Government Affairs Update

Federal Budget

On February 7, President Bush presented the Administration’s budget plan to Congress that proposes an overall spending level of $2.55 trillion for FY 06, an increase of approximately 3%. This essentially levels funds for non-defense discretionary spending in an attempt to hold down spending and reduce the deficit. As part of the budget proposal, federal spending for research and development (R&D) would increase by less than 1% above the FY 05 levels to $132 billion.

Of the major research agencies, only two agencies, the Department of Homeland Security (DHS) and NASA, would see significant R&D increases. DHS would receive a 24% increase and NASA a 5% increase. Other agencies’ proposed budgets vary from slight increases to reductions in their R&D budgets. The National Institutes of Health (NIH), for example, would see a 0.7% increase and the National Science Foundation (NSF), a 2.7% increase. A preliminary summary of the R&D budget proposal for selected agencies is as follows:

• DHS: $1.5 billion, an increase of $282 million or 23.8%

• DoD: $70.8 billion, an increase of $417 million or 0.6%

• NIH: $28.7 billion, an increase of 0.7%

• NSF: $4.2 billion, an increase of 2.7%

• NASA: $11.5 billion, an increase of 4.9%

• DoE: $8.5 billion, a 1.2% decrease
Office of Science: $3.2 billion, a 3.8% decrease

• Agriculture: $2 billion, a 15.6% decrease

• Commerce: NIST-12.6% increase for intramural research; NOAA-$565 million, an 11.2% decrease

• Interior: $582 million, a 5.4% decrease
USGS: $516 million, a 4.6% decrease

• EPA : $569 million, a 0.5% decrease

• Transportation: $808 million, an 8% increase

Regarding education funding, the President’s budget proposes to expand the Pell Grant program and raise the Pell Grant maximum by $500 over five years to $4,550, and calls for a funding level of $17.9 billion, a $5.2 billion (7.1%) increase for the program. In addition, the budget proposes to eliminate the Perkins Loan Fund as well as other higher education and college preparation programs such as Upward Bound, Talent Search and GEAR UP.  Funding for the Graduate Assistance in Areas of National Need (GAANN) program and Javits Fellowships would remain level-funded at $30.4 million and $9.8 million respectively under the budget proposal. (This would likely mean that no new competitions could be funded this year.) Funding for the National Endowment for the Humanities would remain flat at a total of $138 million.

The President’s budget proposal marks the beginning of a process to determine funding level for federal programs for FY 06. The Congress will now begin their process, ultimately resulting in appropriations legislation, to set the spending levels. There will be hearings in both the House and Senate; each will produce their own appropriations bills; these bills will be conferenced and then sent to the President for his signature or veto. The process generally takes all spring, summer and fall into the federal Fiscal Year of October 1 and often beyond. OGCPA will work with our elected officials, the higher education community, and our DC-based association to advocate for those areas of importance and great concern to the University. Within this budget, these include nominal increases and cuts in research funding, and the elimination of various student aid and access programs. We are also carefully monitoring those Congressional committees charged with finding new revenue generators that may begin to look at tax policies with regard to charitable giving and student aid, and tax-exempt bond financing for higher education institutions. For more detailed information on the President’s budget, please call the Office of Federal Relations at (215) 898-1532.

Commonwealth Budget

On February 9, Governor Rendell released his proposed FY 05-06 budget for the Commonwealth. The Governor is proposing a total of $44,656,000 in the University’s direct appropriation. This recommendation represents an increase of $634,000, or 1.4%, over the amount the University is receiving in the current fiscal year. The Veterinary School was increased to $37,924,000, an increase of 1.5%. The Medical School funding was increased to $3,919,000 (1.5% increase); Cardiovascular Studies was increased to $1,554,000 (1.5% increase); and the Dental Clinics were increased to $1,051,000 (1.55% increase). The Governor proposed to reduce funding to the Penn Museum to $208,000, a reduction of 10%. (It should be noted that all other directly-aided museums were reduced by a similar amount.) See  chart below for a summary of the non-preferred appropriation recommendation.

*University Museum budget request submitted in separate request to PHMC

Apart from the non-preferred appropriation, the Governor made other budget recommendations, which, if enacted, would have a significant impact on the University and the Health System. In order to address a large shortfall in Medical Assistance funding, the Governor is proposing to eliminate several Medical Assistance add-on payments to hospitals that have operating margins of more than one percent. This “means test” would prevent hospitals above this limit from receiving outpatient disproportionate share, MA medical education, Community Access fund and Tobacco Settlement uncompensated care payments. For Penn Medicine, this is a potential annual loss of $20 million.

The Governor is also proposing the reallocation of certain portions of the Tobacco Settlement fund in order to provide more funding to uninsured adults (the Adult Basic program) and home and community-based services to older Pennsylvanians. In order to do this, the Governor is proposing reducing the Health Research program from 19% of the pool to 13%, and reducing the Tobacco Prevention and Cessation funding from 12% to 10%. Penn is currently receiving $9 to $11 million annually in formula funding through the Health Research program. At this point, it is not clear if the administration is proposing a change in the distribution process for the research funding (currently 70% formula—based on NIH funding; 30% non-formula competitive peer-reviewed).

The Governor’s budget proposal begins the budget process, with the Legislature now beginning budget hearings. President Gutmann will testify on behalf of Penn on March 2 before the House Appropriations hearing. Following budget hearings the legislative leadership and Governor will begin budget negotiations leading to an expected final budget resolution by June 30, 2005. The OGCPA, along with Health System government relations will work with our partners in the Urban Health Care Coalition, the Safety-Net Association of Pennsylvania (SNAP), and others to deliver our concerns and help restore these proposed cuts and changes.

City Budget

The Mayor delivered his annual budget address to City Council on January 25. The FY 06 Budget assumes $3.44 billion in General Fund revenues. He indicated that the budget he was presenting offered, “no new initiatives,” citing that, “In a sluggish economy, with escalating pension, labor and other costs, there is little latitude for change.” Given that, his address outlined several areas of priority for his Administration in the upcoming year that are relevant to the Penn community. Highlights include:

• The Mayor’s budget continues the current tax reduction program into an eleventh year and beyond, despite the fiscal challenges the city is currently facing. This includes a wage tax rate reduction to 4.301% for residents, and 3.7716% for non-residents, effective January 1, 2006.

• Because of the fiscal challenges the City is facing and the need to maintain high quality City services and new investments, the budget only provided new tax reductions not currently in law if there were offsetting tax revenues. Thus, the budget proposes two tax changes: Reducing the gross receipts portion of the Business Privilege Tax (BPT) from 1.9 mills to 1.5 mills, and increasing the parking tax rate from 15% to 20%. The reduction in the gross receipts rate is estimated to provide an additional $71 million in business privilege tax relief over the next five years. The increase in the parking tax is projected to generate $13 million in FY 06, which covers the revenue loss resulting from the decrease in the BPT over the life of the Plan.

• The Mayor expressed his support for the relocation of Family Court to more appropriate facilities; thereby, creating an exciting opportunity to increase the vibrancy of the Benjamin Franklin Parkway with the relocation of the Barnes Foundation collection.

• The Mayor announced the appointment of a local Gaming Advisory Board to make recommendations to his Administration on all aspects of the introduction of the gambling industry in Philadelphia (location, parking, traffic and other implications). The board will be co-chaired by Dr. Bernard Anderson, the Whitney Young Term Professor in the Wharton School, the Center City District’s Executive Director Paul Levy, and the City Planning Commissioner Maxine Griffith. (As noted in the DP, Penn Praxis and students from the School of Design have also leant their expertise to this process.)

• He also hinted at some features of his “Economic Blueprint for the City” that will be launched to the Chamber of Commerce on February 23.This includes:

• A commitment to make Philadelphia America’s “New River City” by supporting Penn, Drexel, the University Science Center and CHOP as they increase their capital investments on the west side of the river; supporting various developers as they transform acres of underutilized waterfront property into unique mixed use communities at the Navy Yard, and along the Schuylkill and Delaware Rivers; and by working with the Schuylkill River Development Corporation as it spearheads improvements to the trails, ramps, decks and bridges connecting Center City to the West Philadelphia community and creating access to and enjoyment of the water.

• Funding for the purchase of a surety bond required to make $125 million available to support the infrastructure projects that will leverage our New River City agenda and other neighborhood economic development activity.

• Confirmation of the City’s strategy to grow Philadelphia’s population and appeal to university students, young professionals and immigrants through the Knowledge Industry Partnership, as well as to empty nesters.

City Council began the budget process on February 14 with hearings on the Mayor’s five-year spending plan, and a hearing on business tax cuts on Wednesday. Hearings for each of the Departments will take place throughout March, with a budget likely approved by the end of May. The OGCPA will closely monitor the launch of the economic blueprint and the hearing process in City Council.

—Carol R. Scheman, Vice President for
Government, Community and Public Affairs