Budget Uncertainty Remains Despite Debt Ceiling Maneuver

Last week, in legislation entitled, "No Budget, No Pay," the U.S. House of Representatives agreed to a short-term hike of the federal debt ceiling, addressing one of the questions that had been left on the table following the passage of the New Year's fiscal cliff legislation. The Senate is expected to pass the debt ceiling legislation on Wednesday. In the cliff deal, Congress altered federal income tax rates and extended certain expiring tax provisions and other governmental programs, but postponed action on sequestration and raising the federal debt ceiling.

The "No Budget, No Pay" bill, which alleviates, for the short-term, the pressure from the threat of default, stipulates that if the Senate and the House are unable to pass budget bills in their respective chambers by April 15, members of Congress would have their pay withheld until such bills pass. However, the legislation simply postpones the possibility of the U.S. defaulting on its debts, by allowing obligations to be paid only up to May 19, 2013, at which time Congress must again act to lift the debt ceiling limitation.

House Republicans supported the measure, pursuing a strategic move to avoid a focus on the possibility of default while bringing attention to spending cuts. They believe that by postponing what will undoubtedly be contentious debate on the debt ceiling, they bring to the forefront battles which may, or may not, be in their favor: the question of the sequester and decisions about the level of appropriations needed to keep the government running through the rest of fiscal year 2013.

Complicating the discussion further, during an interview on Meet the Press on Sunday, January 20, Senator Chuck Schumer (D-N.Y.) asserted that the Senate would include additional tax reform proposals in its budget. This is an unusual step for a budget resolution, but reflects the desire Democrats have to keep revenue, and not just cuts to spending, on the table as a part of efforts to deal with the federal deficit.

Murky Guidance

As politicians on Capitol Hill continue to kick budget decisions along with temporary postponements, questions abound within government agencies and at other organizations impacted by federal budget decisions (or the lack thereof). There is little detailed guidance for colleges and universities or for government officials on what to expect and how to plan for the foreseeable future. For example, the Department of Education will distribute 2013-2014 Award Year Pell Grant Program Payment and Disbursement Schedules, but the Pell Grant Program is technically considered unfunded until Congress sends to President Obama a final appropriations act for fiscal year 2013. This is similar to 2011 when unfunded Pell schedules were issued, but placed schools in the difficult and undesirable situation of having to package financial aid for students without certainty (in 2011 many institutions qualified the letters with a disclaimer stating that awards could change based on congressional action).

On January 14, the Office of Management and Budget (OMB) issued a short memorandum providing guidance to "the heads of executive departments and agencies" on the scheduled March 1 implementation of sequestration and the March 27 expiration of current fiscal year funding. In the memo, OMB Deputy Director for Management Jeffrey Zients states, "At this time, agencies do not have clarity regarding the manner in which Congress will address these issues or the amount of budgetary resources that will be available through the remainder of the fiscal year. Until Congress acts, agencies must continue to prepare for the possibility that they will need to operate with reduced budgetary resources."

The Department of Defense issued a similar document on January 10, stating, "It is prudent to take certain steps now in order to help avoid serious future problems...and to the extent possible, any actions taken must be reversible at a later date in the event that Congress acts to remove the risks."

Troubling Outlook for Higher Education

At this time, under current law, the Pell Grant, among a select few programs with special treatment, is protected for—one year only—from sequester cuts during federal fiscal year 2013. By and large, under the sequester, all other federal student aid programs would be cut and the origination fee for unsubsidized Stafford student loans would be raised.

Federal research budgets at agencies such as the National Institutes of Health, National Science Foundation, and Department of Energy would also see a reduction, with research budgets at the Department of Defense slated for slightly larger cuts than at non-defense agencies.

However, a larger budget predicament looms for the Pell Grant program and Direct Loans, and policymakers may try to address these challenges in their budget negotiations over the next several weeks. There is an estimated $5.7 billion shortfall of funding for the Pell Grant program in federal fiscal year 2014, which begins October 1, 2013. On top of the anticipated hole in the Pell budget, the interest rate on federally subsidized student loans is once again scheduled to double from 3.4 percent to 6.8 percent on July 1, 2013. Last year, following a major lobbying effort by the White House, Congress struck an agreement to prevent the rates from doubling for one year only—at a cost of $6 billion.

Partisan politics and budget crises have prevented Congress from coming to agreement on spending policies in normal order; in a similar vein, action on specific programs and budgets of interest to colleges and universities is likely to take place haphazardly in the coming months. What is unclear is whether such policy decisions will look more like a finger in a leaking dike or if they will encompass wholesale change.