August 31, 2014

Washington Budget Report: July 30, 2013

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How to Avoid a Budget Crisis

Members of Congress may soon be heading home for their August recess with little to show in the way of progress on the federal budget. Congress has yet to pass a single appropriations bill to fund government agencies beyond Sept. 30, the end of the fiscal year. 

In a recent guest column in The Kansas City Star, however, Concord Coalition Executive Director Robert L. Bixby says Washington can still avoid a fall budget crisis.

“It all depends on whether the President and congressional leaders and other elected officials decide that avoiding one is worth reaching across the aisle,” Bixby writes. One option: Joint appearances by Republican and Democratic lawmakers at public forums in both of their states or districts.

“By pairing up with someone from the other party for joint appearances, lawmakers can show their willingness to avoid a crisis, move beyond partisan talking points, and champion a reasoned, timely and mutually acceptable solution,” Bixby says. “Such leadership will set a positive example and encourage others to do the same.”

Insolvency Threatens Highway Trust Fund

The Congressional Budget Office (CBO) told lawmakers last week that the Highway Trust Fund would become insolvent in 2015 unless they further limit spending obligations or increase revenue dedicated to the fund.

Over the next year the balances of the two accounts comprising the fund will be reduced to $5 billion and $3 billion before being exhausted completely in 2015. Between 2008 and 2014, CBO projects, $53 billion will have been transferred from the government’s general fund to the Highway Trust Fund to close its funding gap.

Congress has not come to an agreement over how to fund transportation priorities and prevent the projected deficits. While some lawmakers may support raising the motor fuels tax, it has been difficult to gain enough congressional support to raise taxes.

The lack of an agreement has led the Government Accountability Office (GAO) to place surface transportation funding on its 2013 list of “high risk” programs that require close scrutiny and significant changes.

CBO projects that gasoline tax revenue, the main source of funding for the Highway Trust Fund, will continue to lag behind spending due to a 20-year freeze in the motor fuels tax rate and to improving fuel economy standards for vehicles. Because of inflation, the 18.4 cent tax on gasoline that was enacted in 1993 is equivalent to only 11.5 cents today.

If lawmakers fail to pass a long-term plan to finance surface transportation work, the government will be unable to obligate funds for new and needed transportation projects and will have to delay payments for construction projects already underway.

 

Geographic Variation in Health Care Spending

The prestigious Institute of Medicine (IOM) released a long-awaited report last week on geographical variation in health care spending. The study, commissioned through the Affordable Care Act (health care reform law), was the government’s most thorough attempt to date to resolve a topic of substantial debate: To what degree does health care spending vary solely based on geography and local provider practice conditions and norms, as opposed to variation due to factors such as population age, sickness and socio-economic status?

The IOM found that significant variation in spending can be attributed to geographic differences -- affirming the work of the Dartmouth Institute, which has been arguing the case and presenting data on the topic since the 1970s.

The IOM study further found that for Medicare spending, most variation is due to post-acute services like nursing homes, home health care and long-term care. Removing the variation in those services explains about 73 percent of all geographic variation.

The IOM concluded that even with the presence of geographic variation, policymakers should not focus reform efforts on geographically based solutions, like regional rate setting. Instead, the focus should continue to be on changing incentives for providers to increase integration and coordination.

A Good Alternative to Sequestration Could Help Economy

A new Congressional Budget Office (CBO) report makes clear that the failure of elected officials to agree on a responsible alternative to sequestration’s indiscriminate spending cuts will cause immediate damage to the economy. 

The report also shows, however, that ending sequestration without putting a better deficit-reduction plan in place would have serious long-term consequences.

"Although output would be greater and employment higher in the next few years if the spending reductions under current law were reversed, that policy would lead to greater federal debt, which would eventually reduce the nation’s output and income below what would occur under current law," the report states.

The sequestration plans were part of an agreement two years ago to make necessary increases in the federal debt limit. The 2014 sequester would indiscriminately cut $109.3 billion, far more than the $80 billion (originally $85 billion) in sequester cuts this year.

Many members of Congress in both parties have expressed deep concern about sequestration but have generally been unable to resolve partisan differences to find a better alternative. That should be high on Washington’s priority list as the next fiscal year approaches.

Bill Would Encourage Intergenerational Fairness

A bipartisan proposal introduced in the Senate would provide a more complete picture of the long-term impact of current fiscal policies, including their burden on younger Americans and future generations.

Senators John Thune (R-S.D.) and Tim Kaine (D-Va.) introduced the Intergenerational Financial Obligations Reform Act (INFORM) last week, with Senators Chris Coons (D-Del.) and Rob Portman (R-Ohio) serving as early co-sponsors.

“We should not leave future generations with spiraling debt and hidden obligations that could jeopardize their economic prospects and harm their ability to meet new challenges,” said Robert L. Bixby, executive director of The Concord Coalition. The legislation would expand the universe of long-term analytical tools and better focus policy choices on the burdens they might place on younger Americans and future generations.

The bill, appropriately championed by the Millennial-led "The Can Kicks Back" campaign, would establish long-term generational accounting and fiscal gap analysis in the budgeting and legislative processes.

Fiscal gap analysis shows the present value difference between projected spending and revenue, together with the initial public debt, over both a 75-year time period and an infinite time horizon. Generational accounting analysis is a way to assess generational transfers by showing the difference between total projected taxes paid and transfer payments received.