The Federal Budget: Broad Outlines, Much Uncertainty

With most appropriations bills still unfinished and a deadline for raising the federal debt ceiling looming, Congress and the Clinton Administration appear to be headed toward a budget showdown, leaving spending decisions vital to Penn and its students unsettled.

In the current but unfinished versions of House and Senate spending bills, most scientific research, student aid, and several other programs of importance to higher education have fared relatively well compared with many other areas of federal spending, against a backdrop of reductions aimed at eliminating the Federal budget deficit by 2002. Included among the exceptions to this general rule are several areas, such as the National Endowment for the Humanities, environmental research programs, and research sponsored by the Agency for Health Care Policy and Research, which are slated for substantial cuts.

"The results of these Congressional actions so far are mixed, but are generally more favorable toward scientific research and student aid than might have been expected, given the 'glide path' to a balanced budget that Congress adopted in May," said David Morse, Assistant Vice President for Policy Planning. "Nevertheless, the funding decisions made so far this year suggest that the growth in federal support, particularly for scientific research, that we have experienced over the past quarter century, is unlikely to continue." And, said Mr. Morse, "even though the outlines are clearer and better than they appeared this spring, no one yet knows where we will end up this year, in terms of how higher education and the University will ultimately fare."

Congress and President Clinton appear to be far apart on several key spending bills, two of which are of great interest to faculty and students: Labor, Health and Human Services, and Education, which includes funding for student aid and the National Institutes of Health, and VA, HUD, and Independent Agencies, which contains funding for the National Science Foundation and NASA. The President has signaled that he would veto these bills if they reach him in current form, since they eliminate or substantially cut several key Administration programs or contain legislative directives that he has described as unacceptable.

Last week, the House and Senate passed "budget reconciliation" legislation that includes a tax cut and reduces spending in federal entitlement programs, including Medicare, Medicaid, student loans. These bills, which restructure and reduce federal support for medical care and training at academic medical centers and for student loans, are also Presidential veto targets. President Rodin and Trustee Chairman Dr. Roy Vagelos have written to the President and to the Congressional leadership urging them in particular to sustain support already agreed to for the NIH in any final budget agreement.

This already volatile political battle is further fueled by uncertainty about how Congress and the President will deal with the statutory limit on the national debt. The debt ceiling of $4.9 trillion will be reached around mid-November, after which the government may have insufficient funds to make interest payments to holders of federal bonds. The Congressional leadership has signaled that it may attach legislation to extend the debt ceiling to the budget reconciliation package.

Thus, the President is faced with an enormous "Hobson's choice." Congress will not send the appropriations, budget reconciliation, tax, and debt ceiling bills to the President, either separately or collectively, until close to November 13, when the current, short-term funding bill, known as a "continuing resolution," expires. This will force the President to choose between a shutdown of government services and spending, along with technical default on the federal debt, and acceptance of spending policies and directives he has stated are unacceptable--the so-called "train wreck" scenario. The resolution of this standoff could result in a further reordering of federal spending priorities, with uncertain effects on final funding of student aid and research programs, and on support for medical education and training, at Penn and peer institutions.

In late September, Congress and the Administration bought additional time by agreeing to a continuing resolution that permits federal spending between October 1--the beginning of the Federal fiscal year--and November 13. In general, the terms of this short-term continuing resolution reflect funding decisions made last year, with discretionary spending programs of student aid and research supported at levels between 5% and 10% below those adopted by Congress in FY 95.

Programs like the National Institutes of Health, Penn's largest research sponsor, which fared relatively well in the initial rounds of Congressional decision-making for FY 96 (with the House proposing an increase of 5.7% and the Senate 2.7%), are less favorably treated under the terms of the current continuing resolution. The same is true for the National Science Foundation, which Congress has initially slated for roughly the same amount of support as last year, and for many of the federal student aid programs. For programs, like the National Endowment for the Humanities, that Congress has targeted for reductions of greater than 10% in its initial action on FY 96 spending bills, the conditions governing the current continuing resolution are more favorable.

The federal agencies that fund research at Penn have indicated generally that, if the budget impasse is resolved by mid-November, there should be little or no effect on extra mural research awards. However, if a longer-term continuing resolution, under conditions similar to those of the short-term spending bill, is part of a final compromise, extra mural awards could be affected.

We will continue to keep the University community informed of the form and substance of these deliberations, and their likely effects on Penn, as the budget picture in Washington becomes clearer. Those interested in the status of particular funding issues or programs should call the Office of Policy Planning and Federal Relations at 898-1532.

-- Carl Maugeri
Associate Director Federal Relations

Proposed appropriations for research in FY 1996: % increase/decrease compared to FY 1995

          House     Senate     Conference

NEH -44 % -38 % -38 % *

NIH +5.7% +2.7 % no conference

NSF -1 % -1 % no conference

DOD (basic research)
-4.4% -9.6% - 4.8 % *

DOD (exploratory Dev.)
-7.5 % -8.2 % - 5.6 % *

* Conference Reports rejected by the House

Proposed appropriations for student aid in FY 1996: % increase/decrease compared to FY 1995

includes Pell Grants, Perkins Loans, Work-Study, Capital and SSIG

House Senate

- 5.5 % - 2.1 %


Tuesday, October 31, 1995
Volume 42 Number 10

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