While Congress, the White House and the majority of Washington, DC were consumed by the frantic, down-to-the-wire negotiations over Fiscal Year (FY) 2011 spending cuts and the subsequent federal government shutdown that loomed if an agreement was not reached, there was also a good deal of other notable policy and political news last week.

For instance, as background to the FY 2011 debate, House Republicans simultaneously unveiled and marked up their budget blueprint for FY 2012 last week (see Budget section below for details). Other developments of note occurring last week included the following:

  • The Centers for Medicare and Medicaid Services (CMS) released a long-awaited proposed rule that would create new accountable care organizations (ACOs) aimed at changing the delivery of healthcare;
  • The Senate cleared House-passed legislation – H.R. 4 – that would repeal onerous 1099 tax reporting requirements in the new healthcare law, and President Obama is expected to sign the legislation;  
  • The House passed a resolution of disapproval – H.J.Res. 37 – on the Federal Communications Commission’s (FCC’s) “net neutrality” rules for broadband service providers. The resolution moves to the Senate for consideration, but the President has issued a veto threat on the measure and it appears likely that neither chamber has the two-thirds majority that would be needed to override a veto;  
  • In similar news, efforts to curb FCC funding for net neutrality implementation were blocked by Democrats in the FY 2011 spending deal that was struck on April 8 (see FY 2011 section below for more on the deal);  
  • On April 6, the House Judiciary Subcommittee on Intellectual Property, Competition and the Internet held the second of two scheduled oversight hearings on combating "online infringement"; and  
  • In campaign news, President Obama announced he is running for re-election and that Rep. Debbie Wasserman-Schultz (FL-20) will head the Democratic National Committee.

FY 2011 NEGOTIATORS REACH 11TH HOUR DEAL, SHUTDOWN AVERTED

Clearly though, the vast majority of lawmakers’ attention last week was focused on the politically-charged debate on FY 2011 spending, as the latest short-term Continuing Resolution (CR) expired on Friday, April 8. House Republicans spent the week in closed-door meetings with Senate Democrats and the White House, in hopes of reaching an agreement and staving off a looming government shutdown that would impact more than 800,000 government employees and disrupt federal services nationwide.

Intense negotiations continued into the evening on April 8, as federal agencies prepared for the impending shutdown by implementing contingency plans and beginning to issue furlough notices. Around 11:00 p.m. – just an hour before the shutdown was to occur – Congressional Leaders announced that a deal had been reached that would fund the government through the end of FY 2011.

The agreement will include approximately $38 billion in new cuts to current spending (or approximately $78 billion less than President Obama’s initial FY 2011 request) and will last through September 30, the end of the fiscal year. Of those cuts, nearly $18 billion would come from mandatory spending, such as Medicare and Medicaid. In return for their support for a level of cuts that was higher than they wanted, Democrats insisted on the removal of a controversial policy rider that would have blocked federal funding for groups such as Planned Parenthood.

In order to provide adequate time to draft and consider the long-term legislation, the Senate and House swiftly agreed to a short-term patch (referred to as a “bridge”) to keep the government running for another week. The President quickly signed the measure into law on April 9.

The week’s negotiations were the first major leadership test for new House Speaker John Boehner (R-OH), as he worked to advance his party’s promise to cut federal spending and strike a delicate balance with a Senate and White House still controlled by Democrats. The process may also foreshadow the manner in which the Speaker will handle the additional spending battles that lie ahead, including the FY 2012 budget and the upcoming debt ceiling increase.

FY 2012 BUDGET UNVEILED

Under the leadership of Chairman Paul Ryan (R-WI), the House Budget Committee rolled out its budget proposal for FY 2012 on April 5. The budget blueprint would cut more than $6 TRILLION from the President’s spending over the course of the next decade, and would seek to shrink the deficit as compared to the President’s budget by more than $4 TRILLION over that same 10-year time period. However, it would only reduce the Congressional Budget Office (CBO) baseline deficit by $1.7 TRILLION because the baseline budget assumes repeal of the Bush-era tax cuts.

The House GOP plan for FY 2012 highlights important policy differences between the parties and there is little chance that the GOP plan will advance in the Democratically-controlled Senate without some sort of revenue raising element. Nonetheless, the budget offers a largely-symbolic picture of the new conservative majority in the House and its priorities of entitlement reform and deficit reduction. Moreover, it may be the base from which the discussion advances.

Important policy differences between the parties were reflected in the House GOP’s budget resolution, including the following highlights:

  • An overhaul of the tax code, including lowering the top individual and corporate tax rates to 25 percent;  
  • Medicare reform that would essentially privatize the program by having future retirees receive subsidies to buy coverage through private health care plans certified by the government;  
  • Medicaid reform that would replace the current formula-based program with a block grant system under which states would receive a set amount of funding from the federal government, giving states flexibility on how to administer that funding and who can receive it;  
  • Trimming overall domestic discretionary spending to below FY 2008 levels and freezing it there for five years; and  
  • Cuts suggested by the Department of Defense that reflect $178 billion in savings, of which $100 billion would be reinvested in other military priorities the rest would be used for deficit reduction.  

Comparisons to the President’s FY 2012 plan:

  • Compared to the President’s plan which projected $3.7 trillion in total spending next year, the House GOP proposal would project $3.5 trillion, or about $200 billion less;  
  • From 2012 through 2021, the House GOP plan projects $5 trillion in cumulative deficits, compared to the President’s budget, which projects a deficit of $9.5 trillion over the same time period.  

The GOP plan for FY 2012 was approved by the House Budget Committee on April 6 by a party-line vote of 22-16.

NEXT STEPS

As the FY 2011 agreement is written into legislation, Speaker Boehner will work to secure votes for passage among his caucus. That long-term CR is expected to be approved this week. Furthermore, House Republicans hope to bring their FY 2012 budget to the floor this week. At the White House, President Obama plans to deliver a major deficit reduction speech in the coming days that is expected to address entitlement reform and a continued call for higher taxes on upper income brackets.