Yesterday, President Obama unveiled his estimated $3.6 trillion fiscal budget for the year 2010. The Office of Budget and Management released a blue-print of the FY 2010 budget entitled “A New Era of Responsibility: Renewing America’s Promise” which outlines the Obama Administration’s fiscal policies and major budgetary initiatives. The full FY 2010 budget is expected to be released later this spring.

President Obama remarked that the FY 2010 budget outlines “for the American people the extent of the crisis we inherited, the steps we will take to jumpstart our economy to create new jobs, and our plans to transport our economy for the 21st Century.” The President also noted that the FY 2010 budget seeks to implement measures necessary to correct the record budget deficits that his Administration inherited. However, he cautioned that, while the present budget as proposed will incur an additional deficit, the Administration “must be committed to begin[ning] the process of making the tough choices necessary to restore fiscal discipline, cut the deficit in half by the end” of his first term and restore the country to “sound fiscal footing.”

The FY 2010 budget in many areas builds on the funds allocated under the $787 billion stimulus bill, H.R. 1, also known as the “American Recovery and Reinvestment Act” (ARRA) which President Obama signed earlier this month. Some of the budgetary highlights include substantial tax changes and specific allocations for the following governmental agencies of particular interest to the financial services industry:

  • Department of Education: The FY 2010 budget builds on ARRA “by supporting a $5,550 Pell Grant maximum award in the 2010-2011 school year.” In order to address inflation, the Administration “will index Pell Grants to the Consumer Price Index plus one percent,” and propose to make the program mandatory “to ensure a regular stream of funding and eliminate the practice of ‘backfilling’ billions of dollars” in related shortfalls each year.” The budget also requests that Congress end certain “entitlements for financial institutions that lend to students.” The Administration intends to “take advantage of low-cost and stable sources of capital so students are ensured access to loans while providing high-quality services for students by using competitive, private providers to service loans.”
  • Department of Housing and Urban Development: The Obama Administration proposes the allocation of more resources under the FY 2010 budget to counter mortgage fraud and predatory lending. The FY 2010 budget also “funds enhanced enforcement of fair housing, mortgage disclosure, and settlement requirements.”
  • Department of Treasury: The FY 2010 seeks to support the Financial Stability Plan, which was introduced by Treasury Secretary Geithner earlier this month, in addition to “financial regulatory reform efforts and the effective, transparent governance of the Troubled Assets Relief Program and its successors.” In addition, the allocation of budgetary resources for the Department of Treasury “includes funding for a robust portfolio of IRS international tax compliance initiatives, and sustains and improves IRS efforts to narrow the annual tax gap of over $300 billion.”
  • SEC and CFTC: The budget proposal includes a 13% increase in funding for the SEC that is intended to allow the SEC to “build its staff and technology resources and pursue a risk-based, efficient regulatory structure that will better detect fraud and strengthen markets.” The Administration also proposes a 44% increase in funding for the CFTC, which will allow the agency, among other initiatives, to address “gaps in regulatory oversight of energy and over-the-counter derivatives trading, as well as foreign exchange.”

The President’s budgetary proposal notably “includes a $250 billion contingent reserve for further efforts to stabilize the financial system.” The reserve reflects a 33% net cost to the government of stabilization efforts, which “would support $750 billion in asset purchases.” However, the reserve does not represent a specific request for the allocation of funds from Congress, rather the Obama Administration “will work with the Congress to determine the appropriate size and shape of such efforts, and as more information becomes available the Administration will define an estimate of potential costs.”