Federal Budget Analysis from the US Conference of Mayors

August 5, 2011

TO:      The Mayor

FROM: Tom Cochran CEO and Executive Director, US Mayors Caucus

SUBJECT:     Analysis of Debt Ceiling Agreement, Next Steps on Jobs

On August 2, President Barack Obama signed into law legislation raising the nation’s borrowing authority by an additional $2.4 trillion, which will allow the Federal Government to continue paying its bills through early 2013.  The bill passed by a vote of 269-161 in the House, and 74-26 in the Senate.

This action comes after months of advocacy by the Conference of Mayors, and on the heels of our leadership meeting two weeks ago where Conference President Los Angeles Mayor Antonio R. Villaraigosa, Vice President Philadelphia Mayor Michael A. Nutter and Second Vice President Mesa Mayor Scott Smith sent a letter to President Obama and congressional leaders urging immediate action to increase the debt ceiling and avoid an economic crisis.  The Conference of Mayors leadership also unanimously resolved that Washington must move immediately to a national jobs agenda to address persistently high levels of unemployment in cities across the nation.

In that the agreement sets new spending caps, and empowers a 12-member super/joint committee to recommend even deeper cuts or revenue measures, the Conference of Mayors must engage directly with Congress and the Administration immediately to ensure that domestic investment priorities tied to jobs are protected.

 

IMPACT ON LOCAL GOVERNMENT

Although the legislation does not call for specific cuts in programs like community Development Block  Grants, COPS, job training and transportation, it requires $2.4 trillion in total savings over the next ten years.  Democrats and Republicans are deeply divided over tax increases, with the President and Democratic leaders in Congress insisting that tax increases be included in savings required for next year’s debt ceiling increase, and Republican leaders adamantly opposing any tax increase.  Without tax increases, Congress will have to cut an average of $240 billion each year to achieve the $2.4 trillion target.  Cuts of this magnitude could lead to the elimination or drastic reduction in many local programs.  Even with tax increases, Congress is expected to make drastic cuts to meet the spending caps.

 

 

THE PROCESS: DEBT CEILING INCREASED BY $2.4 TRILLION IN TWO STAGES

First, the debt ceiling would be increased by $900 million this year – $400 billion of which would be made available immediately with the remaining $500 billion available later this fall.

Next, the debt ceiling may be increased by an additional $1.5 trillion early next year, provided that  Congress approves offsetting spending cuts recommended by a super/joint committee of 12 members (3 Democrats and 3 Republicans from both the House and the Senate).  If Congress fails to act, the debt limit may be increased by an additional $1.2 trillion, which would be subject to a resolution of disapproval.

 

SPENDING CUTS: MUST AT LEAST EQUAL DEBT CEILING INCREASE

To achieve the spending cuts necessary to offset the first $900 billion increase in the debt ceiling, statutory caps or limits are imposed on discretionary spending for fiscal years 2012 through 2021.  The cap on discretionary spending for fiscal year 2012 is $1.043 trillion.  This amount is $24 billion more than the amount in the budget approved by the House earlier this year.  According to the Congressional Budget Office, a total of $935 billion would be saved over the next decade by imposing these caps.  And for 2012 and 2013, Congress would be prevented from raiding domestic programs to increase spending on defense programs.

The super/joint committee is required to come up with recommendations for an additional $1.5 trillion in savings (including spending cuts and tax increases) over the next decade.  The super/joint committee must make its recommendations by November 23 and Congress would have until December 23 to approve such recommendations.  If approved, the debt limit may be raised by an additional $1.5 trillion early next year.

If the joint committee makes recommendations and Congress fails to enact the requisite amount in savings, the debt limit may be raised by $1.2 trillion early next year.  This amount would be subject to a resolution of disapproval.

 

ENFORCEMENT MECHANISM:  AUTOMATIC ACROSS-THE-BOARD SPENDING CUTS

If Congress fails to adhere to the spending caps on appropriations bills, a process for imposing automatic across-the-board spending cuts would take effect after Congress adjourns for the year.  Some spending such as military pay would be exempt.

If the enacted recommendations made by the super/joint committee fail to produce at least $1.2 trillion in savings, a process for automatic across-the-board cuts would be triggered to achieve the desired savings and the spending cuts would be spread equally across nine fiscal years.  The first automatic cuts would take effect on January 2, 2013 and would be equally applied to defense and domestic programs.  It would also apply to discretionary and some entitlement spending, however programs targeting low-income individuals would be exempt.

 

TAXES: NOT INCLUDED IMMEDIATELY, BUT JOINT COMMITTEE MAY RECOMMEND

The new law does not allow for revenue increases to offset the first $900 billion increase in the debt  limit this year.  However, the super/joint committee may consider and recommend revenue increases to offset the $1.2 trillion to $1.5 trillion increase in the debt ceiling for next year.

 

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City Treasurer Jerry DiTullio - Wheat Ridge, CO
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