New Federal Budget Deal Announced by Ryan and Murray

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In a moment of new bipartisan comity, Representative Paul Ryan (R-WI) and Senator Patty Murray (D-WA) yesterday announced the outline of a budget agreement for 2014. The budget negotiators called it a “framework,” suggesting that there are still details to be worked through, but both House Speaker John Boehner (R-OH) and President Obama called the deal a step in the right direction.

Is the budget framework good news for nonprofits? Time will tell, but a number of elements are worth noting:

  • The 2014 budget would be set at $1.012 trillion, which is $45 billion above the $967 billion in the last budget agreement.
  • To avoid the semi-annual threat of government shutdowns, the deal is actually a two-year agreement, with the FY 2015 spending slated to increase to $1.014 trillion.
  • In the mix is $85 billion in “reforms” and “non-tax revenue” that would pay for the increase spending and, according to Ryan, reducing the deficit by $22.5 billion (Fox News called the deficit cut “symbolic” rather than substantive).
  • The pending sequester would be cut by $63 billion, split equally between military and non-military spending. That doesn’t undo the past sequestration cuts, but it cuts the pending sequestration for the next two years by about 33 percent and allows agencies to determine how best to allocate the cuts. Nonetheless, the military still fares better in terms of discretionary spending than all the domestic discretionary spending combined. In 2014, the military’s discretionary budget will be $520.464 billion, compared to $491.773 billion for all discretionary domestic spending. The military’s success in this deal, sought by both parties, was avoiding a $19 billion sequestration cut that would have taken effect in 2014.
  • Many Democrats opposed the idea of increasing federal employees’ contributions to their pensions, despite President Obama’s support of the idea, but the budget deal will increase federal employee contributions to their pensions by 1.3 percent (applicable to new employees and those with less than five years’ service). It also slightly reduces the cost-of-living increases for retired pay and retainer pay for retired members of the armed forces who are less than 62 years of age. This will save $12 billion over 10 years
  • For the long-term unemployed, the deal does away with an element sought by many Democrats, the extension of long-term unemployment benefits. As a result, on December 28th, 1.3 million long-term unemployed Americans will lose their unemployment benefits. Senator Bernie Sanders (I-VT) said he will fight to get the unemployment benefits returned to the budget, though Senator Dick Durbin (D-IL) indicated that to do so would have to be “brokered” by President Obama and Speaker Boehner.
  • Other sources of “savings” in the deal, to account for the extra revenues, include, according to Bloomberg, “a grab bag of obscure savings provisions, with an emphasis on tightening eligibility criteria and eliminating fraud and overpayments in programs including unemployment insurance, Medicaid, and benefits for federal prisoners.” In addition, there are increased revenues from higher user fees, such as an increase in the September 11 security fee on airplane tickets paid by passengers.
  • Although many nonprofits are government grant and contract recipients, it is doubtful that nonprofits will be taking advantage of the provision that caps the maximum for a contractor’s employee’s compensation at $487,000.

Despite the bipartisan negotiators, conservatives and Republicans have already lined up in opposition. Matt Kibbe of FreedomWorks quickly denounced the deal for “surrender[ing] the only real spending reforms accomplished under the Obama administration.” Kibbe was joined by Senator Orrin Hatch (R-UT), who said he was leaning against the deal, and Marco Rubio (R-FL), who announced his opposition.

It is possible that some Democrats might lean against the deal due to its requirement of larger federal employee contributions to pensions and its failure to include extended jobless benefits, but our guess is that President Obama’s approval will count more for liberal Democrats than Boehner’s and Ryan’s for Tea Party Republicans. However, even the reliably very conservative editorial page of the Wall Street Journal gave the deal a lukewarm endorsement as the best that could be expected at this time, even though it is hardly a grand bargain achieving conservative fiscal goals, but admonished House Republicans to extract a commitment from Boehner not to cut a side deal with Democrats to extend jobless benefits.

As we read it, the deal doesn’t overturn the past sequester, reduces some of the pain of the impending sequestration cuts, and gives agencies flexibility in allocating cuts among programs rather than applying an across-the-board percentage decrease. Given its generosity to the Pentagon, the budget deal doesn’t address bloated military spending, even with the cover given just the other day by former Secretary of the Navy John Lehman, who suggested that Republicans could take the lead in cutting the Pentagon’s huge bureaucracy in which half of currently enlisted members of the military are placed. The end result is not much of an increase in domestic discretionary spending, but the avoidance of another shutdown—that is, if enough Republicans stay with their party leaders and support the deal.—Rick Cohen