President Obama Releases FY13 Federal Budget Request

On Monday, February 13, the White House released the details of the president's FY13 federal budget request. The $3.8 trillion proposal would keep discretionary spending within the $1.047 trillion cap established by the Budget Control Act last year, but within that limitation would boost spending on a number of specific investments identified by the Obama administration as priorities. These priority investments, however, would be offset by the reduction, reform, or elimination of other federal programs.

With tight budgetary restraints and little or no bipartisanship in either the Senate or the House, the ability to agree on a budget compromise or other new legislation this year will be extremely limited. This is compounded by the fact that it is an election year. Many Republican members of Congress have sharply criticized the budget plan and claim it does not adequately address deficit reduction.

The spending outline, which Obama discussed at an event at Northern Virginia Community College in Annandale, Virginia, contains a number of new higher education initiatives meant to put a sharp focus on job training, college access, and affordability and completion. Institutions should be prepared for intense discussions about college costs as Congress contemplates this budget request. The president's proposals, outlined in the State of the Union address, at a speech at the University of Michigan on January 27, and in his budget unveiling, tap into voter concerns about college affordability - concerns which both Democrats and Republicans seeking re-election to office this year are attuned to.

FY13 Student Aid Proposals

• The president is seeking a $5,635 maximum Pell Grant award (for academic year 2013-2014), an increase from the current $5,550.
• The administration is proposing to tie the distribution of federal campus-based aid-Supplemental Opportunity Grants (SEOG), Federal Work-Study (FWS), and Perkins Loans-to three principles: setting responsible tuition policy; providing good value to students; and serving low-income students.
• The FWS program would see an increase of $150 million in FY13, as a part of a longer-term plan to double the number of Work-Study participants.
• As in previous years, Obama would like to expand the Perkins Loan program to make the loans available at up to 2,700 additional institutions. But in doing so, the servicing of Perkins Loans would be assumed by the Department of Education, which would retain the federal share of prior capital contributions into the program.
• This year, the interest rate on subsidized Stafford Student Loans is set to double from 3.4 percent to 6.8 percent. The administration is seeking a one-year reprieve for students from the rate hike.
• The administration is calling for the elimination of the in-school interest subsidy for federal Direct Loan borrowers who remain in school beyond 150 percent of their program length.

FY13 Higher Education Proposals

• The budget requests $8 billion over three years for a Community College to Career Fund, jointly administered by the Departments of Education and Labor.
• President Obama is requesting a $1 billion Race to the Top for Higher Education as an incentive to states to: revamp the structure of state financing for higher education; facilitate on-time degree completion; and maintain adequate levels of funding for higher education.
• He has also proposed a $55.5 million First in the World grant program to "develop, validate, or scale up innovation and effective strategies for boosting productivity and enhancing quality on campus."

FY13 Research Budget Proposals

The budget calls for increased federal investments in the National Science Foundation, the Department of Energy's Office of Science and Advanced Research Projects Agency-Energy (known as ARPA-E), and the Agriculture and Food Research Initiative in the Department of Agriculture, as well as level-funding for the National Institutes of Health.

Tax Proposals

• The president is calling for permanent extension of the American Opportunity Tax Credit.
• Outlined in this year's budget proposal, there is a twist to the administration's efforts to limit the charitable deduction. Obama again calls to limit to 28 percent the deduction for those making over $250,000, but he allows for the charitable deduction under the newly proposed so-called Buffet rule. The tax proposal would set a minimum tax of 30 percent and eliminate all deductions on anyone making $1 million or more, although the charitable deduction would be the one (and only) deduction allowable. The Buffet rule would replace the Alternative Minimum Tax.
• The budget again calls for limiting the exclusion of tax-exempt interest for municipal bonds (securities) to 28 percent. It also urges Congress to include a national infrastructure bank in its efforts to reauthorize a highway bill.
• In addition to reinstating and making permanent the Build America Bonds program, Obama's budget request also proposes extending eligible use to 501(c)(3) entities, such as nonprofit hospitals and universities.

Other

• The White House has held a keen focus on providing consumers with clear information about college costs. In that vein, the administration is developing a College Scorecard and an updated Financial Aid Shopping Sheet, and both projects are underway, with collaboration between the Department of Education and the Consumer Financial Protection Bureau.

To implement many of the elements of the president's plan, budgetary legislative action - and in some cases authorizing legislation - would be required. NACUBO will keep you informed throughout the year as Congress reviews the president's proposals and attempts to craft the FY13 federal budget. If you have specific questions, please contact Liz Clark, director, congressional affairs, at liz.clark@nacubo.org. You can also follow Liz on Twitter @lizclarknacubo.