FY2017 Budget Overview: Numbers to Watch

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By Dom Ruscio, Partner

(Note: This is the first in a series of blogs on the president’s fiscal year 2016 budget request to Congress. In the days and weeks ahead, CRD Associates will be posting more detailed analyses of selected budget topics.)

As hearty New Hampshire voters were shouldering their way to the voting booth, President Obama on February 9 unveiled his eighth and final budget. The $4 trillion-plus blueprint contains a mix of new and recycled proposals on everything from curing cancer to taxing oil transactions.

A few things to note up front. First, although pundits and politicians deem it fashionable to call the president’s budget—any president’s budget—dead-on-arrival, the fact is that thousands of line items in the proposal will make their way into law.

Second, as with any budget, watch out for gimmicks!

Third, this year’s budget playbook is bipartisan. Sort of. It’s filled with ideas sure to appeal to Democrats who want to tout a progressive agenda to voters as well as Republicans looking for campaign fodder to take control of the White House.

Politics aside, what’s different this year is a worsening fiscal climate.

This year’s budget proposal comes at the end of an era of declining deficits. For the first time since the great recession of 2009, the federal budget deficit as a share of the economy will rise, according to the newest projections from the Congressional Budget Office. CBO estimates that the deficit will balloon to $544 billion, up $105 billion from last year, in large part because of a $680 billion tax cut package and spending increases enacted in December.

Following are selected highlights from the budget proposal.

Defense: Opening Bid on Military Spending

The FY2017 budget proposal for the Pentagon totals $582.7 billion and adheres to the spending agreement struck last fall between the president and congressional lawmakers. The defense proposal consists of two major pieces: $524 billion for the so-called base budget, which is capped by law; and another $59 billion for war accounts.

The total amount of the request is approximately $2 billion more than the current level of spending, well below that is necessary to keep pace with inflation. But Congress is expected to address that shortfall by adding billions of dollars to the war account.

Key elements of the DoD budget include a quadrupling, to $3.4 billion, of proposed spending on military equipment, training and a continuous U.S. troop presence in Europe. Also featured is a doubling, to $7.5 billion, of money dedicated to fighting ISIS, and $1.8 billion for the purchase of over 45,000 satellite-guided smart bombs and laser-guided rockets.

The proposal would trim previously planned procurements of some weapons, such as Air Force F-35 fighter jets, but generally would keep on track or boost spending for modernizing warplanes, surface ships and subs, refueling tanker aircraft and Army vehicles.

Education: Support for Early Learning, Higher Education and Lower Taxes

The administration is proposing $69.4 billion in discretionary spending for the Education Department, an increase of roughly $1 billion above the current fiscal year. In addition to laying out a blueprint to help states and local governments take the lead in early learning, the budget also proposes to make higher education more affordable and boost oversight of colleges and universities.

The president’s budget proposes $15.4 billion, a $450 million increase over the amount appropriated in FY2016, for Title I education grants, the department’s largest K-12 grant program. It also includes $350 million for Preschool Development Grants, an increase of $100 million above the 2016 enacted level. Head Start would receive $9.6 billion, an increase of $434 million over the 2016 enacted level. In addition, the budget includes $500 million for Student Support and Academic Enrichment Grants, which provides funds for states and school districts to support student achievement, including programs to expand access to science and math courses or boosting the use of technology in the classroom. The administration’s budget also includes a "Computer Science for All" proposal, including $4 billion in mandatory funding over three years for states to increase access to K-12 computer science and other science, technology, engineering and math coursework. 

For postsecondary education, the budget calls for improved access to college by simplifying, consolidating and better targeting higher education tax benefits. For example, the administration is seeking to combine the Lifetime Learning Credit with the American Opportunity Tax Credit, which was first enacted as part of a stimulus program and made permanent in December. The president's budget would also eliminate tax on student loan debt forgiveness, while repealing the complicated student loan interest deduction for new borrowers. The Pell Grant program, which relies on both discretionary and mandatory funding, would see an increase under the budget. Though the maximum grant award for students would receive only a small boost of $20, from $5,915 to $5,935, the administration is proposing an additional $2 billion for changes to encourage students to complete their degrees. The proposed changes would allow students to receive the grant year-round and give a $300 bonus award to students who take at least 15 credits a semester.

Energy: Clean Energy Research Highlighted

Clean energy R&D gets a $600 million boost in the president’s $32.5 billion budget request for the Department of Energy, an area the president has highlighted as a way to promote the US as a global leader in the fight against climate change.

Days before the budget was released, the White House previewed its proposed plan to double clean energy funding by 2021 under the Mission Innovation banner, an international program from leading carbon emitting nations to boost R&D spending.

DOE’s fiscal 2017 budget request includes $2.9 billion for the Office of Energy Efficiency and Renewable Energy, an $800 million increase compared to FY2016. In addition, the budget includes $1.3 billion to support “game-changing investments in clean transportation infrastructure and technology as part of the 21st Century Clean Transportation Plan.” DOE also included a proposal for $4 billion in loan guarantee authority to promote projects that reduce greenhouse gas emissions.

The Office of Science would receive $5.6 billion, an increase of about $200 million compared to 2016 levels. DOE would allocate $350 million in new appropriations to the politically popular Advanced Research Projects Agency – Energy (ARPA-E), about a $60 million increase from 2016 levels, and the department also included an additional $150 million for the program in mandatory spending.

Health: Cancer 'Moonshot' Drives Funding Increase

Overall, the president is seeking $82.8 billion in discretionary funding for the Department of Health and Human Services in FY2017 – a slight decrease from his $83.8 billion request the previous year. Administration officials said cuts in discretionary funding were used to offset some of the mandatory funding requests.

The president’s budget proposes $33.1 billion for NIH, or $1 billion more than the FY2016 funding level for the agency. (A bipartisan favorite of Congress, NIH last year received an historic $2 billion funding boost in the omnibus spending bill.)

The administration said the funding bump would provide about 10,000 new grants in areas including brain research and precision medicine. The National Cancer Institute would see a 13 percent increase, to $5.9 billion, to help fund the "moonshot" initiative to cure cancer that is being spearheaded by Vice President Biden.

But while Democratic lawmakers applauded the proposal, some research advocates were disappointed with decreases in other areas of the research budget, underscoring the challenge facing appropriators as different disease and interest groups compete for funding.

The Centers for Disease Control and Prevention would receive a four percent decrease, to $6.9 billion. The agency’s 2016 enacted level was $7.2 billion.

The administration announced Monday that it is making a separate FY2016 supplemental request for $1.8 billion in emergency funds to combat the spread of the Zika virus, with the lion’s share going to HHS. 

In response to concerns over opioid abuse, the budget would direct $1 billion in new mandatory funding over two years to enhance treatment, prevention and recovery efforts. It provides an extra $559 million across HHS to expand access to medication-assisted treatment and anti-overdose drugs such as naloxone. A portion of the funding would be funneled towards rural areas, where rates of opioid abuse are particularly high, according to an agency fact sheet.

Officials also touted $500 million in mandatory spending for a two-year initiative to enhance mental health services, citing statistics showing that less than half of children and adults with a diagnosable mental health illness receive the treatment they need.

Homeland: Flat Funding in the Face of Growing Threats

The president’s budget for the Department of Homeland Security would essentially hold the agency’s spending level flat in the upcoming fiscal year. The budget request would set aside $47.3 billion in discretionary funding for DHS, including $6.7 billion for disaster relief.

In its fiscal 2017 proposal, the White House’s request would provide $7 billion for salaries and benefits for 21,070 Border Patrol agents and 23,821 CBP officers. It would also support 2,070 new officers through an increase in user fees. The proposal also would set aside $197.5 million to keep up inspection and enforcement efforts abroad such as the Immigration Advisory program, which aims to prevent high-risk travelers from getting on U.S.-bound flights. Another $353 million is tabbed for acquiring and sustaining “technology and tactical infrastructure” along the country’s borders, while $529 million is set aside for CBP intelligence activities, including analytic support to agents in the field.

With regards to terrorism and transportation security, the budget proposal would fund the Transportation Security Administration to the tune of $5.1 billion. DHS said the administration’s budget proposal also would bolster efforts to counter violent extremism (CVE) through better community partnerships. Those efforts include the newly created interagency task force on CVE as well as the Office of Community Partnerships, which DHS said “will strengthen the interface between the federal government, community organizations, and local officials.”

Cybersecurity has become an increasingly public concern, particularly following the massive breach of the Office of Personnel Management’s network disclosed last June. That hack, which disclosed the records of more than 22 million current and former federal employees, embarrassed the administration and infuriated members of Congress and the public. The White House’s proposal addresses cybersecurity concerns, in part by requesting $471 million for the National Cybersecurity Protection System to help maintain the EINSTEIN program to protect government networks against online threats.

Those requests are just a sliver of what amounts to a White House proposal for $19 billion overall in federal funding for cybersecurity in fiscal 2017, which it says would be an increase of 35 percent over fiscal 2016 levels.

Housing: Reforms Sought for FHA, Rental Programs

The administration’s $48.9 billion budget for the Department of Housing and Urban Development calls for a major overhaul of the agency’s core rental assistance programs, as it also seeks $11 billion over a decade to combat family homelessness. Major changes are also being proposed to give the Federal Housing Administration new tools to reduce losses to its Mutual Mortgage Insurance fund. 

The president’s fiscal 2017 request also would provide nearly $2.7 billion for a range of activities and programs to assist homeless people. The administration is proposing a $300 million mandatory appropriation for a new Local Housing Policy Grants program. The budget also requests $950 million for the HOME Investment Partnerships Program, which offers grants to states and local governments to increase affordable housing and to expand homeownership for low-income Americans. 

The Housing Trust Fund, which provides grants to states to increase affordable rental housing and to help expand homeownership, is estimated to have available $170 million in 2016 for those grants. The fund, based on profits from government-sponsored mortgage giants Fannie Mae and Freddie Mac, had been suspended before it got started amid the housing crisis in 2008. Liberal groups and lawmakers pressed the administration to fund it, while Republicans on the Hill mostly opposed the move.

Justice: Emphasis on Gun Control, Violent Crime, FBI Building

The president’s budget would maintain the Justice Department’s funding essentially flat in the upcoming fiscal year, with emphasis on enforcing gun policies, addressing violent crime and policing in the US, and building a new FBI headquarters.

The budget proposes $29 billion for FY2017, a decrease of just under one percent from the FY2016 level of $29.1 billion.

The budget seeks $500 million per year for what the administration called a “21st Century Justice Initiative” over the next 10 years, a total investment of $5 billion for the program. The initiative would aim to reduce violent crime, reversing policies that “have led to unnecessarily long sentences and unnecessary incarceration,” and building community trust in police. The budget also seeks $97 million in fiscal 2017 to expand training and oversight for the nation’s local law enforcement to build and sustain that trust. The proposal includes an increase in the use of body cameras for officers. 

The White House budget requests 230 new positions to enhance criminal background checks for gun purchases and expand the system to a “round-the-clock” service. The administration previously said that request would be for $35 million as part of the administration’s recent executive actions on gun control that seeks to expand background checks of buyers.

The budget also includes a $1.4 billion request to build new headquarters for the Federal Bureau of Investigation, of which $646 million would be from the FBI construction account, the White House documents state. That funding level, along with $390 million secured in the fiscal 2016 appropriations bill (PL 114-113) and sale of the FBI’s current headquarters, would fully fund construction of a building to consolidate the agency’s workers.

The White House budget request includes $24 million to support efforts to divert inmates with serious mental health illness to alternative forms of housing. The president announced that effort in January along with a higher-profile move — ending the practice of solitary confinement for juveniles — that is included in a leading sentencing reform bill that has bipartisan support in the Senate.

The budget includes $208 million to combat opioid misuse, which is $33 million or 16 percent above the 2016 enacted level, according to a Justice Department fact sheet. 

Labor: Spotlight on Job Training, Apprenticeships

Job training for youth is a high priority in the president’s FY2017 budget for the Labor Department, with nearly $6 billion in new funding requested for employment training, apprenticeship programs and partnerships with private companies.

The budget request would provide $12.8 billion in discretionary budget authority for the department, which includes funding for the federal government's workforce initiatives as well as agencies such as the Bureau of Labor Statistics (BLS) and the Occupational Safety and Health Administration. 

While the unemployment rate is at an eight-year low of 4.9 percent, youth unemployment stands much higher. Last summer, the jobless rate for 16- to 24-year-olds stood at 12.2 percent, according to BLS. The budget includes $5.5 billion in new mandatory funding to create a pathway to the workforce for youths and young adults. The White House proposal would provide $2 billion over five years for a mandatory Apprenticeship Training Fund to assist employers and states in creating programs. Within this program, $200 million would be dedicated to youth apprenticeships and pre-apprenticeship programs in schools. The budget blueprint also would provide $1.8 billion for Job Corps, an increase of $66 million, for a program that provides training for 50,000 youth each year.

The budget plan for Labor also includes $2.2 billion for a mandatory proposal to support states interested in launching paid leave programs, following similar initiatives in California, New Jersey and Rhode Island. In the federal paid leave program, competitive grants would cover startup and ongoing administrative costs for states as well as 50 percent of benefit costs for three years. The grants could be used to cover family, parental, and medical leave programs that provide up to 12 weeks of benefits.

The administration seeks $595 million for the Occupational Safety and Health Administration, including $143 million for compliance activities, an increase of $6 million over what was enacted for fiscal 2016, according to the Labor Department's budget summary. The request also includes an additional $4 million to bolster enforcement of more than 20 whistleblower laws that protect workers from discrimination when they report unlawful practices.

In an effort to help service members’ transition to the civilian workforce, the budget includes $286 million for the Veterans’ Employment and Training Service (VETS). That includes an additional $2 million over current funding levels for the Homeless Veterans’ Reintegration Program to bring the program to its full authorized level.

Veterans: Boost Sought for Growing Number of Vets

The Department of Veterans Affairs budget seeks $78.7 billion in discretionary spending, or 4.9 percent more than current funding levels, as the ranks of veterans returning from the current wars in Iraq and Afghanistan swell.

The agency also seeks $102.5 billion in mandatory spending for a total of $181.2 billion, compared with $162.7 billion in FY2016.

The agency estimates it will treat seven million patients in fiscal 2017 and 7.1 million in fiscal 2018. Veterans who served in the ongoing operations in Iraq and Afghanistan are estimated to reach 922,664 in fiscal 2017 and 995,196 the following year, the agency said.

Demand for mental health services, ranging from primary care visits to more intensive treatments, is expected to climb about 3.6 percent to nearly 14 million encounters in 2017, the agency said. The 2017 budget includes $7 billion to expand mental-health care services, including treatments for post-traumatic stress disorder or PTSD and military sexual trauma, the agency said.

To continue addressing homelessness among veterans, the agency is seeking $1.6 billion. Between 2010 and 2015 veterans going homeless on a single night declined 36 percent, the agency said in its budget proposal. In fiscal year 2015 alone the agency arranged permanent housing for 65,000 veterans and more than 36,000 veterans and their families were saved from becoming homeless, it said.

The fiscal 2017 budget also includes a request for $663 million that will fund cutting edge medical research, including collecting genetic samples and health information from 1 million vets over the next five years. The new medical information will help improve the quality of care and prevention, the agency said.

Lisa Ellington

Big Thinkery, LLC, 1011 Kenilworth Court Northwest, Concord, NC, 28027