Week Ending February 12, 2016
President Obama Submits Final Budget to Congress
The President submitted his eighth and final budget to Congress this week, proposing a $4.15 trillion spending plan that invests in continued economic growth, expanded infrastructure, improved education and job training, reduced poverty, and other federal spending for essential programs for working families. The 10-year budget plan would also reduce deficits by $2.9 trillion over 10 years. The budget adheres to the funding levels set in last fall’s Bipartisan Budget Act (BBA), but it calls for elimination of the across-the-board “sequester” spending cuts beginning in fiscal year (FY) 2018. The plan includes substantial new revenues by eliminating wasteful tax breaks, taxing non-wage income at higher rates, imposing fees on oil, and other reforms to make our tax system fairer.
Unfortunately, this is a blueprint that Congress will not readily adopt. In fact, Republican budget committee chairs do not even plan to invite the President’s budget director to testify before their committees to explain the proposal. That’s a first. Though deemed “dead-on-arrival” by GOP leaders, the plan is a path forward that prioritizes working families and low and middle income Americans. It recognizes that raising revenues is essential to create and expand needed public services and to be fiscally responsible. In order to include adequate funding levels rather than those that fit within tight budget caps, many investments are proposed for “mandatory” rather than annually-funded programs. The difference is that annual investments are subject to congressional budgets while mandatory or automatic funding is set by formula.
Taxes and Revenues
President Obama’s proposed FY 2017 budget would raise $1.4 trillion over 10 years in new tax revenues by closing five enormous tax loopholes used by America’s wealthiest 2%. The plan recommends reforming the international tax system to decrease incentives for corporations to send profits and jobs overseas and imposes a one-time transition tax to raise $299 billion in revenue for a temporary near-term surge in investment in U.S. infrastructure. It includes long-term revenue-neutral corporate tax reform designed to simultaneously reduce the corporate tax rate from 35% to 28% and broaden the tax base by closing corporate tax loopholes. For working families, it proposes $245 billion in pro-work and middle class tax benefits for child care, college education, Earned Income Tax Credit (EITC), second-earner tax credit, and related reforms. It proposes a $10.25 tax per barrel on imported and domestic crude oil, which would raise $319 billion to support long-term infrastructure and climate resiliency needs. It also raises $115 billion in tobacco taxes.
To ensure America’s top earners pay their fair share, this budget proposes five key progressive tax reforms. First, it caps the value of itemized tax deductions and selected tax exclusions at 28% (lower than the current maximum 39.6%) for top earners, which raises $645 billion. Second, it raises the highest tax rate on long-term capital gains and qualified dividends from 20% to 24.2% and generally treats transfers of appreciated property as a sale of the property, which raises $235 billion. Third, it imposes a minimum income tax rate of 30% on high earners, starting at $500,000 of adjusted gross income for an individual, which raises $37 billion. Fourth, it strengthens laws governing estate, gift, and generation-skipping transfer (GST) taxes by returning to 2009 law, which raises $201 billion. Fifth, it ensures all high earners’ trade or business income is subject to Medicare’s 3.8% tax, which raises $271 billion. AFSCME strongly supports all these proposals except some deductions and exclusions subject to the 28% cap.
To ensure multinational firms, large corporations, and financial institutions pay their fair share, the plan proposes several reforms. First, it changes the international tax system by decreasing incentives for corporations to transfer profits and jobs overseas. It imposes a 14% one-time tax on previously untaxed overseas income, which raises $299 billion. It also imposes a 19% minimum tax on future corporate overseas income with no deferral, which raises $350 billion. While AFSCME opposes and seeks to eliminate deferral along with existing tax incentives that encourage offshoring, the proposed tax rates of 14% and 19% are too low and should be higher. The budget proposes the roughly 100 enormous financial firms with worldwide assets exceeding $50 billion pay a small transaction fee, which raises $111 billion. Unfortunately, the corporate tax reform plan reduces the top corporate tax rate to 28% and will raise no additional net long-term revenues. AFSCME supports corporate tax reform that raises significant additional revenues.
For low-income and working families, the budget proposes tax benefits which cost $245 billion, for child care and college education, earned income tax credits for childless workers and a new maximum $500 tax credit for dual-income families. It also proposes tax benefits for retirement and health benefit plans, which cost $21 billion, the majority of which is for automatic enrollment in IRAs.
40% Tax on Health Benefits
The harmful 40% tax on worker health benefits, temporarily delayed by Congress, continues to exert downward pressure on health care coverage. The budget proposes a convoluted, extremely small, and insufficient improvement that attempts to address the geographical cost disparities driving up health insurance premiums in high cost areas. In fact, the proposal provides very limited tax relief and reduces the tax’s overall cost burden by a mere 2%. AFSCME continues to oppose the 40% tax in its entirety and advocates for full repeal.
The budget would allow Puerto Rico (and other territories) state-like treatment under Medicaid for individuals earning up to 100% of the federal poverty level. Unlike states, Puerto Rico is limited to a low, static amount of federal Medicaid funding each year, unrelated to its actual Medicaid costs. This inequity in federal Medicaid payments has contributed to the island’s financial woes. This change would add nearly $30 billion over the next decade to Puerto Rico’s budget, and an additional $70 million for the island’s hospitals. Additionally, the President’s budget proposes an earned income tax credit for low-wage workers that is already available in the 50 states, a framework for restructuring Puerto Rico’s financial liabilities, and strong fiscal oversight.
The President has also submitted a separate supplemental emergency request to address the Zika virus, including a temporary $250 million to Puerto Rico’s Medicaid program to help pregnant women at risk of infection or diagnosed with the Zika virus and for children born with microcephaly and other Zika-related health problems.
Transportation and Infrastructure
The budget requests $98 billion for the Department of Transportation for FY 2017, an increase of $22 billion, or 29%, mostly to finance the recently-approved highway bill. Altogether, the budget proposes a $900 billion investment in surface transportation over 10 years. A related budget item, however, would harmfully expand financing for public-private partnership procurements on infrastructure projects. This “Financing America’s Infrastructure Renewal” (FAIR) initiative would provide $15 billion in loans to states for these projects.
The President’s budget makes marginal cuts (about three percent) to the Federal Aviation Administration (FAA), from $16.3 billion to $15.9 billion, equal to the FY 2015 funding levels. The decrease in the FAA request for this year is partly due to a proposal to allow all commercial service airports to increase their Passenger Facility Charge.
The President’s budget makes important investments in states’ unemployment insurance systems. It increases funding for Reemployment Services and Eligibility Assessments to $186 million, a 38% increase over FY 2016. This additional funding would be used for in-person assistance to help one-third of unemployment insurance (UI) recipients most likely to exhaust their benefits before funding a new job, and all veterans receiving UI. The budget also includes $1.5 billion over five years in mandatory funds to launch a new 21st Century Career Navigation initiative to provide help finding a job to those who are long-term unemployed, only able to find part-time work, or who have dropped out of the labor force entirely.
Only 27% of jobless workers received UI benefits in 2015. To boost the proportion of the unemployed who receive UI, the President’s budget proposes the following reforms to states’ UI systems: allow compelling family reasons to constitute good cause for quitting a job; restore the standard UI maximum duration of benefits to 26 weeks; establish wage insurance for workers with significant job tenure if a new job pays less and the annual wage is less than $50,000; encourage employers to avoid layoffs by temporarily reducing hours and providing a partial UI benefit to help compensate for lower wages; create a new Extended Benefits program to provide up to 52 weeks of additional, federally-funded benefits for states experiencing increased and high unemployment; and improve states’ UI trust fund solvency to be better prepared for the next economic downturn.
The President’s budget flat-funds Employment Service grants to states as compared to FY 2016. The Employment Service received a 6% funding boost from FY 2015 to FY 2016, $641 million to $680 million. President Obama’s FY 2017 budget does not include his FY 2016 budget proposal for $400 million to support supplemental grants to states for intensive reemployment services for dislocated workers.
Vocational Rehabilitation State Grants
Under the Budget Control Act, Vocational Rehabilitation State Grants were subject to automatic “sequestration” cuts in FY 2015 and FY 2016. The President’s budget proposes to eliminate mandatory sequestration, which would increase federal funding for these grants by 7.5%.
Raising the Minimum Wage:
In his budget, the President expresses his desire to work with Congress to raise the federal minimum wage. This follows his executive action that increased the minimum wage for those working on new and replacement federal contracts, indexing the wage to inflation so it does not become eroded over time. The inflation-adjusted wage for these workers is now $10.15 per hour.
The President’s budget includes more than $2 billion over four years for a Paid Leave Partnership Initiative. This would assist up to five states that want to launch paid leave programs to join CA, NJ and RI, which already have these programs. Funds would be targeted to pay for start-up costs and half of the benefit costs for three years. The budget also urges Congress to pass pending legislation that would provide six weeks of paid parental leave to federal employees after the birth, adoption or foster placement of a child. Last year, President Obama signed an executive order allowing federal employees to use up to six weeks of paid sick leave to care for a new child or an ill family member. And, he signed an executive order which requires federal contractors to provide up to seven days of sick leave for their employees, which can be used to care for an ill family member.
Medicaid is the major source of federal funding for health care costs for roughly one in five Americans. These federal funds allow state and local governments to spend their revenues on other vital services and programs. The budget proposes legislative changes and funds to help states address rising prescription drug costs, expand Medicaid under the Affordable Care Act, and expand primary care, mental health care, and home-and community-based services under Medicaid:
- Permits the federal government and states to jointly negotiate prices with drug manufacturers on high-cost drugs. It’s estimated that this would reduce federal Medicaid spending $5.8 billion over 10 years and is likely to save a similar amount for states.
- Provides $2.6 billion over the decade to allow additional states to expand Medicaid with full federal funding for newly eligible adults.
- Adds $9.5 billion in funding to states to continue 100% federal reimbursement for Medicaid primary care providers.
- Adds $1.6 billion to provide home-and community-based waiver services to children in or eligible for psychiatric residential treatment facilities.
- Adds $505 million to require early and periodic screening, diagnostic and treatment (EPSDT) for children in inpatient psychiatric treatment facilities.
- Provides $4 billion over 10 years to pilot a comprehensive long-term care state plan, $3.9 billion to expand the community first choice option, and $374 million to expand eligibility for home-and community-based state plan options.
Medicaid and Children’s Health Insurance Program (CHIP) managed care plans would be required to spend at least 85% of premiums paid by Medicaid on claims and expenses that improve health care quality. States would be required to collect from insurance companies any monies in excess not spent on claims and return the federal shares, saving the federal government $23.5 billion over a decade and roughly a similar amount for states.
The solvency of Medicare is extended by nearly 15 years in the President’s budget, mostly by reducing payments to providers, private insurance companies and prescription drug manufacturers. For beneficiaries who need expensive medicines the budget brings good news. It eliminates the “donut-hole” or gap in coverage under Part D two years sooner than under current law. The President calls for giving Medicare authority to negotiate with manufacturers to determine prices under Part D to bring down the costs for expensive drugs and biologics. AFSCME has long supported tackling escalating prescription drug prices by leveraging the collective buying power of Medicare.
The budget plan would close a loophole to bolster Medicare’s finances. Under current law, workers pay a tax on their wages and salaries that goes to fund the Medicare trust that covers hospital care. But some wealthy business owners and investment fund managers use the loophole to re-characterize their income, or re-arrange their business operations, to avoid paying their share of Medicare contributions. This loophole closure would provide nearly $272 billion over the next decade for Medicare.
Regrettably, the budget imposes $56.3 billion in additional deductibles for new beneficiaries, higher premiums for 25% of all Medicare beneficiaries, and home health care copayments, all which AFSCME opposes.
Temporary Assistance for Needy Families (TANF):
The President’s budget includes a long-overdue funding boost for the Temporary Assistance for Needy Families (TANF) block grant, which has been frozen for 20 years without any adjustment for inflation. It increases the block grant by $8 billion over five years, with a 4.5% increase for FY 2017. It also proposes to redirect TANF contingency funds to a new subsidized jobs initiative, Pathways to Jobs, funded at $473 million, and a $100 million Two-Generation Demonstration project. The budget also proposes to establish a $2 billion (over five years) TANF Economic Response Fund to assist states during economic downturns, with a trigger to determine if states qualify for funding based on economic need.
Social Services Block Grant:
President Obama’s rejection of automatic “sequestration” cuts would increase federal funding for the Social Services Block Grant by 7.3% as compared to FY 2016. States use this flexible block grant for child care, child welfare, adult protective services and other state and locally administered social services programs.
Child Support Enforcement
The President’s budget would increase funding for states’ child support enforcement administrative costs by 5.9%. It also would increase child support incentive payments to states from $517 million to $586 million, or 9%.
The President’s budget proposes a 26.5% funding increase for the Promoting Safe and Stable Families program, which reflects his rejection of the Budget Control Act’s automatic, across-the-board mandatory sequestration cuts. It also includes $1.8 billion over 10 years, as an option to states, to assist child welfare caseworkers in acquiring Bachelor’s in Social Work (BSW) or Master’s in Social Work (MSW) degrees in exchange for working for a child welfare agency. As an incentive to states to exercise this option, the budget proposal would offer an enhanced federal match rate for case planning and management for children in foster care, as well as for administrative activities related to children who are candidates for care, when these activities are significantly performed by caseworkers with either degree.
The new budget increases by 7.4% funds available to improve customer service by hiring additional front-line employees for local offices and teleservice centers. This additional $905 million will also help reduce the backlog of disability applications.
The budget requests $29 billion for the Department of Justice (DOJ), a decrease of less than one percent. The request includes $500 million annually for a new 21st Century Justice Initiative aimed at improving community policing, building trust, providing equipment, and modernizing police procedures related to training and use of force. The budget also requests $97 million for FY 2017 for various “trust-building” initiatives, including use and training for body cameras and competitive grants to assist in purchasing cameras.
The budget increases grants to state and local governments by $129 million overall. Funding for Community Oriented Policing Services (COPS) is level at $286 million. Within COPS, the hiring grants are increased $42 million with savings from COPS administrative consolidation. Byrne-Justice Assistance Grants (Byrne-JAG) funding is increased by $7.5 million to $383.5 million, including $22.5 million for bullet proof vests, which has been requested previously.
Education and Children’s Programs
Early Education and Care
The budget proposes large early childhood program expansions, investing $82 billion over 10 years in the Child Care and Development Block Grant (CCDBG) to make child care assistance available to all children under age four in families with incomes up to 200% of the federal poverty line. This would expand access to an additional 1.1 million low-income children. Child care funding currently comes through both mandatory and annually-funded budgets.
The budget also includes an increase of $200 million, or 6.75%, in annual funding for CCDBG to help states comply with new federal requirements, still short of what is needed. The Congressional Budget Office (CBO) noted that $1 billion is needed for all states. The budget also proposes a $434 million, or 4.5%, increase for Head Start, designating $292 million in FY 2017 to increase the number of children participating in full school day and full year Head Start programs, and $132 million for a cost-of-living adjustment (COLA) for staff. The budget also proposes to increase preschool development grants by $100 million, an increase of nearly one-third.
The Title I category of K-12 education now includes funding for School Improvement Grants (SIG), which were previously funded separately. With SIG funding included, the budget proposes a $450 million increase for Title I, overall about 3%, but it could result in a cut depending on how states allocate the funds. IDEA grants to states for special education are frozen at the FY 2016 level. The budget proposes a new initiative, Stronger Together, that would make $120 million in voluntary competitive grants available to school districts to explore ways to foster socioeconomic diversity, and $100 million for a new Computer Science for All Development Grants program for school districts. The budget also proposes $4 billion over 10 years in new mandatory funds for computer education.
The budget supports the ongoing implementation of the Healthy, Hunger-Free Kids Act of 2010 with an investment of $35 million in school equipment grants, $5 million, or 14%, above the FY 2016 level, to ensure schools have the equipment needed to prepare and serve healthy meals. A new program is proposed to provide students qualifying for free and reduced price meals electronic benefit (EBT) cards for summer meals, investing $12 billion in mandatory funds over 10 years. This is currently a pilot program with a proposed annual increase of $10 million, or nearly 40%.
The budget would increase the maximum Pell award for two combined semesters to $5,935 and allow the option of Pell support for summer classes. It also proposes a $150 per semester bonus capped at two semesters for students taking at least 15 credits, and makes Pell available to individuals who have been incarcerated. The budget includes last year’s proposal, America’s College Promise (ACP), to make two years of community college free. The funding provided under ACP would offset tuition—fully in community colleges—before the application of Pell grants or student loans. This would allow students who qualify for Pell grants to use the grants to cover additional costs, such as academic supplies and living expenses.
President Obama’s budget proposes $4.6 billion for the Public Housing Operating Fund, which is $69 million more than current funding, and proposes $1.865 billion for the Public Housing Capital Fund, which is $35 million less than current funding. These funding levels are inadequate and would create a significant budget shortfall for housing authority operations.
The budget also would expand HUD’s problematic Rental Assistance Demonstration Program (RAD), proposing $50 million in funding. RAD permits and encourages local housing authorities to transfer ownership and management to the private sector. Specifically, it eliminates the current limit of 185,000 total units eligible to participate in public housing and “Moderate Rehabilitation” conversions. AFSCME is concerned with proposals that increase the limit on participating units. The cap had previously been 60,000 units before it was increased to 185,000 just over a year ago.
The President’s budget proposes increasing federal employees’ salaries by 1.6% in January 2017, which would be the eighth consecutive year that federal worker salaries increased less than private-sector workers. Since 2009, including the three-year pay freeze from 2011 to 2013, federal civilian wages have declined by roughly 9% compared to the private sector. While AFSCME supports salary increases for federal workers, we believe it should be a larger 3.5% increase.
Forum Sheds Light on Flint Water Crisis; House Passes Related Bill
The House Democratic Steering and Policy Committee held a public forum on the Flint water crisis. Thirty Democratic members of Congress, including Leader Nancy Pelosi (D-CA), Whip Steny Hoyer (D-MD) and others asked pressing questions of public health experts and local officials, including the Mayor of Flint, Karen Weaver, about how people have been affected and next steps. Governor Rick Snyder declined an invitation to the hearing. A common theme was how budget austerity contributed to the crisis. Speakers addressed the very harmful health effects of lead and copper in the water and recommended that state and local officials test water more frequently. Participants also stressed that new water policies and structures must fairly represent different communities equally.
On the same day, Congress passed the first Flint-related legislation. Rep. Kildee’s (D-MI) bill (H.R. 4470) was approved 416 to 2, requiring the Environmental Protection Agency to inform residents within 24 hours when tests show that drinking water is contaminated with lead.
Congress continues to talk about emergency aid to address this crisis, but has yet to agree on a course of action. Members of the Michigan congressional delegation continue to advocate for more federal assistance. Governor Snyder belatedly has pledged $25 million to begin Fast Start projects to address the health risks. It is estimated the Fast Start project will require at least $55 million to be effective.
Bill Would Add $25 Billion for Child Care
Reps. Joe Crowley (D-NY), Louise Frankel (D-FL) and Sen. Bob Casey (D-PA) introduced the Child Care Access to Resources for Early Learning Act (CARE) to accompany the President’s budget request for an additional $82 million over 10 years in mandatory child care funds for the Child Care and Development Block Grant (CCDBG). The bill (H.R. 4524; S. 2539) targets coverage for children under age four in families with incomes below 200% of the federal poverty level (approximately $40,000 a year for a family of three). This bill is an effort to bypass annual spending fights and dramatically increase automatic formula funding, recognizing that annual funding for child care is unlikely to fund the system adequately to pay providers a fair wage and support quality initiatives. States would have to apply for the formula funding, meet enhanced quality standards – including requiring degrees or credentials for all lead teachers – provide increased state funding, and use at least 80% of the funding for direct services and 12% to improve quality. States are also required to support providers along a career pathway to achieve higher levels of training and education. Child care workers who provide care during nontraditional and unpredictable hours are exempt from the heightened standards, with 6% of states’ funds reserved for this specific kind of care. AFSCME strongly supports the legislation.
House Committee Passes FAA Reform That Privatizes Air Traffic Control
On Thursday, the House Transportation and Infrastructure Committee passed a six-year reauthorization of Federal Aviation Administration (FAA) programs by a vote of 32 to 26. Reps. Sam Graves (R-MO) and Todd Rikita (R-IN) joined all Democrats on the committee in opposing the legislation. The Aviation Innovation, Reform and Reauthorization Act (H.R. 4441) would move Air Traffic Control Operations (ATC) from the FAA into a private, non-profit corporation. This contentious reform will lead to a large fight on the House floor, as there are divisions among both labor and business about whether the change is needed or beneficial. The full House is expected to vote on the bill at the end of February.
Chairman Bill Shuster’s (R-PA) bill would allow the new Air Traffic Control Corporation to issue bonds and borrow money in the private sector, which privatization advocates and some business interests say would help raise capital for implementing the NextGen navigation system. However, a Government Accountability Office (GAO) report issued this week and referenced by Ranking Member Peter DeFazio (D-OR) listed myriad problems with the new structure. Significantly, the report could not find cost savings for users outside the business community, refuting a key argument of privatization advocates. In fact, business aviation interests are split on the issue, with Delta Air Lines and The National Business Aviation Association opposing the measure. Rep. DeFazio introduced an amendment to curb some of the bill’s harmful provisions pertaining to personnel and procurement, but it was rejected 25 to 34.
Members of the Appropriations Committees from both parties, in both the House and Senate, are also opposed to ATC privatization They understand this move would substantially decrease government oversight of ATC operations.
AFSCME continues to work with other FAA unions to oppose H.R. 4441. We sent a letter outlining concerns to the committee prior to this week’s committee vote. Joining AFSCME on the letter were AFGE, LIUNA, NAGE, NFFE, PAACE and PASS.
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