President Bush today (February 7) released his fiscal 2006 budget. This budget represents a forceful statement by the administration of its fiscal and policy plans for fiscal 2006 and the remainder of the President’s term in office.

Taking the broadest view, the budget is built on these basic principles:

• Funding for the War in Iraq and the War on Terror must be continued and will be accommodated at the necessary levels.
• The tax cuts enacted during the President’s first term should be made permanent.
• The Federal deficit in fiscal 2009 should be ½ what the administration projected it to be in fiscal 2004.
• Federal non-security domestic discretionary spending should be frozen.

In order to establish a baseline from which to make budget decisions, the administration began by settling on economic assumptions which would drive revenue and spending numbers in the budget. Among the key economic assumptions for the next five years are these:

• inflation (CPI increase) at 2.4%/year
• economic growth (GDP increase) at 3.2%/year
• civilian unemployment averaging 5.1%
• interest rates (10-year T-note) at 5.5%.

Starting with the budgeting principles noted above and plugging in these assumptions, the administration had before it a serious challenge. They needed to start on the path to the promised deficit reduction by focusing on a relatively small portion of the overall federal budget – non-security domestic discretionary spending. This category currently makes up less than 20% of total federal spending. Under the budget proposed today, spending on these programs would decrease in nominal terms by 1%. This is a proposal reminiscent of the Reagan administration’s efforts to rein-in domestic spending.

Among the reductions proposed by the President are these:

• A 1/3 cut in community and economic development programs and the consolidation of those programs under the management of the Department of Commerce.
• The elimination of operating subsidies for Amtrak.
• A 12.6% cut in bioterrorism preparedness funding.
• A 9% cut for the disease-fighting work of the Centers for Disease Control and a 6.5% cut in chronic disease prevention and health promotion at the Public Health Service.
• A 46% cut in law enforcement assistance grants to states.
• A $ 4.2 billion cut in a range of education programs, but with offsetting increases in other areas.
• Elimination of the Land and Water Conservation Fund state grant program.
• Elimination of the Railroad Rehabilitation and Improvement Financing program and the Next Generation High-speed Rail program.

Beyond the discretionary spending side of the budget, the administration also is looking to achieve savings in mandatory spending. The Medicaid program in particular would see its spending over the next ten years cut by $60 billion below the baseline level of current law.

The non-security domestic budget is not all about cuts, however. The administration proposes a new $1.5 billion high-school performance program and an increase of $304 million for a program to build new community health centers in rural areas.

The non-domestic and security side of the budget fares better, but still must face increases far below those advocates would have liked. Among the key programs, here is how the numbers come out:

• Homeland Security is up 7% to $342 billion.
• The State Department and International Assistance budget is up 18% to $ 13.3 billion.
• The Defense Department is up 5% to $419.3 billion.

It is important to note that the budget assumes that the $80 billion the administration is now requesting for the wars in Afghanistan and Iraq will be enacted. It does not, however assume any spending on those conflicts for fiscal 2006 and beyond. Those expenditures will have to be accounted for in future budget cutting exercises, if the goal of reducing the deficit by half is to be accomplished.

When all of these actions and the others called for in the Budget are tallied-up, the product is $2.57 trillion in spending and a deficit of $390 billion – this is down from the $427 billion deficit the administration now projects for the current fiscal year.

Reaction on Capitol Hill to this budget has been cautious. Democrats are largely critical of the administration’s proposals. Even some GOP members have cautioned that implementing some of the cuts will be very difficult. However, the administration has proven adept at getting – in general – the results they want and has shown flexibility on the details. It is in exploring the limits of that flexibility that Congress will be engaged over the next few months.

Please visit our analysis side to see detailed charts with projected spending on various programs of interest. We will have additional analysis for you in the days ahead.

The fiscal year 2006 budget was released this morning. We'll be updating our comparison chart over on the analysis side of the website throughout the day so be sure to check back often to get the latest information.

Yesterday the White House Office of Management and Budget (OMB) announced that in his fiscal 2006 budget which is scheduled to be released on Monday, President Bush will propose to consolidate 18 community and economic development programs from across the government into a single program entitled "Strengthening America's Communities Initiative." The new program would be administered at the Commerce Department and would be funded at a level of $3.7 billion, far below the roughly $5.3 billion the programs were funded at in fiscal year 2005.

The consolidated program will have new eligibility and accountability criteria.

One main program being consolidated is the Community Development Block Grant Program which is run out of the Housing and Urban Development Department. Chief advocates for the program, including the U.S. Conference of Mayors criticized the consolidation as there would be a major cut in funding at a time when city budgets are challenged. Cities use the program for low-income housing and business development projects.

The consolidation also includes programs from the Agriculture, Treasury and Health and Human Services departments.

The administration is promoting the plan as a way to remove waste and improve efficiency.

The plan is being received cautiously on Capitol Hill.

Alberto Gonzales was confirmed by the Senate last night in a 60-36 vote. Six Democrats joined all but one Republican to confirm the nominee, marking the lowest level of minority support for a president's choice since 1925, according to Senate historians.

Gonzales was praised universally for a compelling personal history, but came under fire from many Democrats for his role in the controversial Bybee memo that the administration later disowned last year.

In last night's State of the Union address, President Bush pledged to restrain "the spending appetite of the federal government". He vowed to press Congress to hold the growth rate of discretionary spending below the rate of inflation and to fully extend his first-term tax cuts. Other administration officials have indicated that the discretionary spending affected is non-defense or non-domestic security related.

Specifically, he said his FY2006 budget would cut or eliminate "more than 150 government programs". The domestic discretionary portion of the budget currently amounts to only 16% of the overall budget, limiting lawmaker's ability to save large sums of money through cuts.

Bush's call to renew the tax cuts passed in the first-term will have long term budget implications. Currently most of the recently enacted tax cuts are set to expire before 2010. Extending the cuts would impact many of the existing budget projections.

House Speaker Dennis Hastert (R-Illinois) shook up the House Ethics Committee yesterday, ousting the chairman and two other members.

The chairman's gavel will pass from outgoing chair Joel Hefley (R-Colorado) to current member Doc Hastings (R-Washington). Hefley had irked the GOP leadership by having his committee rebuke House Majority Leader Tom Delay (R-Texas). The two other departing members, Kenny Holshof (R-Missouri) and Steven LaTourette (R-Ohio) had both resisted changing rules to Delay's favor, and appear to have paid the political price.

According to House Majority Leader Tom Delay (R-Texas), the White House has agreed to sign onto an additional $43 billion worth of spending for the surface transportation bill under consideration.

This brings the total number to $299 billion as the high mark for what the administration has said it will accommodate. This also marks the level the House conferees were at when the conference with the Senate broke down last year. The Senate last year passed a $318.9 billion bill, well above the administration's request of $256 billion.

The administration has so far not commented on Delay's claim.

Earlier this week in a speech, newly sworn-in Secretary of Health and Human Services Mike Leavitt addressed the issues surrounding Medicaid reform, remarking that the problem is “big enough to see and small enough to solve”. During the speech, Sec. Leavitt did make several policy statements by saying there would be no block grants, no cuts in available resources, and mandatory populations would not have their coverage changed.

The Secretary also mentioned three Medicaid reforms that could save the federal government money. First, allowing states to purchase pharmaceuticals for less than they presently do, second, closing down loopholes that allow people to become eligible for Medicaid by giving away assets to their children and third, proposing an “uncomfortable, but necessary conversation” with states about shutting down financing loopholes.

Finally, Secretary Leavitt mentioned three opportunities in Medicaid reform. The first, an emphasis on home and community based care (as opposed to institutional care). The second is expanding access to more children. While details have not been provided, the President recently announced a plan to conduct a $1 billion outreach campaign designed to bring eligible but unenrolled children onto Medicaid and the State Children’s Health Insurance Program (SCHIP). The third is the opportunity to restructure coverage of Medicaid’s currently optional populations. The Secretary proposed allowing states to use SCHIP levels of benefits to provide “quality basic health coverage” for optional populations.

Some Senate Republicans helped derail a House leadership plan to overhaul the subcommittee structure of the House and Senate Appropriations panels.

The House plan would change the job descriptions of several Appropriations subcommittee "cardinals" stripping three of their positions altogether. With the Senate expressing clearly its wish to keep the status quo, the possibility now exists that the two chambers could begin FY06 budget negotiations with completely different appropriations panels. Such an outcome would significantly raise the chances of another end-of-year omnibus spending bill.

Rep. Ernest Istook (R-Oklahoma) acknowledged on Sunday (January 30) that he will not be chairing any subcommittee of the House Committee on Appropriations this Congress. Istook is the first casualty of the reorganization of the committee, which is reducing the number of subcommittees from 13 to 10.

The Transportation-Treasury Subcommittee will continue to operate largely as before. Under the reorganization plan, the Veterans Affairs and Housing and Urban Development, the Legislative Branch, and the District of Columbia subcommittees would be eliminated. Their jurisdiction would be spread out among the remaining 10 subcommittees.

It remains to be seen which other current subcommittee chairs will lose their status in the reorganization. We will keep you posted on further developments.

The Washington Post is reporting that 40 states and the District of Columbia have banded together to build the technical infrastructure necessary to begin charging sales tax on internet transactions. From the article:

Working together under the auspices of the Streamlined Sales Tax Project, 40 states and the District of Columbia have issued two requests for bids from technology companies to design the software and Web-based networks to track millions of online purchases and process the appropriate sales tax payments.

A request issued by the states last Friday seeks bids to build a registration system where all Internet retailers -- ranging from giants like Amazon.com to smaller companies -- would go to declare their intent to collect and remit taxes on online sales made to customers in the project's participating states.

The second request, issued last November, is aimed at making it easier for online retailers to collect sales taxes. The states plan to award contracts to multiple vendors who would provide sales tax collection systems to online retailers. As currently envisioned by the states, Web merchants would pay nothing for the services. Instead, the vendors would take a small cut from the revenues.

The National Governor's Association estimates that in fiscal year 2003, at least $15.1 billion worth of state sales taxes were lost through internet transactions.

After coming close to negotiating a final bill before Congress adjourned in December, House and Senate committee leaders intend to reintroduce separate versions of the Water Resources Development Act (WRDA) next month. Congress usually adopts a WRDA bill every two years, but controversy over how the U.S. Army Corps of Engineers evaluates projects has stalled the legislation since 2001. House Committee leaders originally intended to move a bill directly to the House and Senate floor based on compromises reached late last year. Instead, the House Transportation and Infrastructure Committee and the Senate Environment and Public Works Committee will introduce separate bills, requiring the committees to reconsider the bills, possibly as early as February or March. Both committees also have jurisdiction over the highway bill, whose passage also eluded lawmakers last year and is generally considered a higher priority and could delay WRDA consideration.

The House leadership has delayed making Appropriations subcommittee assignments while it considers reorganization plans. House Majority Leader Tom Delay (R-Texas) has been pushing to restructure the committee and reduce from 13 to 10 the number of subcommittees. Committee insiders say that a range of options is on the table for discussion, but any change will meet with resistance from some committee members and interest groups concerned about programs being shifted from one subcommittee to another. Further complicating the reorganization is the reception any plan will receive in the Senate. The House and Senate subcommittees must be identical in order to more effectively conference final bills before they're sent to the President. Senate leaders do not share the same degree of enthusiasm or interest in a reorganization. Five subcommittees are considered to be exempt from restructuring plans: Agriculture, Commerce-Justice-State, Foreign Operations, Labor-HHS-Education, and Homeland Security. A final decision is expected in early February, about the time the President's budget request is sent to Congress, kicking-off the appropriations process.

Condoleezza Rice was confirmed as Secretary of State by the Senate today in a 85 to 13 vote. 12 Democrats and one Independent voted against her confirmation.

In other nomination news, Alberto Gonzales's nomination passed through the Judiciary Committee along a party line vote of 10-8. His nomination now moves to the Senate floor.

We've obtained a list of the various deadlines for appropriations issues in the House for Fiscal Year 2006. The chart follows, but we'll continue to update the dates and times as the information becomes aware to us, so be sure to check back often.

Deadline for various appropriations issues for FY 2006 in the House

January 26, 2005

The Congressional Budget Office has released revenue projections through 2010 for the Highway Trust Fund. Similar to assumptions made last year by the Bush Administration, CBO estimates that Trust Funds revenues will be $201 billion through fiscal year 2009 and $245 billion from fiscal year 2005 to 2010. These projections will have an impact on the size of the highway bill re-authorization, which is expected sometime this year. Last year Congress and the White House failed to reach a compromise on the cost of the authorization when the Bush Administration insisted on a bill no larger than $256 billion over the next six years. These new numbers indicate that unless Congress agrees on new sources of revenue for the trust fund, reauthorizing TEA21 will be constrained by the same funding levels as last year.

President Bush nominated former Deputy Treasury Secretary Michael P. Jackson to the number two spot at the Department of Homeland Security. Jackson had served in the Treasury Department from 2001-2003, later leaving to work for AECOM Technology Corp. He has been active in the government for a number of years, originally working for President George H.W. Bush first as Cabinet liaison at the White House and afterwards as chief of staff at the Transportation Department

Yesterday Carlos Guitierrez was approved by the Senate to head up the Commerce Department.

Guitierrez was the head of Kelloggs Corporation previously. He will be forced to tackle a record trade deficit of more than $600 billion as well as the continued loss of jobs overseas. Guitierrez replaces outgoing Secretary Don Evans.