On Wednesday, Senator James Inhofe (R-Oklahoma), chairman of the Senate Environment and Public Works Committee, announced that he plans to introduce legislation that would reform the way highway funds are distributed. Under the current surface transformation law, TEA-21, states are guaranteed a minimum 90.5% of the taxes that they send to the Highway Trust Fund. The Fund derives most of its revenue from the 18.4-cent-per-gallon federal gas tax.

Inhofe plans to introduce legislation that would raise the guaranteed minimum level of funds to 95%. The change in law would necessitate that lawmakers find alternative sources of revenue for the Highway Trust Fund, raise the current federal tax on gas, appropriate additional monies to states for earmarked projects or redistribute highway funds that are distributed to states. If Inhofe's proposal placed any state in jeopardy of losing highway funds, the plan would certainly have trouble garnering broad support and would face many obstacles.

Currently, Inhofe’s plan enjoys broad congressional support, including Rep. Don Young (R-Alaska), chairman of the House Transportation and Infrastructure Committee. Also, Sen. Christopher Bond (R-Missouri), said it is "absolutely essential" to increase the minimum guarantees. Both Inhofe and Bond come from what are considered 'donor states' because their respective states contribute more funds to the Highway Trust Fund than they receive in annual highway funds. With regard to the inequity, Inhofe stated "this is a moral issue for me" and "I plan to work with my colleagues and the administration, to find the resources we need to pay for transportation priorities."

The initiative that Inhofe is set to introduce might be included in the overall highway reauthorization bill as a provision or amendment, when such a measure is debated later this year.

We've got the latest info on the proposed re-organization of the Appropriations Subcommittees over on the analysis side of the side. Included are the finalized list of Republican members, as well as what will be inside the new Homeland Security Subcommittee, and how the Senate is currently reacting to the plan.

Last night, President George W. Bush delivered his annual State of the Union address. He used the address to lay out the case against Iraqi leader Saddam Hussein while at the same time putting forth an ambitious domestic policy agenda. With a battle over the budget on the horizon and presidential politics in play, the time for Congress to meet the President's goals is limited. Congress may have only the spring and the summer for legislative work before election politics begins to lock up the Senate.

On the domestic side, President Bush called again for a $674 billion tax cut over ten years. He proposed eliminating taxes on stock dividends paid to individual investors and immediate implementation of income tax rax rate reductions that currently are scheduled to go into effect in 2004 and 2006. He next called for immediate implementation of tax reductions for married couples not scheduled to take effect until 2009, raising the yearly child credit from $600 to $1,000 now, instead of waiting for scheduled implementation in 2010. Finally, he suggested altering paycheck withholding rates upon the enactment of his tax cut plan to get more money into the economy quickly. Bush said that his fiscal 2004 budget proposal scheduled to be unveiled February 3 will call for capping any increase in discretionary spending to 4%. He then reiterated his support for changing social Security to allow workers to invest some of their withholding taxes in individual retirement accounts.

In addition to the tax cut plan, another major item on the President's agenda was a $400 billion Medicare overhaul. He called also for many other policy initiatives including a $15 billion, five-year plan to fight AIDS in Africa and $6 billion to boost research and production of drugs to fight bioterrorism. He next called for a comprehensive new energy policy and $1.2 billion in new research funding for hydrogen-powered cars, a new $450 million program for mentors of disadvantaged youth and an additional $600 million to treat drug addictions. In other legislative initiatives, the President called for medical liability limits, legislation to make it easier for religious groups to win federal funds and a ban on human cloning.

After he layed out his domestic agenda, the President focused on foreign policy and on Iraq in particular. While he stopped short of committing to war, he provided a long list of allegations of Iraqi President Saddam Hussein's efforts to undermine the U.N. inspectors. President Bush indicated the United States' willingness to go it alone without our allies if need be. Although he made short mention of North Korea and Iran, the other two spokes on "the Axis of Evil" made famous in last year's State of the Union, his primary focus was on Iraq. He offered historical examples of the Iraqi leader's concealment of germ, chemical and nuclear programs. He did not present any new information from the latest round of inspections, but was more specific in his allegations than he has been.

The President did say that Secretary of State Colin Powell would go to the Security Council next week and provide intelligence on Iraq's weapons programs, terrorist links and attempts to deceive the United Nations. He also enlarged the case for going to war with Iraq soon by saying that there was intelligence showing Iraq was helping and protecting terrorists.

According to CQ today, there could be some major shakeups in the House Appropriations subcomittees. A proposal to merge the Transportation and Treasury-Postal subcommittees in order to make room for a new Homeland Security Subcommittee could be proposed this afternoon by House Appropriations Committee Chairman C.W. Bill Young (R-Florida). The plan has not yet been seen by the Senate, which would either need to reorganize or risk having different subcommittees in the two chambers, complicating discussions during House-Senate conferences of spending bills.

The plan would result in the new subcommittee receiving jurisdiction over the Customs Service, the Federal Law Enforcement Training Center, the Secret Service, the Transportation Security Administration and the Coast Guard. The chair of the new subcommitee would likely be Harold Rogers (R-Kentucky), the current chair of the Tranportation panel. The remaining areas left in both the Transportation and the Treasury-Postal subcommittees would then be merged together and chaired by the current pork-busting chair of Treasury-Postal, Representative Ernest Istook (R-Oklahoma). This would keep the total number of subcommittees at 13. More information will be posted as it becomes available.

Today, AP is reporting that the Congressional Budget Office (CBO) released a deficit projection outlook that show a further deterioration since the last report. Since the CBO is required by law to only factor in existing laws under effect, the projections of a $199 billion deficit this year and a $145 billion deficit next year, don't include the cost of war with Iraq, the President's proposed stimulus package, or any increases in spending from Congress. Therefore, private analysts have been predicting a much higher deficit that could run up to $300 billion this year. Clearly, these declining numbers will affect the ongoing budget battles between Congress, the Administration and both political parties.

In a departure from the vague priorities outlined three weeks ago from the GOP led Senate, Senator Bill Frist (R-Tennessee) announced his legislative priorities in advance of the President's State of the Union address. His agenda included prescription drugs and an economic stimulus package, and seemed to mirror the priorities that the President is likely to suggest tonight. We'll see how his legislative strategy plays out in the weeks ahead and keep everyone updated.

President Bush and the Democrats are engaging in a debate about funding options.

In his radio address on Saturday, President Bush said that the war against terrorism will remain a prority. He said he will focus his State of the Union address tomorrow on domestic priorities, including proposals to boost the economy and to help the unemployed. The President wants Congress to put his tax cut proposal into effect this year. He also plans to ask Congress to eliminate taxes on stock dividends and raise deduction limits for investments by small businesses.

In the Democrats' radio address, Martin O'Malley, mayor of Baltimore, Maryland, charged that Bush's tax cuts are shifting the burden of funding homeland defense to "already cash-strapped cities." Those "cities [are] still reeling from the tax cuts that primarily benefit the wealthy, and a damaged and sluggish economy," O'Malley said.

Towns and cities, Mayor O'Malley claimed, have been left defenseless due to the federal government's failure to fund homeland defense. Cities first responders are still without the necessary equipment, training, and communication systems.

Traditionally, the opposition party turns to a member of Congress to respond to the President's State of the Union address. Tomorrow night, following Republican President George W. Bush's address to the nation, the Democrats will follow putting forth Governor Gary Locke, of Washington State to make the case for their party.

Governor Gary Locke is currently in his second term as governor and serves as the head of the Democratic Governors Association. He is the first Chinese American to hold a state's top position.

In his remarks, the Governor will try to make the case the "drums of war should not drown out the worst economic crisis in a half-century for state governments." In an interview over the weekend, Governor Locke said he planned to contrast President Bush's proposal to cut dividend taxes with Democratic plans to "help out everyday people who are struggling."

He noted that 1.5 million jobs had been lost since the recession began two years ago and that many states were facing budget deficits. He believes that the president's plan to eliminate taxes on stock dividends will only make the problem in the statehouses worse. On foreign policy, Governor Locke will be unlikely to vere far from the President, but will continue to push the case for allied support.

53 percent of Americans live in states governed by Democratic executives. Last fall, the Democrats won governor's races in big states like Pennsylvania, Illinois and Michigan and also in Republican strongholds like Kansas and Wyoming. But they lost in two big states, Florida and Texas, where they thought they had a real chance.

Last month, Senator Tom Daschle of South Dakota, the Democratic leader in the Senate, agreed to let the governors pick someone to give the response speech from among their ranks. They chose Governor Locke, 53, who was elected to two terms by wide margins and is chairman of the Democratic Governors' Association.

Nationwide, the states are projecting budget deficits of $60 billion to $80 billion over the next two years, with California's shortfall alone making up half of that. The Democratic governors have requested direct aid from the federal government to help with the deficits, arguing that much of the red ink was caused by new federal burdens for domestic security and medical aid for the elderly.

Today, HHS Secretary Tommy Thompson formally authorized states to begin a smallpox vaccination program for health care workers in hospitals across the nation. Workers who volunteer for smallpox response teams will be vaccinated so that they can provide critical services in the event of an attack. The HHS press release with all the details was posted today.

Last night, the Senate passed the long overdue spending bill four months into the new fiscal year. The $390 billion omnibus spending bill combined the 11 appropriations bills left over from the last Congress. The bill passed 69-29, with 19 Democrats joining 50 Republicans in supporting the measure. Sen. Peter Fitzgerald (R-IL) was the only Republican to oppose the bill. The legislation includes little spending from the nearly 250 amendments offered up by Democrats. Mitch Daniels Jr., director of the Office of Management and Budget, applauded the Senate for not exceeding the President's desired spending limit, by saying that senators "have successfully joined with the President in saving taxpayers billions in unnecessary spending". The Senate bill now heads to a conference committee, where senators and house members will work towards a compromise bill. For the full story, please refer to the article in the Washington Times.

As the Senate finishes work on the 11 appropriations bills left over from the previous Congress, both the President and leaders in the House continue to keep a close watch. The President has asked lawmakers not to exceed $390 billion in spending, but such a task will prove challenging when the bill heads to conference. In order to facilitate cuts to save money, the Senate amended the appropriations omnibus bill by adopting a 1.3% across-the-board cut to make room for education spending. This cut is in addition to the 1.6% across-the-board cut, which was already included in the text of the bill. According to Senator Ted Stevens (R-Alaska), chairman of the Senate Appropriations Committee, the 2.9% across-the-board cut might have to be reduced before passing the Senate or in conference with the House because of new cost estimates by the Senate Budget Committee. House appropriators reacted harshly to the additional across-the-board cuts, which were necessitated by increased spending on election overhaul and drought assistance. Even with the cuts, Senator Stevens still predicts that it will be hard to keep within the confines established by the President.

GOP Leaders had wanted a final bill on the President's desk by January 28th, in time for his State of the Union speech, but this seems very unlikely. However, getting the Senate omnibus bill passed by the end of the week and staying within the parameters set by the President would still be a major victory for new Senate Majority Leader Bill Frist (R-Tennessee).

In a brief amendment to an earlier post, the administration has reversed course and decided to reinstate the 'prudent layperson' rule it had abandoned a month earlier. Senator Graham's (D-Florida) vote was hours away and several senators and representatives from both sides of the aisle had expressed support for the rule as it stood before the administration's modification.

In the latest piece over on our analysis side of the website, we've got a review of Amtrak President David Gunn's meeting with the U.S. Conference of Mayors. Gunn discussed Amtrak's federal funding needs and had some interesting information about long-term capital projects as well as his preferred nomenclature for such works. For the full scoop, be sure to check out the entire piece. We'll be sure to keep everyone in the loop.

Senator Bob Graham (D-Florida) will soon introduce an amendment to the senate omnibus bill that would nullify a Bush Administration initiative on State Medicaid Coverage.

Late last year the administration told state officials that they could start to overlook a Medicaid provision from the Balanced Budget Act of 1997. The 1997 law offered more flexibility to states when administering Medicaid benefits. The Act allowed states to require that Medicaid patients obtain their health coverage from a managed care plan. However, there were safeguards instituted in the event that managed cared plan did not cut off certain medical services. One safeguard enacted was the requirement that Medicaid pay for emergency room visits and hospital stays resulting from emergency visits, if the private plans of Medicaid recipients did not cover such services, as long as a "prudent layperson" deemed the visit appropriate.

Currently, many states are dealing with massive budget shortfalls and have requested economic assistance from the federal government. To help the states save money, the administration has begun suggesting ways for states to circumvent Medicaid requirements. In a December 20 letter, the Center for Medicare and Medicaid Services wrote to state officials that the federal government would allow states to place new limits on emergency room care to "facilitate more appropriate use of preventive and primary care in outpatient settings".

Democrats have balked at the recent proposal by the Bush administration with Senator Graham taking the lead. His amendment would mandate that Medicaid continues to pay for emergency visits, even if certain managed care plans do not offer such services. Administration officials have claimed that the President wanted to offer more flexibility to states currently entrenched in fiscal crisis. Some states have even threatened to cut all Medicaid services if the federal government does not foot more of the bill for the federal-state program. The Bush administration has rejected any such idea.

Aides to Senator Graham would not speculate on support for his amendment or the chances of passage. Senator Graham is considered a potential Democratic presidential candidate for 2004.

Deadlines keep slipping as Senate Democrats offer more amendments and Republicans struggle to advance a $390 billion omnibus appropriations package.

The GOP goal is to get the fiscal 2003 measure into position for passage January 24th. Republican leaders and appropriators Tuesday night were poring over scores of amendments, including proposals to boost special education funding, to determine which they might modify or accede to in order to appease party moderates.

Votes are scheduled Wednesday morning on two amendments dealing with the implementation of Bush administration environmental rules. Republicans have a self-imposed deadline of January 28th - the day President Bush gives his State of the Union address - for passing the omnibus and completing conference negotiations with the House. But that goal no longer appears to be within reach.

Senate Appropriations Committee Chairman Ted Stevens, R-Alaska, said the Senate might complete its work on the measure by Jan. 24, at best, but that conferencing by Jan. 28 would be impossible.

Under pressure from Lincoln Chafee (R-R.I.), Susan Collins (R-ME), and Olympia J. Snowe (R-ME), and other Northerners, the Senate on Tuesday adopted, 88-4, an amendment that would add $300 million to the omnibus for the Low Income Home Energy Assistance Program (LIHEAP). The program helps elderly, disabled and low-income families pay their heating bills, and is popular in the states where winter hits hardest.

Senators voted down an amendment from John Edwards (D-NC) that would delay implementation of rules to ease pollution restrictions on coal-burning power plants and factories (50-46). They did vote in a counteroffer from James M. Inhofe (R-OK) that would require a similar study without delaying implementation of the rules (51-45).

Wednesday's floor action also could include consideration of competing proposals to provide assistance to drought-afflicted Western farmers and two more education funding amendments. One proposal, from Christopher Dodd (D-CT) would provide $1.5 billion in state grants for special education. The Individuals with Disabilities Education Act promised to reimburse states for 40 percent of the average per-pupil cost of educating disabled students. But the federal government has so far picked up 17 percent of the cost, which was $7.5 billion in fiscal 2002.

As drafted, the new Senate bill would increase the funding by $1 billion in fiscal 2003, the same amount as the Bush budget. The House voted to increase such funding by $500 million in its Labor-Health and Human Services-Education appropriations bill.

Republicans may seize on an amendment from Judd Gregg (R-NH) to counter Democratic charges that they are ignoring special education funding. The Gregg amendment would increase special education funding by $1.5 billion, but also require that a corresponding amount be slashed from a specific program in the omnibus measure or come from an across-the-board cut that would reduce funding by 0.4 percent for all programs in the legislation.

Gregg used a similar strategy on January 16th to defeat a Democratic amendment to boost education funding to low-income school districts by $5 billion. Democrats complained that Republicans in control of the Senate-House conference committee would disregard any funding increases that came as a result of corresponding budget cuts passed by the Senate.

Reed also has offered an amendment to extend federal unemployment benefits for 13 weeks to individuals who have exhausted their state and federal benefits and remain unemployed.

Mark Dayton (D-MN) has offered an amendment that would make winning federal government contracts harder for companies that incorporate overseas to avoid paying U.S. taxes. The amendment would allow the administration to waive government restrictions on contracts with those companies only if the president can demonstrate a national security need.

The Senate also could consider proposals to limit a data-mining program being developed by a division of the Pentagon that was largely responsible for the creation of the Internet. At least two amendments, proposed by Charles E. Grassley (R-IA) and Ron Wyden (D-OR) would limit further research on the program, known as Total Information Awareness. As envisioned, the program would allow the government to collect and analyze a broad array of information, such as criminal information and drivers' license data, from public databases.

The Bush administration "strongly opposes" raising the gasoline tax to pay for the amount of highway construction in the current Senate version of the omnibus appropriations bill.

As part of a comprehensive statement of administration policy on the spending bill released January 17th, the Office of Management and Budget (OMB) said the Senate bill "proposes an unsustainable level" of spending for roads. The Senate measure included $31.8 billion, which OMB said "breaks dramatically with the traditional linkage of highway spending and trust fund revenues."

That figure, which is $8.6 billion more than the administration requested, "would put the program on a path to an inevitable gas tax increase, which the administration strongly opposes," OMB said.

Until the announcement, the administration's stance on raising the gas tax had been one of the biggest questions surrounding this year's reauthorization of surface transportation programs. However, while OMB clearly opposes the concept of increasing the gas tax, advocates speculate that some in the Administration -- particularly within the Transportation Department -- have a different opinion. DOT officials have already identified significant funding needs for highways and transit.

The DOT has said to maintain and improve infrastructure over the life of the new bill, highway spending should increase to $61.2 billion in fiscal 2009 and mass transit spending should increase to $12.4 billion by then. Those programs currently are funded at $31.8 billion and $7.2 billion respectively.

The funding mechanism for highways and mass transit is going to be a key battle in the rewrite of the six-year surface transportation bill (PL 105-178), known as TEA-21. The measure expires September 30th. House Transportation and Infrastructure Committee Chairman Don Young (R-Alaska) has vowed to try to come close to the department's spending levels by increasing the gas tax by 2 cents annually.

Senate tax writers are less enthusiastic about a gas tax increase. Max Baucus of Montana, ranking Democrat on the Finance Committee, last week expressed little interest in increasing the gas tax.

The issue is sure to be one of the most contentious during the upcoming surface transportation reauthorization debate. We'll be sure to keep clients and friends up to date on the discussions.

According to the Wall Street Journal, Amtrak is quietly informing federal officials that they will require anywhere from $1.5 to $2 billion in funding next year to start addressing much overdue capital improvements on the heavily traveled Northeast Corridor. The Journal quoted Amtrak representatives as saying higher funding levels were necessary to fix tracks and bridges along the corridor. Also, it was reported that Amtrak would use the funds to purchase new cars and locomotives and to fix existing equipment. According to Amtrak, "the upgrades are necessary to reverse deterioration on the corridor and maintain it as a high-speed operation". Amtrak President and CEO David Gunn added that he would continue to ask for higher funding levels in the next five years.

Over the last few years, Amtrak has deferred much needed repairs and upgrades on equipment and infrastructure because of their deteriorating financial position. Since the Amtrak Reform and Accountability Act expired after the fiscal year of 2002, continued federal funding of Amtrak has not been a given. The provisions of this act mandated that Amtrak operate self-sufficiently after the authorization of federal funds ended in 2002. While Amtrak was granted a reprieve for 2003 by receiving federal funds to continue operations, the embattled rail corporation still required a bail out loan from the Transportation Department this past summer. Such a loan only forestalled debate over the future of Amtrak.

As the Senate considers the 11 appropriation bills leftover from the 107th Congress, Amtrak once again asked for $1.2 billion, more than double the amount of funds that was appropriated to them last year. Amtrak management said that the $1.2 billion would be necessary to keep the rail corporation running. However, the authorization of funds would only be earmarked for operations and not capital improvements.

Amtrak's heavy reliance on the federal government for operating costs will make their task of securing additional monies for capital improvements more cumbersome. While Senator Patty Murray (D-WA) lead the charge to pass an amendment to the Senate omnibus bill that would provide Amtrak with $1.2 billion for next year, such a victory is abridged because of the ensuing battles ahead. Just recently, Amtrak executives have said that a shortfall in appropriated funds for operating costs would force a shutdown of the rail corporation. It remains uncertain if Amtrak will employ the same tactics in seeking federal funds to cover capital costs.

Last week the Senate agreed to an organization resolution, which allowed the Senate to start work on an omnibus appropriations bill. Both houses already adopted a Continuing Resolution (CR) that funds the federal government at last year's spending levels until January 31. The Senate is debating a second omnibus bill that will eventually include the 11 individual appropriations bills not yet passed by Congress.

The earlier strategy to insert the 11 spending bills into the omnibus appropriations and preclude lengthy debate has fallen apart. The Senate originally intended to insert in the omnibus bill the results of months of negotiations between House and Senate staff on each of the 11 appropriations bills. Instead, the Senate focused only on its own version of bills adopted in committee last summer, reducing total expenditures by $13 billion in order to comply with House and White House spending targets. Each of the bills must still be conferenced with the House to reconcile spending priorities and individual earmarks requested by the members.

The Senate remains in session this week in hopes of completing action on the omnibus bill. However, numerous amendments to increase spending are being considered, creating the likelihood that Senate spending levels will exceed the amount acceptable to the White House. The House remains in recess until January 27. The earliest any conference committees could convene is that week.

Although no one is admitting it yet, Congress will probably have to adopt yet another CR to keep the government open while Congress engages in contentious conference committee sessions into February. Earmarks for specific projects might not be decided for weeks to come.