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U.S. Hits Debt Ceiling While Debt Reduction Talks Plod Along

May 17, 2011

Last Monday, U.S. Treasury Secretary Timothy Geithner announced that the federal government had met its statutory borrowing limit. The Treasury Department will institute a number of “extraordinary” measures to prevent default until August 2; coincidentally, both the Senate and the House of Representatives are scheduled to begin their four-week summer recess on August 8.

Unless there is an agreement on spending cuts, Republican leaders are refusing to vote on a debt-limit increase. Vice President Joe Biden is leading bipartisan deficit reduction talks in the hopes of striking a deal that will lead to a vote on increasing the debt ceiling. To date, little significant progress has been reported; the group will meet again May 24. There is little accord between parties on overall discretionary spending, entitlement spending, tax increases, or even whether Congress should pass the debt limit increase first and then negotiate a deficit reduction deal.

Given the 2012 elections on the horizon and the current lack of party unity—in both parties and in both chambers—a major fiscal reform package and multi-year debt limit increase is unlikely. Through the summer we will see heated debate and soaring rhetoric, but in all likelihood, Congress will ultimately pass a series of short-term increases in the borrowing limit in order to avert an invitation to economic catastrophe and default on U.S. debt obligations.

House Appropriations Process Moves Forward

On May 11, based on the framework of the recently passed House Budget Resolution, House Appropriations Committee Chairman Hal Rogers (R-KY) announced the FY12 budget allocations for each of the 12 House appropriations subcommittees. Now that each of the subcommittees knows its spending ceiling, they have begun the program-by-program budgeting process for federal FY12, which begins October 1, 2011.

The House Labor, Health and Human Services (HHS), and Education Appropriations Subcommittee, which budgets for the Department of Education and federal student financial aid programs, will need to cut $18 billion (11.6 percent) from its $157 billion FY11 budget. As the federal student aid programs are one of the largest budget elements in the Labor, HHS and Education appropriations bill, Pell Grants and other aid programs will likely be targeted for cuts by budget writers.
While congressional appropriators will determine the exact numbers, the Congressional Budget Office recently estimated that the FY12 House budget resolution could reduce the maximum Pell award from $5,550 to $3,040. Others believe House Republicans may use H.R. 1, the original proposal for the FY11 budget, as a guiding document for the FY12 budget. H.R. 1 would have reduced the maximum Pell grant from $5,550 to $4,705.

Funding for the National Institutes of Health is also in the Labor, HHS and Education appropriations bill and appropriators will struggle with maintaining its $30.7 billion budget. The Labor, HHS and Education Appropriations Subcommittee is scheduled to mark up its spending bill on July 26, with the full Appropriations Committee taking up the measure on August 2.

Other research accounts may be targeted for cuts as well in the House. The bill that funds the National Science Foundation, NASA, and other research agencies will see a 5.8 percent reduction from FY11, and the Department of Agriculture is slated for a 13.3 percent cut.

The U.S. Senate has not yet released its version of a budget resolution. Its progress has been complicated by the debt reduction talks and a lack of support from liberal Democrats opposed to austere spending limits.

Contact

Liz Clark
Director, Congressional Relations
202.861.2553
E-mail