Over on the analysis side of the site, we've just posted a more detailed look at the budget implications for each department. Be sure to check it out.

Treasury Secretary John Snow and Transportation Secretary Norman Mineta have warned the Senate today that they will recommend a veto of any surface transportation reauthorization bill that raises taxes, relies on bond financing or draws money from the general fund. The veto threat, in the form of a letter addressed to Majority Leader Bill Frist reiterates points made earlier by administration officials, including President Bush. The Senate Finance Committee yesterday approved a $35 billion funding package that would transfer some liabilities from the Highway Trust Fund, which is funded by the gas tax, to the general fund. The Snow-Mineta letter said, "Highway spending should be financed from the Highway Trust Fund, not the general fund of the Treasury." All the money should be "derived from taxes imposed on highway use," the letter said.

The letter is located right here and is in pdf format.

While reauthorizing the transportation bill remains a higher priority for the Senate Environment and Public Works Committee, their staff are beginning to work on amendments to the Water Resources Development Act (WRDA). This bill to authorize water resources projects for the U.S. Army Corps of Engineers is nearly two years overdue. The House passed its version of the bill last fall. Senate committee staff expects to send a letter to each senator this week requesting projects and input for WRDA. Local sponsors of projects for flood control, water infrastructure, environmental restoration, or harbors should send letters to their senators asking that projects and related policy concerns be addressed in the legislation.

President Bush today released his budget for fiscal 2005. The $2.3 Trillion spending plan represents 3.9% growth over the current year. The administration estimates the deficit in fiscal year 2005 will be $521 Billion. It projects the deficit will be reduced by more than half, to $237 billion, by fiscal year 2009.

The Budget proposal assumes the Gross Domestic Product will grow by slightly more than 5% in fiscal 2005 and sustain growth levels above 5% right through fiscal 2009, the last year for which estimates are made.

Under the President’s plan, deficit reduction would be achieved by due to increased revenues resulting from economic growth and by holding total spending growth below the projected growth in GDP.

Here are the highlights of the President’s proposed budget:

Tax Cuts

Make permanent the tax cuts enacted in 2001 and 2003.

Defense Spending

Increase by 7% to $401.7 Billion

Homeland Security

Increase by 10% to $40.1 billion.

Other Discretionary Spending

Increase by .5%. This represents a real cut of 4.5% as compared to GDP growth.

Within non-defense/non-homeland security discretionary spending, here are the major initiatives:

Medicaid

The budget drops last year's proposal to allow states the option to accept a “block grant”.

Head Start

Increases spending by $169 million, including $45 million for a demonstration program to promote better coordination of existing programs.

TANF

The Budget renews the administration’s call for TANF reform as proposed last year.

Title I Education

Increase by 8% or $1 billion.

Special Education (IDEA)

Increase by 10% or $1 billion.

Pell Grants

Increase by 7% or $856 million.

Community Development Block Grants

Cut by 6% or $316 million.

Housing Certificates

Increase by 3% or $500 million. Change to dollar-based, from unit-based certificates.

Abandoned Mine Reclamation

Restructure program to increase by 19% the number of acres reclaimed per year. Focus on states with greatest reclamation need.

Department of Justice State & Local Assistance

Cut by 32% or $959 million.

Job Training

Level funding for WIA programs and an assumption they will be consolidate. New spending of $250 million for community college training initiative and $ 50 million pilot of Personal Re-employment Accounts.

Highways

No change in funding from fiscal 2004.

Transit

No change in funding from fiscal 2004.

Aviation

Increase FAA spending by less than 1% or $100 million.

Amtrak

Cut by about 1/3 to $900 million. Renew proposal for restructuring of the railroad.

US Army Corps of Engineers

Cut construction budget by 18% or $ 311 million.

State and Tribal Assistance Grants/SRF

Cut by 17% or $ 675 million, including a cut of 37% or $ 492 million in Clean Water State Revolving Fund capitalization.

NASA

Increase outlays by 12% or $ 1.8 Billion

We will be back to you with more detailed analysis of the President’s budget shortly.

Throughout the day, we'll be updating our review of the 2005 budget numbers over on the analysis side of the website. Be sure to check in often to get the latest numbers.

The closer we get to planned action on the reauthorization of TEA-21, the more elusive success appears.

On the Senate side, we have reliable reports that a meeting among members of the Senate Finance Committee early in the week of January 26 resulted in strong objections from some committee members to the proposal to fund the Senate version of the bill through a variety of loophole closing measures and new assumptions about receipts to the Highway Trust Fund. The proposal, slated for a mark-up on February 2 at the Finance Committee, was developed over many months by staffers seeking to come up with $255 billion for the highway portion of the bill while preserving the 2.86 - cent/gallon resource for transit. Apparently, at least three Senators - two of them GOP members -- indicated strong objections to the "smoke and mirrors" approach. Reportedly one GOP Senator said -- "I'd vote for a gas tax increase before I voted for this." That particular Senator is known as a very strong opponent of gas tax increases. One key GOP Senator who was in the meeting told a friend of ours "no way in hell the highway bill gets done this year." The Finance Committee still has a mark-up on its schedule for next week, but we will not be surprised to see that pushed-off again.

Additional interesting news from the Senate is that Energy and Natural Resources Committee Chairman Pete Domenici (R-New Mexico) is considering trying to attach the entire energy bill, which narrowly failed passage last year, to the TEA-21 reauthorization when it reaches the Senate floor. While one assumes Domenici is contemplating this because the surface transportation bill is viewed as a popular measure, it is hard to see how his approach would help get the TEA-21 re-write done. Quite the contrary.

Over on the House side, it is still unclear that the Committee on Ways and Means and House Leadership have arrived at a meeting of the minds with the T&I Committee leadership on an overall funding number and how to get to it. We are told it was the House Leadership that prevailed upon Chairman Young to pull the plug on his planned February 3 mark-up within a few hours after having announced it. This would seem to indicate they are not interested in having a plan to spend $375 billion hanging out there if there's no way to pay for it.

A final note of interest. The House and Senate GOP members and leaders are having a retreat this weekend in Philadelphia. It is entirely possible a pow-wow during the retreat will decide the fate of the TEA-21 reauthorization.

Stay tuned for further developments.

The House Committee on Transportation and Infrastructure Subcommittee on Highways, Transit and Pipelines earlier today revealed they would hold a subcommittee mark-up of "TEA-LU" on February 3. Later today, they decided to postpone the markup session.

Chairman Young announced he is still discussing issues with the Democratic side of the committee and that he is checking in with leaders of other committees and the House Leadership.

We will keep you apprised of developments.

On January 27, Senate Majority Leader Bill Frist (R-Tennessee) said that he expects the Senate Finance Committee to markup the revenue portion of the reauthorization bill on February 2. The Finance Committee, chaired by Senator Charles Grassley, is charged with the difficult task of producing a financing mechanism to fund the $311 billion highway and transit bill (S. 1072).

Senator Grassley does not believe that any revenue offsets such as bonding or a gas tax increase will be necessary to finance proposed funding increases for highway and transit programs. Grassley has indicated that the committee’s bill will contain provisions ensuring that additional transportation-related tax revenue is deposited into the highway trust fund.

The Senate Banking, Housing and Urban Affairs Committee will markup the transit portion of the reauthorization bill on February 3, assuming the Finance Committee has already approved the revenue title of the bill. The Banking Committee was originally supposed to markup up the bill on January 29, but the Finance Committee was not ready in time.

The Senate is still planning to commence floor debate on the reauthorization beginning the week of February 2. Since the highway portion of the reauthorization bill was already approved in committee, the Senate will likely debate highway provisions first. Because of the delay in marking up other portions of the bill, Senator Frist anticipates that floor debate will last two weeks.

Frist wants the Senate to act swiftly on the bill because of the new jobs such legislation will create. According to DOT, every $1 billion spent on transportation infrastructure equals 47,500 jobs. After the Senate GOP Policy lunch on January 27, Senator Arlen Specter called the reauthorization bill a "win-win-win piece of legislation because it provides capital investment for the future, job opportunities, and safety for the nation's transportation infrastructure."

The Congressional Budget Office (CBO), a non-partisan arm of Congress, released projections today showing the federal budget deficit this year reaching $477 billion. Long term projections of federal debt are impacted by the current sunset provisions on the 2001 and 2003 tax cut plans. If the tax cuts are renewed past 2010, as President Bush has vowed, they will add $295 billion to the deficit in 2014 according to the CBO. The increase in the deficit is due mainly to spending increases: the latest numbers were revised higher to reflect the ongoing costs of the military occupation in Iraq and the new medicare prescription drug bill recently passed.

The full report is available here.

The Senate Committee on Banking, Housing and Urban Affairs has postponed until February 3 its mark-up of the transit title of the reauthorization of TEA-21. The delay is to accommodate the need for more time for the Senate Finance Committee to resolve issues on the financing title of the bill. The key issues include protecting the entire transit program behind budgetary firewalls -- including the roughly 50% of it that will be financed by the General Fund of the Treasury.

Peyser Associates' clients have received a draft of the proposed transit legislation. Watch this space for summaries and more reports on upcoming action.

The Senate just approved the omnibus spending bill by a vote of 65-28. Rules that irked Democrats on issues such as overtime pay regulations, food labeling and media ownership, were still included in the bill after a vote for cloture passed 61-32, ending Democratic delays.

The Senate Banking, Housing and Urban Affairs Committee has tentatively scheduled a markup of the transit portion of the TEA-21 reauthorization bill for January 28 or January 29, according to Senate sources. The committee is charged with the task of approving up to $56 billion in transit programs over the next six years.

Senate leaders are still negotiating the details of a financing mechanism plan that will offset the cost discrepancy between the Bush Administration’s reauthorization plan and the Senate proposal. The administration proposed $247 billion for transit and highway programs over six years, while the Senate plan calls for $311 billion in funding, as prescribed by the FY 2004 Budget Resolution. The Senate plan is said to call for shifting the cost burden of ethanol and methanol subsidies and fuel tax exemptions from the highway trust fund to the general fund. Currently, the highway trust fund bears the cost of 5.3 cents per gallon ethanol exemption and the 6 cents per gallon methanol exemption. Additionally, public entities such as state and local governments, public transit agencies and public school systems are currently exempt from paying the gas tax. Senate leaders are proposing that such public entities begin paying gas taxes into the trust fund and then receive reimbursements from the general fund. The proposal would also return ethanol and methanol subsidy losses to the highway trust fund.

If the Senate financing mechanism currently being vetted is taken up by the Finance Committee, Senate GOP leaders will avoid having to propose a gas tax increase or bonding as a way to finance increases in highway and transit programs. The Bush Administration and Republican leaders in Congress have long been inimical to raising the gas tax. Though bonding was considered as a possible financing mechanism, there was widespread opposition to bonding in both parties.

Senate leaders has set aside floor time beginning February 2nd for consideration of the reauthorization bill. On the House side, Speaker Dennis Hastert (R-Illinois) is pressing for floor action on the House Transportation and Infrastructure Committee bi-partisan bill by mid-February. The $375 billion reauthorization bill (H.R. 3550) is set to be marked up by the House T&I Committee before the President’s Day Recess, though an exact date has not yet been mentioned. Also, The House Ways and Means Committee, which has jurisdiction over the revenue title in the reauthorization bill has not scheduled a markup session. House T&I Chairman Don Young (R-Alaska) still favors a gas tax increase to finance proposed increases in highway and transit funding. Since the current short-term TEA-21 extension elapses on February 29, lawmakers will need to pass a second extension, as lawmakers will not wrap up work on a long-term reauthorization bill by the end of February. A second extension would have to last until at least the end of April. Lawmakers are hesitant about passing a long second extension because of the immense pressure that will be exerted by state DOTs during the impasse. With short-term extensions, states and state transportation contractors lose the ability to plan for the long-term and are wary about investing in new equipment and additional workers.

Senate Democrats won't block a spending bill despite criticizing their colleagues across the aisle over issues including food labeling and overtime pay. The last attempt to defeat cloture on Tuesday died 12 votes short, 48-45, but Dems expect a prolonged battle isn't in the works.