July 25, 2014

Washington Budget Report: January 7, 2014

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New Year, Old Budget Struggles in Washington

Congress kicked off the second session of the 113th Congress this week with elected officials still haggling over long-term unemployment compensation while appropriators rushed to complete long-overdue spending legislation.

This morning the Senate narrowly voted to proceed with debate on a measure to extend the unemployment benefits for three months without paying for them elsewhere in the budget. Most Republicans voted against proceeding, saying the costs of an extension should be covered.

Both the struggle over long-term unemployment compensation and the hurried appropriations work are leftovers from last year, when the regular congressional budget process collapsed.

Long-term unemployment benefits are one of the most cost-effective ways for Washington to support the economic recovery. Most unemployed workers spend their benefits quickly, increasing demand for goods and service.

Extension of the benefits should be paid for. But with long-term unemployment at 2.6 percent -- still quite high by historical standards – there is a continued need for extended benefits. Moreover, benefits require the recipients to continue looking for work. So cutting them off may result in many people simply dropping their job searches.

Unfortunately, Congress allowed the benefits to expire last week – creating hardship and a sense of urgency now that could have been avoided.

As for the appropriations legislation, it should all have been done well before the current fiscal year began Oct. 1. Forcing federal executives to guess at what their budgets will ultimately be ensures waste and inefficiency.

To make matters worse, the current appropriations process remains shrouded in secrecy. That’s to minimize complaints about the omnibus legislation and smooth its passage by Jan. 15, when a temporary stop-gap measure expires.

Presenting a year’s worth of hastily written spending legislation as a last-minute surprise package, however, is hardly the best way to do public business.

Yellen, Strong Advocate of Boosting the Economy, Confirmed as Fed Chair

The Senate Monday voted 56-26 to confirm Federal Reserve Vice Chair Janet Yellen as the Fed’s next chairman. Yellen, who will be the first woman to serve in that position, will succeed Ben Bernanke.

In nominating her last fall, President Obama described Yellen, a long-time Fed official, as “exceptionally well qualified” and “someone who knows how to build consensus.” She has generally supported Bernanke’s policies, including efforts to bolster the economic recovery that have drawn fire from some members of Congress.

While the Fed is primarily responsible for monetary policy, Bernanke has regularly provided useful warnings to elected officials about the need for more responsible fiscal policies that would support the economic recovery in the short term while laying the groundwork for broad,longer-term fiscal reforms.

Yellen’s remarks in her Nov. 14 confirmation hearing before the Senate Banking Committee followed that same line. She said she considered it “imperative that we do what we can to promote a very strong recovery.”

She also took lawmakers to task for fiscal policies that “have been working at cross-purposes to monetary policy.” She said some spending cuts, for example, “have certainly subtracted from the near-term momentum of the economy.”

Fiscal Impacts Vary as Key ACA Provisions Take Effect

Insurance policies sold on the Affordable Care Act (ACA) exchanges went into effect Jan. 1 after a three-month open enrollment period marked by problems on the government’s Healthcare.gov website.

The federal government is operating insurance exchanges, also called “marketplaces,” for 36 states, while 14 other states and the District of Columbia set up their own.

An estimated 2.1 million people have signed up in the marketplaces.

Open enrollment will continue through the end of March. Uninsured individuals who do not purchase insurance by then can face penalties and will not have another chance to enroll until mid-November.

New Medicaid enrollees also began receiving benefits on Jan 1. Even without some December data, estimates indicate at least 4.4 million have gained coverage this way. The Medicaid expansion is being undertaken in 25 states, with the other states opting out.

A plethora of insurance-market reforms also took effect with the new year, including prohibitions against most lifetime limits on coverage and discrimination based on pre-existing conditions.

It is too soon to reach any conclusions about the fiscal impact of first-year enrollment in Obamacare coverage. Within the exchanges, competing forces are at work -- some could drive federal costs upward and others could hold them down.

The metric most likely to increase premium costs for the next year is the ratio of healthy to sick individuals obtaining coverage -- a mix more important than the age ratio of beneficiaries and the total number of individuals who ultimately sign up.

A Case Study on Discretionary Spending Cuts

As the country celebrated the new year, Supreme Court Chief Justice John Roberts completed a holiday tradition of his own by calling for more funding for the judicial system.

“The budget remains the single most important issue facing the courts,” he wrote in his 2013 Year-End Report on the Federal Judiciary. Sequestration last year cut judiciary funding by nearly $350 million, which came on top of “significant cost reductions” the courts had already made in previous years.

“We in the judiciary recognize what should be clear to all: The nation needs a balanced financial ledger to remain strong at home and abroad,” Roberts wrote.

But he said the judicial branch had been hit particularly hard by sequestration for a variety of reasons -- including constitutional and statutory requirements that must be met. Court staffs, he said, have declined to their lowest level since 1997 even as caseloads continue to increase.

The judiciary is funded through the “discretionary” part of the budget where Congress has focused most of its deficit-reduction efforts. While discretionary funds should be spent wisely, Congress also needs to look at other parts of the federal budget, including entitlement programs and hidden spending in the tax code.

Lawmaker Sees ‘Real World’ Choices in Concord Exercise

Residents of the Quad Cities community on the Iowa-Illinois border showed their support for improving America’s long-term fiscal outlook in two recent budget exercises hosted by Rep. Cheri Bustos (D-Ill.) and facilitated by The Concord Coalition.

As in similar exercises that Concord has conducted around the country, participants worked in small groups to reduce the projected $6.3 trillion in federal deficits over the next decade. Sara Imhof, Concord’s Midwest regional director, reports that two subjects drew the most debate: Obamacare and a proposal to replace agricultural subsidies with risk-management accounts.

In closing remarks, Bustos said people from different political philosophies could reach budget solutions: “That’s the real world. We have hard decisions to make, but we can do it in a reasonable way.”