The Senate narrowly approved a budget resolution early this morning, by a vote of 51-45. Most Democratic amendments seeking to boost spending for domestic programs and homeland security were defeated. The resolution limits Fiscal Year 2005 discretionary spending to $821 billion, with procedural protection for a five year, $80.6 billion tax cut. It also contains pay-as-you-go (PAYGO) rules to keep revenues and spending in line, which are being currently debated in the House. House deficit hawks have stalled their FY05 resolution in an attempt to insert PAYGO into their version of the bill.

We are receiving reports today that House Speaker Dennis Hastert (R-Illinois) met with the President on March 10 and informed him that the House would consider in the near future a $275 billion/ six-year reauthorization of TEA-21. According to our reports, the Speaker received no commitment from the President either way as to the administration's position on that number. He did indicate that the President said he would look forward to working with a House-Senate conference on the bill.

This new spending total is $100 billion below the amount supported by the bipartisan leadership of the House T&I Committee. Committee staff is now beginning the process of determining whether or how to accommodate this number within the structure of the program proposed in the TEA-LU legislation proposed by committee leaders. This will be a very difficult process.

These developments make clear two parts of an otherwise murky picture: First, the House leadership is clearly in control of the process in the House -- overriding the position of committee leadership. Second, the White House is gaining in its effort to drive the spending level down towards its proposed level of $ 256 billion.

We will keep you posted on developments.

As the Senate continues its consideration of the FY 2005 Budget Resolution, one thing has become clear: House and Senate Republicans do not have ambitious plans for reconciliation legislation this year. The FY04 budget resolution currently in place already sets an $814 billion cap on appropriations. Taken together, this means that adopting a congressional budget is less important than in previous years, when they were crucial to enacting President Bush’s tax cuts.

However, adopting a budget resolution is a priority for Republican leaders if only to demonstrate that they can fulfill one of the most basic responsibilities of running Congress.

The $814 billion in discretionary appropriations in 2005 is slightly below the $818 billion Bush request. Sen. Nickles (R-Oklahoma), Chairman of the Senate Budget Committee is caught in a procedural bind that threatens to complicate floor proceedings. The FY 2004 budget resolution adopted in 2003 included a two-year set of spending caps that would limit discretionary spending in 2005 at $814 billion. As a result, the budget plan for the coming year must adhere to that level or risk being struck down on a budget point of order that would require 60 votes to waive. To live within the $814 billion cap, Nickels would cut Bush’s $421 billion request for defense by $7 billion, or about 2 percent.

However, Appropriations Chairman Ted Stevens (R-Alaska) and Armed Services Chairman John Warner (R-Virginia), vow to restore the defense cut, and there is considerable pressure to add back about $2 billion cut from the Bush request for domestic programs.

In the House, Budget Chairman Jim Nussle (R-Iowa) is putting together his fourth budget. Last year, Nussle pushed a proposal to trim 1 percent from most entitlement programs, including Medicare. The idea was significantly scaled back before it arrived on the House floor, and all of the remaining cuts in mandatory programs were dropped in conference talks with the Senate.

This year, Chairman Nussle said he will propose a one-year moratorium on earmarks, a response to concerns among conservative lawmakers and Republican core voters that Republicans are too prone to stuffing appropriations bill with pork barrel projects. Nussle’s plan, which is still being drafted, also would freeze or cut the budgets of every program that has not been reauthorized by its oversight committee, as well as block any new proposals to increase entitlement spending.

Nussle is also planning to decrease Bush’s defense spending request by 0.5 percent, or about $2 billion. Thirty-four Republicans have stated in a letter last month that they would vote against any budget resolution that cuts the president’s budget request for national defense.

Even with TEA-21 reauthorization still on the House Transportation and Infrastructure Committee’s docket, many lawmakers are still optimistic about a long-term bill being passed this year.

Committee Member Rep. Robin Hayes (R-North Carolina) commented, "I've got a good feeling about" a bill passing this year, according to BNA news service. Hayes was hesitant to predict whether the House would pass a two-year or six-year bill and is unsure what the price tag of the chamber’s bill will be.

Rep. Tom Petri (R-Wisconsin), chairman of the Subcommittee on Highways, Transit and Pipelines, feels that transportation stakeholders might be better off with a two-year reauthorization bill if an enacted six-year bill contains inadequate funding. Petri does not want states locked into a poorly funded six-year bill, though most Senators are staunchly opposed to a two-year bill because such a bill would not allow state DOTs to properly plan for future transportation projects.

Subcommittee ranking member, Rep. William Lipinski (D-Illinois), also remains confident that a long-term bill will be passed this year, commenting that the GOP leadership “has been very supportive ... right from the start.”

Currently, both chambers of Congress are working on passing a budget resolution, a non-binding measure that will provide a spending blueprint for lawmakers during the appropriations process. Transportation authorizers are looking to the House budget resolution to see how much money is allocated for transportation programs. The Senate budget resolution, which is currently being considered on the Senate floor, contains $256 billion for highway and transit programs over the next six years, which is the exact figure recommended in the President’s proposed budget. However, just last month, the Senate passed a long-term TEA-21 reauthorization bill that would fund surface transportation programs at $318 billion over the next six years. Budget Committee Chairman Don Nickles (R-Oklahoma) included only $256 billion for highway and transit programs because the committee assumed that the President’s number would ultimately be enacted into law, as opposed to the number contained in the Senate bill.

In the House, the Budget Committee will markup the chamber's budget resolution on March 11. Transportation stakeholders are looking to the House Budget Committee to see how much funding House GOP leaders are allotting for a TEA-21 reauthorization bill. With transportation authorizers in the House still yet to even markup a reauthorization bill, the House spending blueprint may provide House T&I Committee Chairman Don Young (R-Alaska) will an idea of how much support there is for a larger bill. The House T&I Committee has yet to even schedule a date for marking up their reauthorization bill, after numerous postponements.

The House Ways and Means Committee, which is charged with the task of approving a revenue title for the reauthorization bill, will markup a bill next week that would repeal the U.S. export tax regime and introduce a series of revenue raisers relating to leasing transactions and highway trust fund taxes. The Ways and Means Committee must act soon on this measure because the European Union is currently imposing tariffs on U.S. manufacturing goods because of U.S. export subsidies that were ruled illegal by the WTO. In the bill, Committee Chairman Bill Thomas (R-California) has attached $15 billion in fuel-tax-related provisions, including a modified version of the volumetric ethanol excise tax changes (VEETC) that were contained in the compromise energy bill (H.R. 6) that has stalled in Congress. The VEETC provision accounts for $9 billion of the $15 billion, causing many transportation stakeholders to ponder which other tax loopholes could be closed to finance increases in highway and transit programs.

Yesterday Russ Feingold's (D-Wisconsin) amendment to restore PAYGO rules passed the Senate by a margin of 51-48, with four GOP moderates joining Senate Democrats. The rules would require the cost of tax cuts and spending increases to be balanced by increases in revenue and cuts in spending. Although such a move would create a 60-vote hurdle for Senate Republicans to pass any further tax cuts, even Feingold has pledged to waive the requirements for three popular tax cuts set to expire this year: the child tax credit increase, the current 10% tax bracket and current "marriage penalty" tax relief.

In other budget news, by a 95-4 vote, Senators elected to adopt an amendment offered by John Warner (R-Virginia) to restore $6.9 billion worth of funds to the Pentagon, matching the administration's request.

Finally, Senator Max Baucus (D-Montana) was able to remove from the budget resolution a measure requiring the Finance Committee to lower mandatory spending by $3.4 billion over the next five years. Such a measure would cut Medicaid spending by $11 billion and lower the earned income tax credit for the working poor by $3 billion.

Pennsylvania's Senate passed a measure early this morning to amend the commonwealth's constitution to place a liability cap on medical malpractice claims. The House had passed a far more broad measure to impose liability restrictions on all civil suits, but reconciling the two different versions could prove difficult. In addition, in order to amend the Pennsylvanis Constitution, a bill must pass both the House and Senate in two consecutive years, to be followed by a vote by the people. Even then, an amendment would not contain specific dollar amount limits, which would have to be set by another bill after the constitutional process was completed.

On March 9, the Senate Finance Committee approved the nomination of Dr. Mark McClellan to serve as administrator of the Center for Medicare and Medicaid Services. The position become vacant after the former administrator, Thomas Scully left the agency for a job in the private sector. McClellan currently heads up the Food and Drug Administration and is the brother of Bush Press Secretary, Scott McClellan. In addition to being a medical doctor, Mark McClellan is also an economist.

The Finance Committee approved the nomination by a margin of 18-2. Senators Bob Graham (D-Florida) and John Kerry (D-Massachusetts) both voted against the nomination. Graham felt that McClellan had failed to adequately answer questions regarding his position on drug reimportation. Also, after the hearing, Senator Byron Dorgan (D-North Dakota) placed McClellan’s nomination on hold, meaning the Senate will not be able to vote on the nomination until Dorgan relents. Dorgan has already notified Senate Majority Leader Bill Frist (R-Tennessee) that he will object to a vote if McClellan’s nomination is brought to the floor. Dorgan is upset that McClellan will not testify before the Senate Commerce, Science and Transportation Committee before he is confirmed by the full Senate. McClellan has agreed to appear before the full committee once he is approved by the Senate.

Dorgan, along, with Commerce Committee Chairman John McCain (R-Arizona), have been vociferous about their desire to allow seniors to purchase drugs from other countries, where prices may be cheaper. While Dorgan has indicated he will not budge unless McClellan appears before the Commerce Committee, Frist has stepped in to attempt to address his concerns, while still having a full Senate vote this week.

As FDA Administrator, McClellan opposed the practice of reimportation because of safety concerns. However, at the Finance Committee nomination hearing, McClellan pledged to work with the committee to develop a system which would allow the FDA to verify the safety of imported drugs.

Many governors and mayors favor allowing their seniors to purchase drugs from Canada, where such drugs are less expensive because of price controls. Currently, the practice of drug reimportation is illegal, though some states and mayors have already skirted the law. States or cities seeking to reimport drugs currently must obtain a waiver from Health and Human Services Secretary Tommy Thompson. The Secretary has so far been unwilling to approve remiportation programs because of safety concerns.

In addition, many conservatives in Congress and the administration are concerned that allowing the reimportation of drugs into America will distort the marketplace and depress the profits of pharmaceutical companies, who typically invest billions of dollars in research and development for new drugs. These lawmakers worry that lower anticipated profit margins will create a disincentive for pharmaceutical companies to continue to develop new drugs. Administration officials have indicated that if drug companies are unwilling to invest in important research because of uncertain returns on investment, it will become even more difficult to find a cure for infectious and deadly diseases that have a smaller profit margin.

Yesterday, the Senate defeated, 46-51, an amendment to the fiscal year 2005 budget resolution that would have resurrected the pay-as-you-go (PAYGO) budget rules that were used in the 1990’s to control deficits. The PAYGO rules require tax cuts and new entitlement spending to be offset with spending cuts in other places or with revenue increases.

This proposal would have imposed the restriction unless the budget was balanced minus surplus Social Security revenue.

PAYGO rules can be overridden with a 60-vote majority in the Senate.

Sen. Pete Domenici (R-New Mexico) and Sen. Russell Feingold (D-Wisconsin) are working on another similar proposal.

The Senate Commerce, Science and Transportation Committee is discussing a bill today (S 2056) which will increase by a power of ten, the current Federal Communications Commission (FCC) fines that can be applied to broadcasters who violate current indecency rules. The companion House bill (HR 3717) has similar language but many provisions have been added since its introduction January 21, some of which don't have as broad a base of support as the Senate version. The newer House version would make it easier for the FCC to fine artists and performers instead of just broadcasters, as well as a proposal to encourage the FCC to revoke broadcast licenses for repeat offenders. Right now there is little consensus as to which provisions in the harsher House version will survive through the process.

The General Accounting Office (GAO) released a report Monday criticizing Amtrak for failing to improve the Northeast Corridor as it planned a decade ago. Amtrak's original goal of a three hour train ride between Boston and New York City is still well below the current high speed travel time of 3 hours and 24 minutes. According to the report, "51 of 72 work elements that FRA identified in its 1994 master plan as necessary to reduce trip times ... are incomplete or their status is unknown." At least $3.2 billion has been spent on the upgrade process so far.

According to CQ, Senator John McCain (R-Arizona), who commissioned the report, agreed with its findings, saying, "I fully support GAO's conclusion that Amtrak did not exercise effective management or oversight of the project." A spokesman for Amtrak, Cliff Black, argued that Amtrak had managed to reduced travel time from 4 hours to 3.5, between Boston and NYC, and that the uncertain appropriations environment over the past several years has hurt the passenger rail agency.

The GAO report is located here and we also have a highlight page, both of which are in .pdf format.

The budget blueprint for fiscal year 2005 is being debated this morning on the floor of the Senate. The majority leaders seek to have a resolution approved by the end of the week. Reconciling the Senate's resolution with the House version (currently scheduled to be in committee March 10) may be difficult, as House leaders may be under pressure to increase funding for defense and domestic programs.

Already, many military systems are feeling the financial pinch during a particularly difficult fiscal year. Senate GOP leaders are attempting to add $7 billion worth of funding to the defense spending level to match the amount requested by the administration. The Senate Budget Committee removed $7 billion from defense spending and $2 billion from domestic spending to pare the administration's request from $823 billion to $814 billion, putting it under the cap established last year as part of the fiscal 2004 budget resolution.

With Senate Appropriations Committee Chairman Ted Stevens (R-Alaska) already committed to designate certain spending as "emergency spending", and thus not fall under the budget resolution, deficit hawks on both sides of the aisle are already conceding the FY05 resolution may not hold spending down in any meaningful sense.

Developments in the House of Representatives point to continued problems in producing a TEA-21 bill covering 6-years at adequate investment levels. In recent days, House leaders have taken steps to push towards a six-year bill are funding levels well below those viewed as adequate by highway and transit advocates.

On March 3, House T&I Committee Chairman Don Young (R-Alaska) announced he would put before his committee on March 23 and 24 a six-year $279.5 billion TEA-21 reauthorization. This is almost $100 billion below the amount Rep. Young had been insisting on up to this point and $38.5 billion below the Senate's number. Reports indicate the new number is the one that House Ways & Means Committee Chairman Bill Thomas (R-California) insisted on as the maximum he would support.

Thomas apparently plans to advance the Highway Trust Fund financing legislation, usually attached to the actual highway and transit legislation, as part of his legislation on Foregin Sales Corporations (FSC's) instead. The FSC legislation is needed to head-off trade sanctions levied against the US on March 2 because current tax benefits for FSC's violate WTO rules. Thomas' legislation to make necessary alterations would forbid certain sale-leaseback arrangements that transit agencies and municipalities have used in recent years to reduce the capital costs of equipment. Apparently, Thomas wants to attach the tax provision relating to transportation financing to his bill because he also wants to siphon off revenues which otherwise would go to the Highway Trust Fund. These may include interest on the fund and the proceeds of highway use tax evasion enforcement efforts. The reason he wants to ensure a six-year bill is to produce enough revenue from these sources to be meaningful for him as an offset to other tax breaks in the bill.

This power play by Thomas could have the impact of dictating the cost and length of the reauthorization of TEA-21. Clearly, the House leadership would need to acquiesce in this decision.

As these events unfolded on March 3 and 4, leaders of the highway lobby met with key legislators on Capitol Hill to express their displeasure. Other highway and transit advocates and organizations representing elected officials at the state and local levels are now re-examining their positions on a six-year vs two-year bill.

The period between now and the House T&I mark-up promises to be a turbulent one. Keep you seat belts fastened. We'll have further news as it develops.

The budget resolution that Senate Budget Committee Chairman Don Nickles (R-Oklahoma) has proposed and that the Senate Budget Committee is expected to pass would cut Medicaid by more than $11 billion over the next five years, including the reductions in the federal share of certain state Medicaid costs that would take effect on October 1.

Because many states remain in fiscal crisis, they have been cutting their Medicaid programs and thereby causing the ranks of the uninsured to rise faster. State revisions in Medicaid eligibility rules over the past two years have eliminated eligibility for 1.2 million to 1.6 million low income people, most of them parents or children in low-income working families. Federal funding reductions will force states to implement even deeper cuts by restricting eligibility, eliminating or reducing health benefits and cutting or freezing provider reimbursement rates.

The budget plan also fails to include funding to cover the costs associated with the Senate Finance Committee’s TANF and child care reauthorization bill. Funds for the welfare-reform legislation would have to come from cutting other mandatory programs under the Finance Committee’s jurisdiction, such as by making deeper cuts in Medicaid or the Earned Income Tax Credit or cutting such programs as Medicare or unemployment insurance.

The budget resolution’s spending figures are normally not binding, and House and Senate leaders doubt that the two chambers will be able to agree on a budget resolution this year. However, leaders are pressing for each chamber to adopt a budget blueprint anyway, as a way to impose some measure of spending restraint.

As expected, the Budget Committee deficit reduction efforts would rely mainly on discretionary spending restraint. The committee proposal for $814 billion in discretionary funding would represent a 3.3% increase over fiscal year 2004. This amount is less than the $823 billion proposed by the White House. Republican leaders acknowledge that if they stand any chance of getting 51 votes necessary to adopt the budget resolution, the spending ceiling will have to be raised.

The House Transportation & Infrastructure Committee has tentatively scheduled a mark-up on March 23 of legislation to extend/reauthorize TEA-21. The decision over whether this will be a two-year or six-year bill is still pending. Our travels on Capitol Hill in the last day have unearthed a new option being circulated that would call for a five-year (fiscal 2005 - 2009) bill with a price tag of $275 billion. If you add the aleady appropriated $43 billion for highways and transit to this, the six year total comes to $318 billion - exactly the same as the Senate bill. Apparently, those circulating this proposal believe the packaging change will make it more palatable to the administration. While there is disagreement over the merits of this new idea among committee members, there is agreement on one thing: the situation is very fluid and bears watching on a day-to-day basis.

We continue to be watchful and will keep you posted on developments.

With the administration and Congressional leaders still wrangling over funding details in a long-term TEA-21 reauthorization bill, some lawmakers have begun to look towards a two-year bill as the only way to break the impasse. Even after the Senate passed their $318 billion reauthorization bill in mid-February, the House Transportation and Infrastructure Committee has yet to markup their bill, as House GOP leaders object to the $375 billion price tag accompanying the committee's bill. The House T&I Committee continues to schedule markups and then postpone them. In the last two weeks, two markups were postponed and the committee has still yet to set a definitive date for a markup.

Steve Hensen, a spokesman for Committee Chairman Don Young (R-Alaska) insists that Young is working vigorously with House Speaker Dennis Hastert (R-Illinois) and House Majority Leader Tom Delay (R-Texas) to come to an agreement on the bill's length and cost. All parties involved favor a six-year bill over a two-year bill, but many Senators just want the House to pass any measure, so a conference committee could start ironing out a compromise bill. Quoted by The Hill, Senator Kit Bond (R-Missouri), chairman of the Senate EPW Committee Transportation and Infrastructure Subcommittee, said, "any bill that will allow us to go to conference and begin negotiations is a start. I view a two-year bill as a starting point for getting a six-year bill passed." Bond added, "make no mistake: no matter the duration, a significant level of funding is required now. The costs will only increase two years from now."

Members of the House Transportation and Infrastructure Committee continue to express frustration at the Bush Administration's insistence that no reauthorization bill exceed $256 billion. At a meeting with White House Chief of Staff, Andrew Card, committee members pressed Card to lift the administration's cost ceiling on the reauthorization bill. White House officials are saying privately that the President would sign a $270 billion bill, but not the Senate's $318 billion measure. A two-year bill would fund highway and transit programs at $90 billion over the next two years. The President would likely sign such a two-year bill.

With a ballooning budget deficit, the war in Iraq, and needed spending for the Department of Homeland Security, it appears that transportation programs will bear the brunt of a more restrictive budgetary environment. A two-year bill would give lawmakers the opportunity to pass a larger bill in two years, if fiscal conditions improve. However, many House T&I Committees are concerned that a two-year bill would contain fewer earmarked projects. Such projects are very popular, especially in election years. If the President does not budge from his veto threat, the House may have no choice but to approve a two-year bill, despite widespread opposition in both chambers. State DOTs favor a six-year bill, because guaranteed funding over a longer period helps such agencies plan future transportation projects.

With the second extension of the current law elapsing on April 29 and Congress recessing for two weeks in April, the House will need to act soon on their reauthorization bill or another extension will have to be enacted.

House Republicans are looking to impose tougher work requirements on welfare recipients in a short-term extension of the welfare law. The welfare law has been extended four separate times with the most recent extension expiring on March 31.

Rep. Wally Herger (R-California) is sponsoring legislation, HR 3848, that would change a credit that states receive under the 1996 welfare law for reducing their welfare caseloads. This change would force states to press more of those on welfare to find jobs.

Democrats oppose Herger’s proposal and Senate Republicans want to pass a “clean” extension without extra work requirements in order to have a full debate over reauthorizing the 1996 law this spring.

Lawmakers have struggled for more than two years to rewrite the law, failing to find consensus on work requirements and child care funding.

Under the 1996 welfare law, states are required to have 50 percent of adult welfare recipients working. But the law also granted states a credit based on the number of recipients that have left the welfare rolls since 1995. Because the number of welfare caseloads has fallen nationwide by more than half since the law’s enactment, the Administration and conservatives in Congress argue the credit effectively is a loophole that discourages states from getting more recipients working.

Rep. Herger’s bill would move up the caseload “base year” for the credit to 1996 for fiscal year 2004. The base year would be increased to 1998 for fiscal year 2005 and 2001 for fiscal year 2006.

Democrats argue that it is unfair for Herger to call for stricter work requirements without providing additional money to the states and contend that Congress should provide a straight extension to give the Senate more time to pass a bill.

Sen. Majority Leader Bill Frist (R-Tennessee) has reassured governors that Congress would not let the program expire and would pass a clean extension. If he does, House leaders are likely to acquiesce and not to try to pass Herger’s bill.

The EU went forward and applied trade sanctions against the United States today in response to a World Trade Organization ruling four years ago. The WTO found that the United States was engaging in illegal export subsidies, and Congress has not been able in the interim to change the corporate tax code to repeal the particular problem.

The EU will begin imposing a 5% tariff on a variety of U.S. products, scaling the percentage up a point each month until it reaches 17% a year from now. The tariff will affect more than $4 billion worth of American products.

This week the Senate is set to take up debate on S 1637, similar to HR 2896, a corporate tax bill from the House Ways and Means Committee, which would move the U.S. into compliance with the WTO's ruling. House Democrats, who oppose HR 2896, have started attempting to bring an alternative measure of their own (HR 1769) to the House floor.

The danger of Transportation Department workers being furloughed was avoided yesterday when President Bush extended the current TEA-21 program for an additional two months. This should provide adequate time for the House and Senate to reach a decision on whether to pass another, shorter extension of the existing law, or to go ahead with a six-year reauthorization.