Thursday, February 11, 2016 The CSAC Bulletin
Federal Issues
White House Releases Fiscal Year 2017 Budget

On February 9, the Obama administration delivered its eighth and final budget request to Congress. Release of the tax and spending blueprint represents the first official step in the budget and appropriations process for the fiscal year that begins October 1. In the coming weeks, White House officials will be appearing before various congressional committees to discuss – and in some cases, defend – the administration's fiscal policies.

As expected, the president's request received a chilly reception from GOP congressional leaders. With Republicans squarely in control of both chambers of Congress, very little of the administration's plan is expected to become law. However, there does appear to be bipartisan support for a few of the White House's proposals, including accelerating cancer research, combating prescription drug abuse, and expanding the low-income tax credit. For the most part, the budget will continue to serve as a benchmark for congressional Democrats as they push their party's federal spending priorities ahead of the November elections.

All told, the administration is seeking roughly $4.1 trillion in spending, while assuming same-year revenues of $3.6 trillion. The White House estimates that its budget policies would reduce the deficit by $2.9 trillion over the next ten years. This would be achieved through a combination of budget cuts, health care savings, and tax code adjustments. The spending plan also assumes that adoption of the administration's policies on immigration reform would help boost economic growth.

It should be noted that the budget blueprint reflects the fiscal year 2017 discretionary spending caps agreed to last fall. In subsequent years, and consistent with previous spending plans submitted to Congress, the president has proposed eliminating the post-sequester caps established under the 2011 Budget Control Act (BCA, PL 112-25).

With the top-line budget numbers seemingly in place for fiscal year 2017, House and Senate GOP leaders are optimistic that they will be able to work through the regular appropriations process, rather than rely on stopgap funding measures and massive omnibus packages. However, fiscal hawks are already clamoring for a return to the previous, lower spending limits. Consequently, this year may prove to be just as difficult for Congress to advance individual spending bills. For that matter, the last time all twelve appropriations bills were completed prior to the start of the new fiscal year was in 1994.

Select Highlights of the Obama Administration's Fiscal Year 2017 Budget

TRANSPORTATION
The administration’s budget would fully support the funding levels authorized under the recently enacted five-year surface transportation reauthorization law (the FAST Act). Accordingly, for fiscal year 2017, the budget includes $44 billion for highway and bridge programs and nearly $10 billion for public transit systems.

The budget also recommends $1.25 billion for Transportation Investment Generating Economic Recovery (TIGER) grants, a proposed increase of $750 million over current spending. The popular program offers competitive grant opportunities to states and localities for road, rail, transit, and port projects.

Additionally, the White House budget lays out an ambitious plan to build a “21st Century Clean Transportation System.” Under the proposal, investment in clean transportation infrastructure and technology – including public transit and rail, as well as electric cars and other alternative vehicles – would be increased by roughly 50 percent. The president would pay for the increased investment by levying a $10-a-barrel oil fee that, according to opponents of the plan, would be passed along to consumers.

PAYMENTS-IN-LIEU-OF-TAXES
For fiscal year 2017, the president’s budget proposes a one-year extension of mandatory Payments-in-lieu-of-Taxes (PILT) funding at the full entitlement amount. If fully funded, the program is expected to total $480 million, which is approximately $28 million more than the fiscal year 2016 enacted level of $452 million. The budget acknowledges that a sustainable, long-term funding solution for PILT must be developed.

SECURE RURAL SCHOOLS
The budget includes a five-year reauthorization of the Secure Rural Schools (SRS) program, with funding provided through mandatory appropriations. The SRS program expired at the end of fiscal year 2015, and final payments will be distributed to counties in the coming weeks. Unless the program is extended or reauthorized, these will be the final payments. In the absence of such funding, the law reverts to the Twenty-Five Percent Fund Act of 1908, which requires that the federal government share with states 25 percent of the receipts generated on national forests. Such a scenario would result in a substantial reduction in payments to California's forested counties.

STATE CRIMINAL ALIEN ASSISTANCE PROGRAM
For the fourth year in a row, the president's budget does not include funding for the State Criminal Alien Assistance Program (SCAAP). Congress appropriated $210 million for SCAAP in fiscal year 2016, which was $25 million more than the previously enacted level. Nearly all of California's counties receive SCAAP funding to partially offset the cost of housing undocumented criminals in local jails.

DROUGHT RESPONSE
The president's budget proposes to increase funding for drought response activities, including the Department of the Interior's WaterSMART initiative, which is designed to enhance water supplies and help identify adaptive measures to address the impacts of climate change. Specifically, the budget includes $61.5 million for water sustainability efforts, an increase of $3.4 million. The budget also includes $37.1 million for the U.S. Geological Survey's WaterSMART Availability and Use Assessment initiative, an $18.4 million increase.

INDIAN AFFAIRS
The White House budget once again includes language that would overturn the U.S. Supreme Court's Carcieri v. Salazar decision. In Carcieri, the Court ruled that the secretary of the Interior's trust land acquisition authority is limited to those tribes that were under federal jurisdiction at the time of the passage of the Indian Reorganization Act of 1934. The president's budget does not propose any reforms to the Bureau of Indian Affairs' (BIA) land-into-trust process.

COUNTY GEOTHERMAL REVENUES
The president’s budget again calls for the elimination of the 25 percent county share of geothermal revenues and proposes to return to the 50/50 Federal-State revenue sharing arrangement. Pursuant to the 2005 Energy Policy Act, certain counties are eligible for revenue sharing in recognition of the burden that geothermal production places on those counties.

WILDLAND FIRE SUPPRESSION DISASTER CAP ADJUSTMENT
The administration's budget calls for a new funding framework for wildland fire suppression, which would allow certain wildfires to be treated as natural disasters and enable emergency funding resources to be used to suppress such fires. Specifically, the budget proposes to cover 70 percent of the 10-year suppression average ($276.3 million). However, the top one percent of fires, which incur 30 percent of the costs, would be paid for through a budget cap adjustment.

TAX-EXEMPT STATUS OF MUNICIPAL BONDS
President Obama is proposing to cap the value of the tax exemption for interest paid by municipal bonds. Under the budget, the value of tax benefits would be limited for the top two percent of earners to 28 percent from the current 35 percent. This is the sixth time that the Obama administration has suggested capping the value of the tax exemption for high-income earners. The independent, bipartisan tax-reform group, known as Bowles-Simpson, also proposed limiting the tax break.

CHILD WELFARE REFORM
The administration’s budget includes new child welfare initiatives designed to improve permanency services so children are less likely to need foster care placements. Specifically, the administration has requested $616 million over 10 years in federal matching funds for permanency and post-permanency services included as part of a child’s case plan. Most of the services funded would need to be evidence-based or evidence-informed.

The White House budget also includes $1.8 billion over 10 years to ensure child welfare caseworkers and other professionals have the right skills to best meet the needs of children, youth, and families in the child welfare system. The funding would enable individuals to earn degrees in exchange for a commitment to work for the child welfare agency for a time commensurate to the length of the education benefits.

For the third year in a row, the administration also is requesting funding to support a demonstration project with the Centers for Medicare & Medicaid Services (CMS) and child welfare agencies to address the over-prescription of psychotropic medications to children in foster care. The proposal includes $250 million in mandatory funding over five years for child welfare, paired with $500 million over five years in new performance-based incentive funds in CMS to better track and lessen psychotropic drug use.

CADILLAC EXCISE TAX
Responding to a bipartisan congressional effort to repeal the excise tax on higher cost health plans, the Obama administration countered by proposing to raise the threshold at which plans would be hit with the 40 percent tax. Late last year, Congress passed a two year delay, to 2020, in the effective date of the tax.

The current thresholds in the Affordable Care Act are $10,200 for individuals and $27,500 for families. The budget proposes to account for regional differences in the price of plans by allowing employers to offer more generous coverage in states at the “gold” level coverage without being subject to the tax. Gold-level plans are the second-most generous plans available on the health exchanges. Fewer employers would then be charged with the 40 percent tax.