October 30, 2014

Washington Budget Report: October 22, 2013

« Back to WBR Issue List

Sign Up to receive the Washington Budget Report »


Budget Deal Brings Tight Deadline -- and Opportunities

With last week’s passage of a short-term Continuing Resolution funding the government and a debt limit increase, elected officials gave themselves a tight set of deadlines to finally put together a budget plan that might consider more structural, long-range fiscal reforms.

The appointment of a House-Senate conference committee is a particularly positive development. That panel is supposed to develop a full-year 2014 budget by December 13.

At a minimum, the panel’s goals should be to prevent another government shutdown and debt limit crisis early next year. But it has an even more valuable opportunity: to forge a bipartisan plan for comprehensive fiscal reform that can put the government on a more responsible and sustainable path in the coming decade and beyond.

The agreement last week, approved as the government was approaching the possibility of defaulting on some of its financial obligations, raised the federal debt limit through Feb. 7.

The deal also ended the costly government shutdown, funding the government through Jan. 15. Economists say the shut-down, in addition to wasting millions of tax dollars, cost the U.S. economy billions of dollars and undermined consumer and business confidence.

A credible plan for comprehensive reform would involve three key items that could attract bipartisan support: additional health care reforms that reduce projected spending, tax reforms that target wasteful subsidies, and a new set of spending caps to replace the “sequestration” caps that neither party fully supports.

Fitch Warns it Could Downgrade U.S. AAA Credit Rating

Fitch Ratings placed the United State’s AAA credit rating on “Rating Watch Negative” last week, due to the increased risk of a default on the government’s financial obligations from the debt ceiling standoff.

Fitch said in its statement that repeated brinkmanship over raising the debt ceiling “dents confidence in the effectiveness of the U.S. government and political institutions” and “casts doubt over the full faith and credit of the U.S.”

Earlier in the year, Fitch announced that it would factor in Congress’s actions on preventing a government shutdown and a debt ceiling crisis into its decision to keep the U.S. credit rating at AAA. This latest announcement can be seen as a warning that risking a default on obligations is not characteristic of a country with a AAA credit rating.

Fitch will make the decision whether to lower the U.S. credit rating some time during the first quarter of next year.

Progress made by the newly appointed budget conference committee on fiscal reforms that address the long-term structural challenges of the federal budget will probably factor into Fitch’s decision to retain or lower the U.S. credit rating.

If Fitch does decide to lower the U.S. credit rating from AAA, it would be the second ratings agency to do so in the last two and a half years. Standard and Poor's downgraded its U.S. credit rating to AA+ after the debt ceiling standoff in 2011.

Controlling Health Care Costs Remains Primary Challenge for Public and Private Sectors

As Washington wrestled with its immediate budget problems last week, an Iowa gathering of national, state and local experts considered the opportunities and challenges ahead with one of the key drivers of federal spending: health care.

Concord Coalition Executive Director Robert L. Bixby discussed how health care costs absorb nearly 25 percent of non-interest federal spending, totaling $717 billion in Fiscal 2012. In the next 25 years, health care will be trumped only by interest payments as the greatest source of growth in federal spending.

Although the growth in health care costs has slowed in the past few years, Bixby said, “the country will face increases in health care spending as the population ages and millions more people qualify for Medicare.”

Bill Hoagland of the Bipartisan Policy Center indicated that recent analysis by the Congressional Budget Office had failed to explain most of the recent slowdown in health care costs, making it hard to know whether the trend can continue. He also stated that the Affordable Care Act “needs further realignment to address the drivers of health care costs.”

Nick Gerhart, Iowa’s insurance commissioner, discussed the Iowa Health and Wellness Plan, a federal-state partnership to expand Medicaid. He also reiterated the state of Iowa’s commitment to ensuring the success of the health care exchange program despite early technical glitches.

Laura Jackson, executive vice president for Wellmark, outlined that company’s strategy for transforming the health care system in Iowa by reducing its annual increase in health care costs to the rate of inflation. Other key strategies include patient-focused, high-quality, and physician-directed care at the local level and a focus on improved health status through community transformation.