Katrina Whacks Federal Budget Process: Delayed and Outcome Uncertain

Hurricane Katrina has already had a powerful impact on the federal budget and, perhaps more important, on the political process for next year’s budget. Congress has already passed $62 billion in direct spending for relief in the Gulf and in the other states, including Illinois , where evacuees have temporarily settled. This spending is expected to reach hundreds of billions in the very near future. For now, since none of this spending is “on budget,” it is simply an emergency addition to the burgeoning federal deficit.

The Federal Budget Schedule and Status

The federal fiscal year expired on September 30 without a new budget. Instead all of the functions of government are temporarily funded in the new fiscal year by a continuing resolution that buys time for Congress.

Under a resolution passed last spring, Congress laid out a blueprint for the new budget. Under that budget resolution, all of the congressional committees with jurisdiction over entitlement programs were to produce a plan of specific cuts to meet budget-cutting targets by September 16. These plans would then be merged into one bill known as a “reconciliation” bill, which would then be fast-tracked under special Senate rules that preclude a filibuster. Buried in the reconciliation bill were inevitable cuts in the Food Stamp Program and Medicaid, among other important programs.

The budget resolution also called for a separate reconciliation bill involving tax proposals. Under that plan, new tax cuts of $70 billion would be fast-tracked. The two reconciliation bills together would increase the deficit because the tax cuts (revenue losses) would be larger than the spending cuts. There were also plans to cut many nonentitlement programs (“domestic discretionary spending”), which include such categories as education, community development block grants, and worker training programs.

The immediate response to Katrina has been to delay the budget reconciliation for entitlement programs until October 17. The House and Senate will then consolidate all these plans into one reconciliation bill in each chamber. The chambers will consider and vote on the reconciliation bills after October 26. The tax-cutting reconciliation bill is then due in November.

The Developing Debate

The leaders of the House and Senate delayed the budget process for at least two reasons. First, Congress recognized a duty first to spend time devising a response to the disasters. Second, there appears to have been a political calculation that proceeding with deep cuts in indispensable antipoverty programs would be highly unpopular after the nation was jolted by the images of Katrina victims. The national recognition of persistent poverty in the Gulf region created a public sympathetic to disadvantaged individuals and families.

The images that we all saw on television spotlighted the fundamental unfairness of addressing the hurricane by withdrawing key government supports and services for the poor. This is driving some legislators to reconsider the whole reconciliation process as it related to entitlements and tax cuts. Several key Republicans have questioned the advisability of a process that shrinks the government’s role in responding to poverty. However, fiscal conservatives have begun to dig in their heels and insist on budget cuts to balance any new spending devoted to hurricane relief. This debate will be ongoing throughout the coming budget season.

Action

Katrina creates two new threats to federal spending on domestic programs. First, Congress could decide to fund the hurricane relief and rebuilding effort by cutting other spending. Second, Congress could decide that a “stimulus package” is needed and thus cut taxes more deeply. This would increase the deficit and result in even more pressure on all categories of spending.

There are powerful counterarguments. People who value the importance of federal spending on key programs that address poverty and equality should make these arguments to their federal legislators. The key message is “No Reconciliation Process.” The arguments are:

• The disasters and what they revealed about the state of affairs in the country offer a chance for Congress to set new priorities and get us on a better track. We cannot stick to a plan that defunds government efforts to address poverty, deepens the deficit, and widens the yawning rich-poor gap in this country.
• This is a time to help the victims of the disasters, not make them worse off. This is a time for shared sacrifice, and not a time to help people who do not need it by cutting their taxes even further. Millionaires who already got $100,000 a year from the first round of Bush tax cuts should not be given another $20,000 under the planned reconciliation process.
• Requiring the bill for Katrina to be paid by domestic programs that help people all over America makes no sense and is profoundly unfair. The short-term costs of Katrina relief can be absorbed without cuts. The long-term budget woes that we are in are not caused by Katrina but by tax cuts.

For Illinois , the federal budget outcome is crucial. First, federal funding for programs such as Medicaid, the Food Stamp Program, child care, and many others is essential to the effort to create opportunity and fight poverty in our state. Second, federal funds in general are a key component of the state’s revenue system. Any significant overall loss of federal funds means a worsening of the state’s fiscal crisis.

All Illinois legislators should hear these messages many times, especially before October 17. Key members of Congress who have leadership or committee positions or who are important possible swing voters are Rahm Emanuel, Jerry Weller, John Shimkus, Ray LaHood, Tim Johnson, Judy Biggert, and Donald Manzullo. Contact information for your representatives and senators can be located at www.ilga.gov, and click on “legislator lookup” or call 800.426.8073 for the congressional switchboard.