Highlights of the President’s FY14 Budget Request

April 11, 2013

The President’s FY14 Budget Request (PBR) proposes more spending and taxes, and makes a renewed effort to replace the sequester as part of a grand bargain with the GOP. The PBR proposes to use $1.76 trillion in deficit reduction over the next decade to replace the sequester, starting in FY14 and including $583 billion from new tax revenue and some $1 trillion in alternative spending cuts. Still, it would increase spending in 2014 by nearly $160 billion beyond what the Congressional Budget Office projected in February. Many of the president’s plans to cut spending would phase in toward the end of the 10-year budget window, effectively trading the pain of the sequester now for trims to entitlements later. Still, the deficit would drop to $744 billion, or 4.4 percent of GDP — and continue its downward trajectory to 2.8 percent of GDP in 2016 and 1.7 percent in 2023 if the economy continues to improve.

The most notable concession that the President made was the inclusion of “chained CPI”; a measure of inflation for cost-of-living adjustments for federal entitlement programs which would save $230 billion. Other savings include $400 billion in health savings that target waste and fraud in Medicare and $200 billion in reductions to farm subsidies and reforms to federal retirement benefits.

The budget also proposes to rebalance the tax code as a “down payment on comprehensive tax reform.” The plan would raise taxes by limiting the value of deductions for high-income earners to 28 cents on the dollar and implement the Buffet Rule which would require households with incomes over $1 million to pay at least 30 percent of their income (after charitable giving) in taxes. Together, those two provisions would reduce the deficit by $583 billion. The budget would also restore the estate tax to its 2009 levels, raising $71.7 billion over 10 years. As with past budgets, a portion of the proposed tax increases are offset by tax cuts, aimed generally at small businesses and low-income families.

The budget is a blueprint for the initiatives the President would fund if he was not constrained by Congress. Congress may use the budget as a starting point for appropriations, but also has the capacity to ignore Obama's suggestions and will likely change some of the levels of funding if it passes appropriations bills for FY14.

Sequestration is also introducing considerable uncertainty into this year’s budget process. The Continuing Resolution passed last month did not adhere to the budgetary caps of sequestration, as laid out in the Budget Control Act of 2011, and neither has the President’s FY14 budget request. Ignoring the reality of sequestration makes the budget somewhat meaningless, as many of these numbers will drop considerably unless Congress and the President pass legislation to undo sequestration.

Obama also is proposing various new domestic spending initiatives, and proposes to enact or expand a host of other domestic spending programs and tax credits, with higher subsidies for child care, an extra $50 billion for infrastructure, money for states to rehire teachers, assorted new tax cuts for small business and other priorities, many of which he has proposed before in his American Jobs Act or in previous budgets without success. The budget will also show a willingness to engage in tax reform that on the corporate side would be revenue-neutral and would lower rates, although if tax reform is not achieved the president still wants to close assorted loopholes, including those for carried interest, corporate jets, and oil companies.

The following are some relevant details from the PBR. Note that the President’s budget compares everything to FY12 – presumably because FY13 was not resolved in time to be incorporated into the PBR.

US DEPARTMENT OF EDUCATION

The PBR calls for $71.2 billion in discretionary funding for the Education Department, which is 4.3 percent, or $3.1 billion, more than both pre-sequester FY13 discretionary appropriations and FY12 discretionary appropriations. Of this amount, $22.8 billion alone is designed to fund the Pell Grant program and its maximum grant of $5,785 for the 2014-2015 award year. This continues to be the largest single discretionary program (not counting its additional mandatory funding) at the Department.

Other programs and initiatives of interest:

STEM

The request proposes several new STEM initiatives totaling $265 million, and a new authority modeled off the current ED Mathematics and Science Partnerships program. These STEM initiatives are described as part of a government-wide realignment that would consolidate or restructure 90 STEM-related programs across 11 agencies. The new initiatives include:

  • STEM Innovation Networks ($150 million) – competitive awards to institutions of higher education, nonprofits, and others to replicate evidence-based practices across a regional network of participating schools. Networks would be focused on utilizing other STEM assets in their region, including research facilities and other Federal STEM resources.
  • STEM Teacher Pathways ($80 million) – competitive grants aimed at producing 100,000 new STEM teachers over the next 10 years.
  • STEM Master Teacher Corps – recognizing and rewarding the nation’s most talented STEM teachers and building local and regional communities of practice.

Additionally, the request creates a new Effective Teaching and Learning program that would replace the existing Mathematics and Science Partnerships program and make awards to states or consortia of states and other entities to implement a comprehensive strategy for STEM instruction to students. High-need schools could be targeted for assistance through a 20 percent reservation of grant funds. This initiative has been part of the Administration’s ESEA reauthorization blueprint and has been in the budget the last few years.

RTT – College Affordability and Completion

The request calls for $1 billion for RTT for a college affordability and completion competition. The request would fund up to 10 states to carry out projects that focus on several reforms, including sustaining state fiscal support, removing barriers that prevent innovative methods of student learning and new degree pathways, enhancing transparency designed to improve consumer choice, and supporting transferring between institutions of higher education.

First in the World (i3 for higher education)

The request repeats the call for “First in the World,” an i3-like program with a higher education focus that was first proposed in the FY 2013 request. In the FY 2014 request, $260 million would support efforts targeted at college completion and creating validation systems identifying competencies necessary for high-need fields, as well as pay-for-success projects aimed at providers producing free degrees tied to these validation systems.

New Student Loan Interest Rate Structure and Expansion of Pay as You Earn

Interest rates on subsidized student loans are scheduled to rise from 3.4 percent to 6.8 percent in July of this year. Congress and the Administration delayed the increase in these rates for one year last July. To respond to this increase, the request calls for a variable interest rate structure for subsidized and unsubsidized Stafford loans and PLUS loans. The rate structure would setrates once a year and a loan would have a fixed rate for the life of the loan. There would be no cap on the interest rate, and the existing cap on consolidation loans of 8.25 percent would be eliminated. The interest rate structure would be based on the 10-year Treasury note with add- ons of:

  • 0.93 percent for subsidized Stafford loans;
  • 2.93 percent for unsubsidized Stafford loans; and
  • 3.93 percent for PLUS loans.

The rate structure is paired with an expansion of the Administration’s Pay as You Earn Plan. Under the request, anyone with any Federal loan (that isn’t in default) would be eligible. Previously, borrowers were only eligible for Pay as You Earn if they had no loans as of 2007 and had received a Direct Loan after 2011. Under the request, starting in July 2014, everyone with any Federal student loan balance would be allowed to participate in Pay as You Earn. Student loan payments would be capped at 10 percent of a borrower’s prior-year discretionary income and forgiveness of remaining loan balances would take place after 20 years.

Community College Initiative

The request includes a new initiative, also proposed in the FY 2013 request, jointly administered by ED and the Department of Labor to improve access to job training and increase community college partnerships with business. This initiative would be funded at $8 billion over three years.

Campus-Based Aid Changes

The request level funds the Supplemental Educational Opportunity Grant (SEOG) program and increases Work Study funding by $150 million compared to the FY 2012 enacted level. The Administration proposes to change the formula that allocates SEOG and Work Study funding to institutions of higher education (IHEs) in order to provide larger amounts to IHEs that hold down tuition and costs and graduate high numbers of Pell-eligible students. The Administration also proposes a new Perkins Loan program similar to its proposal in past budget requests. The existing Perkins Loan program is scheduled to expire in 2014. The request estimates that this new program will provide $8.5 billion in new loan volume annually. Loans would be serviced by ED and not colleges. The request claims this change would produce savings that would be used to maintain the funding in the Pell program and fund the maximum Pell Grant.

Pell

The budget request maintains a $22.8 billion discretionary level of funding, the same as the FY 2012 enacted level. The maximum Pell Grant is scheduled to increase to $5,785 for the 2014- 2015 award year. The Department projects that the request will provide 9.4 million students with Pell Grants. The request notes that the Pell program is expected to encounter funding deficits in future award years and makes two changes to student loan programs to provide savings to fund Pell. With these two changes the request states that the Pell program will be fully funded through the 2015-2016 award year. The first change is the creation of the new Perkins Loan program as described under the Campus-Based Aid Changes section above. The second is a change in how guaranty agencies (GAs) are compensated when rehabilitating a loan. Under the request, if a GA is unable to find a private buyer for a rehabilitated loan, it would be required to assign it to ED. In addition, the request calls for a reduction in the fee that GAs can charge borrowers who have rehabilitated their loans from 18.5 percent to 16 percent. The request estimates this will save $3.7 billion over 10 years and calls for these savings to be used for future Pell funding shortfalls.

Presidential Teaching Fellows Program

The TEACH Grant program is proposed to be replaced in the budget request by a Presidential Teaching Fellows program (PTF).This proposal was first made in the FY 2012 budget request. PTF, funded with mandatory spending, would provide grants to states to award scholarships of up to $10,000 to individuals who attend high-performing teacher preparation programs and commit to teaching in a high-need school.

HEA Program Evaluation and Dual Enrollment Demonstration

The budget request provides $67.6 million to support the collection and analysis of performance data and evaluation of Higher Education Act programs that don’t have funding set-asides for this purpose. In addition, $32 million of this amount would be reserved for demonstration and evaluation of dual enrollment programs with $10 million in additional funding from Career and Technical Education National programs at the Department.

HEA-Title VI and Fulbright-Hays

The budget requests an increase of $6.9 million for Title VI, a 10.4 percent increase over the FY12 level. Fulbright-Hays would remain at the FY12 funding level.

Institute for Educational Sciences (IES)

The budget request increases research, development, and dissemination funding for IES by $12.5 million, to $202.3 million total. This is intended to permit IES to make new awards and support a new program focused on understanding strategies intended to support continuous improvement of educational systems. Special education research would receive an increase of $10 million compared to FY 2012. NCES would receive $14 million in additional funding to support state participation in the Program for International Student Assessment (PISA) and to begin collecting certain National Postsecondary Student Aid Survey data every two years.

Regional Educational Laboratories would maintain level funding of $57.4 million, compared to FY 2012. The funding is intended to support the third year of the contracts with the Labs.

Statewide Data Systems would receive an additional $47 million for a total of $85 billion. The request states that up to $25 million would be used for awards to public and private agencies to support activities to improve data coordination, quality, and use. $36 million of the $47 million increase would be used for new grants emphasizing early childhood data linkages and better use of data in analysis and policymaking, and $10 million would be focused on improving information on students as they move from high school the college and the workforce.

HEALTH AND HUMAN SERVICES (HHS)

Overall, the PBR calls for $80.1 billion in discretionary funding for the Department of Health and Human Services. That’s $3.9 billion more than the fiscal 2012 enacted level. Obama proposes increasing the budget at the National Institutes of Health (NIH) by $472 million in FY14.

National Institutes of Health (NIH)

The NIH program level for FY14 is $31.3 billion, a $472 million increase (1.5 percent) from the FY12 program level of $30.86 billion. The FY14 budget level is $274.3 million above the FY13 level.The $31.3 billion includes the $150 million mandatory Type 1 diabetes research and a $79 million transfer from the Interior department related to Superfund activities. This is estimated to produce an increase of 351 total research project grants (RPGs). Because of turnover of grants, the number of new and competing awards is actually higher, an estimated increase of 1,283 compared to FY12.

In FY14, the budget proposes to increase stipend levels for trainees receiving National Research Service Awards (NRSAs) – essentially a 4 percent increase for postdocs and a 2 percent increase for grad students. This would come at the expense of the total number of positions, which would decline by 108. Also, funding for Research Centers will see an overall decrease of $194.5 million. The National Children’s Study would be funded at $165 million, a $28 million decrease from FY12.

Programs emphasized within the NIH budget include: the BRAIN initiative; opportunities and challenges associated with big data; translational research; and enhancing diversity in biomedical research together with the continuing effort to assess the overall biomedical workforce.

Health Resources Services Administration (HRSA)

The FY14 Budget includes $9 billion for HRSA, an increase of $841 million above FY12.It includes $3.8 billion for the Health Centers program, including $2.2 billion in mandatory funding provided through the Affordable Care Act Community Health Center Fund.In addition, the PBR provides $47 million for research, screening, and promoting evidence-based interventions for children with autism spectrum disorders and their families.

The FY14 request includes $10 million to the 340B program – an increase of $6 million above FY 2012, through a new cost recovery fee. The user fee will help improve the program’s operations, oversight and integrity. Participants in the 340B program include safety-net clinics and hospitals such as community health centers, Indian Health Service tribal clinics, children’s hospitals, critical access hospitals, Federally Qualified Health Centers and look-a-likes, and programs that target sexually transmitted disease and tuberculosis prevention and treatment among others.

Centers for Disease Control and Prevention (CDC)

The FY14 request for CDC is $5.217 billion, which is $432 million below FY12. CDC’s Program Level (which includes Budget Authority, Public Health Service Evaluation Tap, Public Health and Social Services Emergency Fund Transfer, and the Affordable Care Act’s Prevention and Public Health Fund) for FY14 is $6.589 billion, which is $276 million less than the equivalent FY12 Program Level.

The PBR requests $272 million for National Institute of Occupational Safety and Health (NIOSH) programs, $53 million below FY12. The Budget continues targeted reductions to programs such as the Education and Resource Centers and the Agriculture, Forestry, and Fishing Program within the National Occupational Research Agenda.

The PBR also includes $1.0 billion, $175 million less than FY12, for Chronic Diseases Prevention and Health Promotion, of which $416 million is funded through the Prevention Fund. The request proposes a $79.7 million decrease for Community Transformation Grants.

Global Health programs will be funded at $393 million, a $16 million increase over FY12. The PBR includes an additional $15 million to enhance CDC’s effort to eradicate polio worldwide.

Biodefense and emergency preparedness activities in CDC are funded at $1.3 billion for a decrease of $48 million below FY12. Within that total, $658 million is requested for Public Health and Emergency Preparedness (PHEP) grants, $8 million below FY12.

Programs with new or increased investment in the FY14 budget request include the Advanced Molecular Detection initiative, food safety, domestic HIV/AIDS prevention, and healthcare safety to protect Americans from infectious diseases; polio eradication to protect against global threats; and violence prevention, tobacco prevention, health statistics, lead poisoning prevention, and heart disease and stroke prevention to monitor and prevent the leading causes of death.

Agency for Healthcare Research and Quality (AHRQ)

The FY14 budget includes a total program level of $434 million for the Agency for Healthcare Research and Quality (AHRQ), $29 million above the FY12 level. This total includes $334 million in Public Health Service (PHS) Evaluation Funds, a decrease of $35 million below FY12, and $100 million from the Patient-Centered Outcomes Research Trust Fund.