spending levels. In the words of Rep. David Price (D-NC), “It’s a formula for a great deal of confusion and chaos and yet another crisis.”
While the House narrowly adopted the Ryan budget, it is opposed by both the Senate and the White House. For its part, the Senate majority adopted the spending limits contained in last year’s budget deal, and the Office of Management and Budget (OMB) issued a strongly worded statement criticizing the House Republican proposal. Prior to adoption of the Ryan budget, the House rejected six alternative versions.