PRESIDENT BUSH'S 2002 BUDGET PROPOSAL
(from Maine Townsman, March 2001)

In his first address to Congress, touting his proposed tax cuts as a stimulant for a slumping economy, President George W. Bush unveiled a broad fiscal policy that would direct federal resources toward the administration's foremost priorities of education, healthcare, defense, tax cuts and other reform measures. 

The President's health care and education proposals address some of NLC's Investing in Communities priorities by proposing focused programs and funding increases for federal investments in important human resources. While the Republicans and Democrats argue over the size and focus of the tax cuts, cities should scrutinize the tax and budget proposals of both parties to determine their significance for the funding and survival of federal programs cities depend on to help them provide law enforcement, youth employment and job training, and emergency assistance after catastrophic natural disasters.

President Bush and his budget blueprint avoid any mention of the significant cuts, many to city programs, that will have to be made under this new budget proposal to accommodate the $26 billion budget increase for 2002, and shifts in funding away from municipal priorities. There is little doubt that significant cuts will be necessary to accommodate the President's proposed $1.6 trillion tax cut along with $2 trillion in deficit reduction over the next ten years. Ten agencies have been targeted for budget cuts totaling almost $8 billion. 

The Bush proposal would load much of the pain from the tax cuts and discretionary program reductions in the out years (2005- 2011) so we will have to await the President's full budget proposal in early April to get a clear picture of what this could mean for cities.

"My budget is reasonable, and it is responsible. It meets our obligations, and funds our growing needs," President Bush stated last week before outlining some of his specific goals such as testing the basic reading and math skills of elementary students each year, starting a new means-tested prescription drug benefit program for Medicare recipients, protecting Social Security, increasing funding for medical research, ending racial profiling and funding the work of faith- and community-based organizations for drug treatment, gang prevention, after-school care and other social services. 

"We increase spending next year for Social Security and Medicare and other entitlement programs by $81 billion," Bush remarked. "We have increased spending for discretionary programs by a very responsible 4 percent [which is] above the rate of inflation. My plan pays down an unprecedented amount of our national debt. And then when money is still left over, my plan returns it to the people who earned it in the first place."

Budget Priorities
The key priorities outlined in the President's budget, titled "A Guide to the Blueprint for New Beginnings: A Responsible Budget for America's Priorities," include:

o enacting a $1.6 trillion broad-based tax cut to reduce the income tax rates of the current five tax brackets, double the child tax credit to $1,000 per child, repeal the estate tax, permanently extend the tax credit for research and development, reduce the tax penalty on married couples, and allow charitable deductions for individuals who do not itemize on their taxes; 

o increasing discretionary spending by four percent for fiscal year 2002, at a total of $660.7 billion. (This is a $26 billion increase over 2001 and most would go to new programs, defense, and reallocation of some current program funding away from cities and towns.)

o paying down the $3.4 trillion national debt by $2 trillion over the next 10 years;

o setting aside, from the $5.6 trillion surplus, $1.0 trillion for the president's proposed Additional Needs and Contingency Reserve to cover Medicare modernization and unforeseen emergencies;

o reserving all Medicare payments for Medicare;

o increasing funding for the National Institutes of Health by $2.8 billion;

o creating a New Freedom Initiative to assist Americans with disabilities funded at $314 million;

o increasing benefits for the armed forces and other defense needs by $14.2 billion; and

o increasing funding for security at U.S. Embassies by $1.2 billion.

 

The blueprint recognizes the possible need for new resources in the future suggests these might include:

o additional defense funding if restructuring is required and significant new federal funding is needed;

o natural disasters; and

o buy back of non-matured debt.

Additional Savings
Most new Administrations attempt to determine how to best achieve cost-savings and the Bush Administration is no exception. The President has said the Administration will examine existing programs, seeking ways to redirect resources to their most productive end. The blueprint suggests freeing resources to address emerging needs by:

o Flattening the federal bureaucratic hierarchy by reducing the number of managerial layers at the top;
o Moving the government toward performance-based contracting to increase the efficiency of federal contract dollars with the potential of yielding $70 billion over 10 years;
o Employing the Federal Activities Inventory Reform Act to open up government functions to market-based competition generating as much as $50 billion in saving over 10 years;
o Reducing erroneous payments by federal agencies and
o Expanding electronic government, which has the potential for injecting greater competition and reducing transaction, costs. 

Fast Track Budget Process
Only one day after release of the budget blueprint, mark-ups of legislation germane to the President's budget and tax reform measures were already scheduled. The House Ways and Means Committee marked-up the Economic Growth and Tax Relief Act of 2001 on March 1. Hearings were also held last week where Treasury Secretary Paul O'Neill and other administration officials testified before the House Budget Committee. The Senate is reportedly holding off on its consideration of a tax bill until after a budget resolution is passed in April. 

Bush's E-Government Plan
Included in Bush's budget is funding for an e-government plan, which would start at $10 million and grow to $100 million over three years. It would build on the FirstGov portal, started by the Clinton administration, which gives access to information and forms issued across many agencies. The money would be used, in part, to help the government reduce paperwork through the promotion and use of digital signatures. 

The budget also proposes an increase of $56 million, or about 1 percent, for the $4.5 billion research budget of the National Science Foundation, which was increased almost $500 million between 2000 and 2001. The agency also would be required to hand $200 million of its funding over to states under a new program aimed at promoting math and science in elementary and secondary schools. 

In addition, the proposed budget would suspend the Commerce Department's $190 million advanced technology program, which funds a partnership between the agency and universities, companies, local governments and nonprofit groups in an effort to fund research in a broad range of fields including chemistry, electronics and information technologies. 

Bush's plan includes no mention of the $2.25 billion e-rate program, a subsidy funded by consumer long-distance telephone fees to help pay for Internet connections in schools and libraries. Bush officials have advocated abandoning the current program, under which schools apply directly for funds, in favor of simply having the Department of Education give block grants to states. 

An Office of Management and Budget official said the e-rate program was still under review and that any significant changes to it would require legislation. 

The 207-page budget plan from Bush, who took office only last month, lacks information about proposed changes in many programs and, unlike recent Clinton budgets, does not calculate total proposed spending on research and development. But with only a modest increase in overall discretionary spending and big increases already announced for defense and medical research spending, the high-tech community has been expecting cuts in its pet programs. 

On Capitol Hill, members of Congress already have complained about some of the rollbacks in high-tech funding and, ultimately, might balk at voting in favor of enacting the President's plan. 

Mitch Daniels, director of the Office of Management and Budget and the architect of the plan released Wednesday, said he saw substantial waste in previous spending on "so-called research programs." Many programs "have nothing to show for years and years of essentially subsidizing corporate research budgets," he added. 

The proposed Bush budget relies on two of the Clinton administration's favorite "revenue offsets" to raise more federal revenue without hiking taxes. It proposes raising $1 billion over five years by imposing a fee on TV stations that have not switched to digital broadcasting from analog. The broadcasting industry successfully has persuaded Congress not to adopt a so-called spectrum fee in previous years, and the Bush plan proposes moving unspecified spectrum auctions from 2002 and 2003 to later years, adding $7.5 billion to government coffers.

Social Security
President Bush has proposed setting aside $1 trillion over the next 10 years for Social Security reform. This could be used, according to the budget outline, to allow individuals to set aside a portion of their Social Security payroll taxes in personal retirement accounts. The accounts invested in private securities would earn higher returns than the Social Security trust fund and therefore reduce the need for a rapidly growing government outlay, according to the budget outline.

Under the reform plan, a Presidential Commission will be appointed this spring to develop a consensus hopefully by the end of the summer, according to news reports. 

Democratic Response to Budget
In response to President Bush's budget plan, Senate Minority Leader Tom Daschle (D-S.D.) and House Minority Leader Richard Gephardt (D-MO) stated that the proposal "leaves no money for anything except tax cuts."

"It will consume nearly all of the surplus - at the expense of prescription drug coverage, education, defense, and other critical priorities," Senator Daschle asserted. Democratic leaders have repeatedly noted that the projected surplus of $5.6 trillion is only an estimate that may or may not materialize.