Over on the analysis side, we've got a look at the top ten priorities for the GOP led Senate this year, under the guidance of Senator Bill Frist (R-Tennessee). The analysis is right here and details health care proposals, tax cuts and a new energy package push.

The mammoth Fiscal Year 2003 omnibus package has finally passed, now to await the President's signature. The total damage is $397.4 billion dollars, and was passed in the House 338 to 83 and by the Senate 76 to 20. Many lawmakers expressed dissastisfaction with the process that culminated in 11 of the 13 appropriations bills being lumped together into one giant omnibus spending bill. And with the prospect of a looming war, homeland security needs and the lack of any funds for ongoing Afghanistan work, additional monies are likely to be appropriated in a supplemental spending bill quickly on top of the existing spending and before the FY2004 budget debate swings into full gear. We'll have more on the full implications of the bill as we begin to parse through the voluminous text.

The House Committee on Transportation & Infrastructure today extended until March 14 the deadline for submitting projects for inclusion in the TEA-21 reauthorization bill (affectionately known as "TEA-3"). Please feel free to be in touch with us as you prepare for this new deadline.

The House is preparing to vote this evening on the newly completed omnibus spending bill for FY2003. (H J Res 2) Tomorrow the Senate will vote on the bill, bringing an end to one of the lengthiest budget years in recent history. We'll have more on the spending implications shortly.

In a hearing before the House Budget Committee on Wednesday, Department of Transportation Deputy Secretary Michael P. Jackson provided the Committee with testimony on the Administration’s proposed transportation budget for FY 2004.

The Secretary was questioned by Committee members on various issues related to the transportation budget proposal, but surface transportation matters dominated the discussion. With the current TEA 21 authorization ending this year, Committee members pressed Jackson on the Administration’s goals for reauthorization. In the FY 2004 Transportation Budget, the President’s six year surface transportation reauthorization proposal calls for a 19% increase in overall funding. The Deputy Secretary outlined six principals that will guide the Administration’s reauthorization proposal:

• Increasing funding flexibility for State and local authorities to make effective program investments
• Encouraging innovative financing tools to extend the reach of our transportation investments
• Expediting the environmental review processes - continuing to implement the President's streamlining Executive Order
• Improving efficiency for freight transportation networks - a crucial driver of our nation's economy
• Strengthening public transportation by simplifying transit programs and fostering a seamless transportation network
• Consolidating and expanding Federal safety programs

With regard to highway funding, Jackson told the Committee that the President is committed to retaining RABA (Revenue-Aligned-Budget-Authority), which maintains a nexus between highway trust fund revenues and highway expenditures. However, the Secretary stated that highway expenditures would actually exceed trust fund revenues in the President's proposed budget, but maintained that the President was not requesting the enactment of new user fees.

The Administration also proposes that all revenue from gasahol and ethanol taxes be deposited into the highway trust fund, which would add more than $600 million per year to the fund. However, the President strongly opposes an initiative by Rep. Don Young (R-Alaska), Chairman of the House Transportation and infrastructure Committee, to increase the gas tax by 2.5 cents. The Deputy Secretary believes in the short-term that DOT can distribute more highway funds than it collects without imposing new user fees.

Many Committee Members, especially Democrats, also questioned Jackson on the future of Amtrak. The national rail corporation is currently awaiting completion of the Omnibus Appropriations Bill so there funding level for FY 2003 is set. Amtrak President David Gunn had told lawmakers that if Amtrak does not receive at least $1.2 billion for FY 2003, it might have to shut down operations in the spring. The President's budget for FY 2004 requests $900 million for Amtrak and the Deputy Secretary stated that: "Amtrak had severe and persistent financial challenges and must undergo significant reform". Jackson added, "the Federal Government cannot afford business-as-usual at Amtrak and intercity passenger rail must be run like a business".

While the administration and Secretary of Transportation Mineta continue to finalize their rail passenger policy, Deputy Secretary Jackson suggested that one option that ought to be given serious consideration involves introducing some form of competition to intercity passenger rail. However, Jackson cautioned lawmakers that such an idea is a longer-term solution that cannot be applied to Amtrak's current financial situation.the Jackson added that the Administration looks forward to working with the House Transportation and Infrastructure Committee to address the issues pertaining to intercity passenger rail.

The Deputy Secretary also spoke of the robust demand by local communities for mass transit funds. According to Jackson, in the last year there has been an "explosion" in demand for grant money for rail projects, especially light rail. Jackson said that DOT has developed many good working relationships with many localities and looks forward to working with new cities in the future. In order to accommodate the increased demand for rail project funds, Secretary Mineta changed the federal-state match arrangement for the distribution of funds. Currently, the Federal Government provides 80% of funding, compared to a 20% contribution from the states. The DOT has changed the arrangement to a 50-50 match because of the heavy demand. Some Democrats on the Committee argued that such a change could inadvertently damage a lesser developed community's chance of receiving transportation assistance, but the Deputy Secretary insisted that DOT would continue to work successfully with all communities.

Although Democrats on the House Budget Committee were generally non-truculent with the Deputy Secretary, some on the Committee used the forum to assail the Bush economic stimulus package in favor of one that concentrates more on public works projects. Some Democrats, including Ranking Member John Spratt (D-South Carolina), thought that the President should have requested more money for DOT to spend on public works projects, which he thought could best reinvigorate the economy.

Budget Committee Chairman Jim Nussle (R-Iowa) and Deputy Secretary Jackson confirmed that this year will be a busy and exciting year for transportation.

One of the most contentious issues in the omnibus spending bill has been the fight over drought aid. According to House Appropriations Committee Chairman C.W. Bill Young (R-Florida), the issue appears to have finally been put to rest, with both sides agreeing to fund an additional $3.1 billion in drought aid by taking it out of spending programs contained within last year's farm bill.

With drought aid out of the picture, the only major remaing hurdle are a series of environmental riders inserted by House Transportation and Infrastructure Committee Chairman Don Young, (R-Alaska). Amtrak issues appear to have been settled at the levels we mentioned earlier, leaving the logging disputes as the last to be overcome.

In the FY03 Omnibus Spending bill, Medicare payments to physicians and rural and small urban hospitals would receive another $300 million. However, this is not final and could change based on other elements of the spending package which covers 11 fiscal 2003 spending bills.

The package also includes language that would give the Centers for Medicare and Medicaid Services (CMS), the agency that runs Medicare, the legal authority to change the formula that governs how physicians are paid.

The American Medical Association (AMA) has pressed Congress for months to stop a scheduled 4.1 percent payment cut set to begin March 1. Medicare doctors' payments were cut 5.4 percent in 2002, and the AMA had warned that physicians would leave the program unless the 2003 cut was rescinded.

While members of the House supported this increase, it did not have the same support in the Senate where members were concerned that doctors would get more money but other providers such as home health agencies and nursing homes still would face cuts. However, now that the omnibus includes another $300 million for rural hospitals that treat Medicare patients, Senate Finance Committee Chairman Charles Grassley has come out in support of the language.

This issue is controversial because increasing payments for Medicare providers can easily cost billions of dollars and provoke the anger of budget hawks.

The omnibus package also reauthorizes a program set to expire March 31 that pays Medicare Part B premiums for some low-income beneficiaries.

It came down to the wire last night, but disagreement over drought aid has indefinitely delayed the attempt to finally settle the omnibus spending bill in conference. A tentative agreement was laid out, however, with almost all other issues save the drought assistance resolved. The White House opposes drought assistance beyond the provisions of the 2002 farm bill and has threatened to veto the omnibus appropriations bill over this issue. Meanwhile, western Senators of both parties remain as firmly committed to ensuring that drought funding is included in the omnibus bill. This latest setback will push back the earliest possible completion date for the House to Thursday (assuming, of course, that the drought relief issue is settled quickly) and the Senate on Friday. Any minor delays could push the entire package back beyond the President's Day weekend.

Included in the package so far are a little more than $1 billion for Amtrak funding, along with an extension of the time required to payback the latest loan installment. Also the bill appears to increase highway construction non-discretionary funding to the Senate level of $31.8 billion this year, much higher than the administration wants or the House offered. Senate Committee Chairman Ted Stevens (R-Alaska) will meet today with Vice President Cheney to try to break the deadlock. Conferees still expect to complete work this week on the omnibus bill and have no plans to adopt another stop-gap continuing resolution. The existing spending authority expires February 14. We'll have more information as the day progresses.

Our sources on Capitol Hill indicate that the long delayed Fiscal Year 2003 Omnibus Spending Bill may finally be on the verge of completion. We expect the bill to be finalized in a conference session this evening, with votes occurring in the House on Wednesday and the Senate on Thursday. We'll be sure to keep our clients and friends updated as more progress becomes known to us.

We've just got the highlights from the latest U.S. Conference of Mayors Legislative Briefing.

Omnibus Bill

• Conferees hope to conclude work on the bill by Tuesday, have the bill on the House floor by Wednesday and on the President's desk by Friday
• Across-the-board-cut will most likely be around 1% after objection from House leaders and the President
• The compromise bill will likely not include the $3 billion in drought relief added by the Senate
• The bill will also fund the 'no child left behind program', election overhaul and Medicare adjustments at lower levels than the amounts specified in the Senate Omnibus bill

President's FY04 Budget

• Mayors are concerned about the administration discontinuing the new issuance of section 8 housing vouchers
• U.S.COM urges the administration to retain the HOPE VI Housing program, which demolishes distressed public housing units
• Mayors oppose President's proposed reduction of funding for after-school program by 40%
• Cities laud the increase in Brownfield Redevelopment funds administered by the EPA – 410 cities have applied for Brownfield funds
• U.S. COM feels that many components of the President's economic stimulus plan like the elimination of the dividend will not pass, even though the President's entire plan is included in his budget

Proposed Legislation

• Rep. John Sweeney (R-NY) and Rep. Anthony Weiner (D-NY) will introduce legislation providing fiscal relief to states and localities – follows the lead of Sen. Snowe (R-ME) and Sen. Schumer (D-NY)
• The plan will provide the states with $25 billion in unconditional fiscal relief and localities with $25 billion, but with a key provision attached- localities would be forced to distribute $12.5 billion of the $25 billion to residents in the form of property tax rebates – property tax hikes have been a major problem in many cities like N.Y.C. – The U.S.COM strongly opposes any plan that would force cities or municipalities to relinquish fiscal aid because of property tax rebate requirements – The Snowe-Schumer proposal provides $20 billion to both states and localities with no restrictions

Introduced Legislation

• S. 305 (Sen. Kerry and Sen. Hatch) This bill proposes withholding low-income housing tax credits from buildings that do not offer broadband service to their tenants – U.S. COM repudiates the intent of this bill.

Miscellaneous

Senator Judd Gregg (R-NH), Chairman of the Committee on Health, Education, Labor and Pensions, will began hearings on the reauthorization of the Workforce Investment Act on February 27th

• The Administration wants to restructure the way grants are distributed to states for optional Medicaid programs like long-term care and nursing care
• There is an internal battle among members of the National Governors Association (NGA) over whether to endorse fiscal assistance to state governments

Upon further analysis of the new FY2004 Budget Proposal, some lawmakers have expressed suprise that funds devoted to overhauling old voting systems have been budgeted at much lower levels than expected. Last year's law upgrading voting systems nationwide authorizes $3.9 billion over three years with the first year, FY 2003 at $1.5 billion in the pending omnibus spending bill.

But in the FY 2004 budget, President Bush spends only $500 million, one-third of what the law authorizes. The money would fund grants to help state and local governments replace outdated election gear and meet the standards of the law.

Democrats have complained that this doesn't meet the aims of the law. Republicans see it as a good start, even if not ideal.

The 1996 Welfare law is up for reauthorization this Thursday, February 13. The bill comes to the floor without markups in the three committees with jurisdiction over the issue. House leaders say they took the unusual step because of the more than 20 hearings on the issue that were held in the 107th Congress. They said they wanted to give the Senate, which did not act on a welfare bill last year, time to pass a measure and allow for a conference.

Republicans will test the notion of adding tougher work requirements at a time when the economy is struggling and jobs are less abundant. They believe that the only way to lead the poor out of poverty is through a job regardless of economic conditions. Democrats will stress that the weak economy suggests that the new welfare rules should avoid imposing new mandates on states or individuals while authorizing more money for child care, transportation and education for the 2 million families that receive cash assistance.

The bill on the House floor (HR 4) sponsored by Representative Deborah Pryce (R-Ohio), is essentially the same as a measured passed by the House last May. The Senate did not pass a corresponding bill, so lawmakers extended the 1996 law through the end of March. The bill would require by 2008, that participants work 40 hours a week, and that states have at least 70% of their adult recipients employed. The legislation would maintain funding at $16.6 billion and provide a $1 billion increase in mandatory child care grants to states.

Democrats will likely offer a bill similar to the one they offered last year. They believe the goal of reauthorization should be not only tho help welfare recipients find a job, but to provide them an education and job training. Their bill will likely adjust state grants for inflation, authorize an addition 11.3 billion in child care money and retain the 30-hour work week rule.

No Senate bill has yet been offered.

Congressional negotiators are near completion on the FY 2003 spending bill. A key hurdle was cleared when Congressional negotiators agreed to add $6.1 billion for U.S. military activities in Afghanistan. Republican aids were hopeful that the additional funds along with $3.9 billion added earlier for war-related intelligence activities would help expedite passage of the long-stalled spending measure. The measure covers all domestic departments and the U.S. foreign aid program through September.

One factor in the delay of passage of the spending bill is that Congress has balked at providing President Bush blanket authority to spend as much as $10 billion from a wartime reserve account. But under a deal brokered by Vice President Dick Cheney as Defense Secretary Donald Rumsfeld and senior members of the House and Senate appropriations committees, the $6.1 billion in military funds would be appropriated under more standard procedures.

Republican lawmakers want to bring the spending bill to the floor of both chambers for passage no later than Thursday. Lawmakers are backed up against the Presidents Day recess that begins this Friday, February 14.

Potential roadblocks do exist over funding and environmental provisions written into the bill. For example, environmentalists in both parties want to remove language that would allow Interior Department funds to be used for earlier studies of oil and gas development of the Artic National Wildlife Refuge in Alaska. Funds for federal and state land and water conservation programs would be reduced by $166 million. Funding for Medicare adjustments and drought assistance could also cause some hurdles.

Yet to be determined is how to pay for "add-ons" which could require government-wide cuts to keep the package within the limits set by the White House. An example of an add-on is that Senator Ted Stevens (R-Alaska) who chairs the Senate Appropriations Committee, has proposed $100 million to help fishermen, $35 million of which would go to fisherman in his state.

Mitchell Daniels, director of the Office of Management and Budget, threatened a veto of the billions unless it stays under $385.9 billion not including the aforementioned $3.9 billion for intelligence activities. The Senate-passed omnibus had a price tag of $391 billion. It also called for $2.9 percent across the board cut that would pay for increases in education spending, Medicare payments, election overhaul efforts and drought assistance for Western farmers.

The Federal Transit Administration on February 5 released its Annual Report on New Starts. This document contains detailed descriptions, ratings and recommendations on transit new starts nationwide. Please use the link below to access the report. Our analysis section will have a look at the meaning of the document by COB on Friday, February 7.

Annual Report on New Starts

In its release of the President's Budget for fiscal 2004 on February 3, the Administration proposed earmarks for 26 specific transit new starts for the coming fiscal year. The list includes 19 existing Full Funding Grant Agreements (FFGA's), 3 FFGA's now pending final approval and 4 FFGA's the Administration expects to propose to Congress for approval in the cmoing year. The newly proposed FFGA's are the Chicago Ravenswood Line Extension, Las Vegas Monorail, New York Eastside Access and Seattle/Sound Transit Central Link Light Rail.

The proposal leaves $ 121.2 million available for other projects nationwide.

Here is the list of project earmarks suggested in the President's budget.

FEDERAL TRANSIT ADMINISTRATION

Existing Full Funding Grant Agreements (FFGAs)

• California -- San Diego - Mission Valley East LRT Extension 65.0
• California -- San Francisco - BART Extension to SFO 169.9
• Colorado -- Denver - Southeast Corridor LRT 80.0
• District of Columbia -- Washington - Largo Metrorail Extension 65.0
• Florida -- Fort Lauderdale - Tri-County Commuter Rail Upgrades 18.4
• Illinois -- Chicago - Douglas Branch Reconstruction 85.0
• Illinois -- Chicago - North Central Corridor Commuter Rail 20.0
• Illinois -- Chicago - Southwest Corridor Commuter Rail 20.0
• Illinois -- Chicago - Union-Pacific West Line Extension 12.0
• Maryland -- Baltimore - Central LRT Double-Track 40.0
• Minnesota -- Minneapolis - Hiawatha Corridor LRT 75.0
• New Jersey -- Northern New Jersey - Hudson-Bergen MOS-2 100.0
• New Jersey -- Northern New Jersey - Newark Rail Link MOS-1 22.6
• Oregon -- Portland - Interstate MAX LRT Extension 77.5
• Pennsylvania -- Pittsburgh - Stage II LRT Reconstruction 30.2
• Puerto Rico -- San Juan - Tren Urbano 43.5
• Tennessee -- Memphis - Medical Center Extension 9.2
• Texas -- Dallas - North Central LRT Extension 30.2
• Utah -- Salt Lake City - Medical Center Extension 30.7

Pending FFGAs

• California -- Los Angeles - Eastside Corridor LRT 55.0
• California -- San Diego - Oceanside Escondido Rail Corridor 48.0
• Louisiana -- New Orleans - Canal Street 36.0

Proposed FY 2004 FFGAs

• Illinois -- Chicago - Ravenswood Line Extension 45.0
• Nevada -- Las Vegas - Resort Corridor Fixed Guideway 40.0
• New York -- New York - Long Island Rail Road Eastside Access 75.0
• Washington -- Seattle - Central Link Initial Segment 75.0

Proposed Project Funding

• Projects in Preliminary Engineering and Final Design 121.2
• Ferry Capital Projects [Alaska/Hawaii] 10.3
• Oversight Set Aside [1%] 15.2

Total 1,515.0

The chairman of the House Transportation and Infrastructure Committee, Rep. Don Young (R-Alaska), reacted yesterday to the FY2004 Budget proposal the administration released on Monday. His thoughts?

"The President's FY 2004 budget request for the Department of Transportation increases overall funding levels by six percent.

"However, within the surface transportation agencies up for reauthorization this year - Federal Highway Administration, Federal Transit Administration, National Highway Traffic Safety Administration, and Federal Motor Carrier Safety Administration - there is not much growth. In fact, the Federal-aid highway program request level of $29.3 billion is $2.5 billion less than the FY 2002 enacted level, and the Federal Transit Administration budget is flat-lined at zero growth.

"Unfortunately, the President's budget proposal for highways and transit will not close the funding gap that is needed to address the nation's infrastructure. In fact, the Department of Transportation reported in its 2002 Conditions and Performance Report that the needs of the nation's highway and transit infrastructure are greater than twice the number in the President's Budget.

Young expressed encouragement that fatalities and accidents have declined, but noted that the nation's transit infrastructure: roads, bridges and transit facilities, are all old and deteriorating. In order to decrease congestion and ensure capacity for future growth, he stressed the need for further investment.

On January 30th, only two days after the President made mention of the issue in his State of the Union speech, Senators Rick Santorum (R-PA) and Joseph Lieberman (D-CT) reintroduced their faith-based initiative from the previous Congress. The Senators cosponsored the ‘CARE’ Act in the last Congress, which failed to pass the Senate after a bombardment of last-minute democratic amendments.

The bill, which was less controversial than its House counterpart, contained language that would encourage charitable giving through tax exemptions, increase Social Services Block Grants by $1.2 billion and make it easier for religious charities to compete for billions of dollars in federal funds for social programs. Opponents of the bill were fearful that such provisions that made it easier for religious organizations to procure federal funds could create an entanglement between Church and State and permit job discrimination on the basis of religion by the recipients of such funds. The bill would allow religious charities to remain religious in nature, while receiving federal funds and administering social services. Also, in the bill is language that prevents federal agencies, states and grantors of federal funds from discriminating against religious charities on the basis of their religious affiliation, when awarding grants for the administration of social services. If such discrimination exists, the bill provides recourse for religious charities in federal court.

The notion of allowing religious charities to compete for federal funds to administer social services began in 1996 with the passage of charitable choice legislation. However, the 1996 law did not prohibit grantors of federal funds from subtly discriminating against non-governmental organizations on the basis of religion. Since 1996, many religious organizations have found it tough competing for federal funds. Some religious charities also lack the business and legal credentials necessary to document and ensure proper the use of federal funds, which is required of all recipients. The current legislation would allow federal agencies to provide such organizations lacking the proper apparatus, assistance enhancing their accounting and performance capabilities.

When the CARE Act was being considered in the last Congress, many cities and local governments expressed concern over their legal liability. For example, if a recipient of a social service objected to the religious character of an organization, can the individual sue the city or local government that lacks the resources to offer a purely secular alternative for that service? Also, can faith-based organizations (FBO) take legal action against cities or municipalities if the local government did not award a contract to an FBO for a valid reason? Would this legislation create a floodgate of frivolous lawsuits?

Such legal questions will certainly be discussed as debate on the CARE Act proceeds ahead in the coming months. Evidenced by mention in his State of the Union speech, President Bush considers the CARE Act to be a legislative priority. With the Republicans now controlling the Senate, passage of faith-based legislation might be easier, but there still remains steadfast opposition from a contingent of Democrats. Serious debate on the bill should commence very shortly.

Today, the National Conference of State Legislatures (NCSL) released a report indicating that state budget gaps have grown by 50% in the last two months and that state policy makers will have to work to resolve unprecendented budget shortfalls for the next 15 months.

The news only gets worse. State legislatures face a minimum $68.5 billion budget shortfall for FY 2004. Thirty-three states estimate budget gaps in excess of 5%, with 18 of those facing gaps above 10%. This is a cause of great concern as deficit numbers continue to grow.

A major cause of the budget deficit are the budget shortfalls. At least 30 states say revenue collections are below budget forcasts, with 12 of these reporting collections below revised estimates. Thirty-seven states say spending is exceeding budgeted levels, with all but five reporting excessive Medicaid or health care costs.

Other reasons for the poor budget forecasts include the declining national economy, declines in the stock market, contractions in the manufacturing and high-tech sectors and soaring health costs.

Currently, states are using their rainy day funds, utilizing other state funds, releasing prisoners early, laying off workers, delaying capital projects and cutting spending to balance their budgets. Twenty-nine states have imposed across-the-board budget cuts.

Also of concern to states are the actions of Congress and the Administration in the months ahead. NCSL is concerned that yesterday's budget proposal does not meet the the costs of mandates for the No Child Left Behind Act, special education and election reform. They also believe that flexibility alone won't meet their needs.

The report found that tax increase proposals are being considered in 24 states. At least 14 will consider higher cigarette taxes and 6 are weighing higer taxes on alcohol. Six states are looking at sales taxes and four at income taxes.

The report concludes that there is "no immediate end in sight" to the budget troubles and warned that next year promises to be even more difficult.

Over on the analysis side of the website, we've got a new article up detailing each Department's budget. Between the raw numbers we posted yesterday and the more fleshed out analysis today, clients and friends should get a good sense of the administration's priorities for the fical year 2004 budget. The new page is being updated throughout the day (as are any last-minute revisions to the raw numbers as consolidations and reorganizations are ironed out) so be sure to check back often for the latest information. With the large number of projects that have been renamed, moved or consolidated, our analysis is invaluable to deciphering the entire miraculous mess.

As we continue to analyze the Bush Budget, we've got a more in depth look at the Department of Transportation budget with details on rail, road and air programs. The total funding will increase by 6%, but monies are shuffled around to reflect a new set of priorities from the administration. A few programs have been dropped entirely, some have seen drastic cuts while still others have been increased just as dramatically. For the full scoop, head over to our analysis side.

President George W. Bush today released his budget plan for the fiscal year beginning October 1, 2003. This is the first of a series of reports Peyser Associates will send to our clients regarding the budget proposal. For the full analysis of the budget and how it breaks down from program to program, be sure to check out the analysis side of the website.

The Bush budget calls for spending of $2.2 trillion in the coming fiscal year, an increase of 4.2 % from projected fiscal 2003 spending. Revenues are estimated to total $ 1.9 trillion, leaving a deficit of $ 307 billion. The budget documents project the fiscal 2003 deficit to be $ 304 billion.

Under this budget, entitlement spending, referred to as "mandatory" would increase by $46 billion ( 3.8 %) the major components of this category are Social Security, Medicare and Medicaid.

The Defense function is the major winner in this proposal. Defense spending would increase by $ 14 billion (3.8 %) to in fiscal 2004, but future year projections in the budget call for larger increases going forward. Major highlights of the Defense spending plan are

Non-Defense domestic discretionary spending overall would increase by approximately 3% -- about 1% above the projected inflation level. Here is how spending in key agencies would change from FY 2003 to FY 2004: