Debt Ceiling Deal Spells Deep Cuts in Discretionary Funds


From: Thomas L. Birch, Legislative Counsel
August 9, 2011
Vol. 27:11

There can be little doubt about the result of the debt ceiling deal signed into law last week by President Obama. Discretionary spending will suffer mightily. President Obama has said that the deal will result in the lowest level of domestic non-defense spending since the Eisenhower administration in the 1950s.

The Budget Control Act of 2011 passed by the House and Senate increases the debt ceiling through the 2012 elections. Just as significantly, the new law creates a 12-member bipartisan commission of Senators and Representatives charged with cutting $1.5 trillion in spending cuts over ten years. The committee must complete its work by Thanksgiving this year and Congress must enact the cuts by December 23.

Everything in discretionary spending is on the table, and appropriators are initially uncertain how the recommendations of the new committee are going to interact with the appropriations process already underway. The debt limit bill sets spending caps for fiscal 2012, as well as fiscal 2013. The new law calls for trimming discretionary spending from the current $1.050 trillion level to $1.043 trillion in fiscal 2012. Since the Senate has not adopted a budget resolution, appropriators there now have the guidelines to allow them to proceed with their spending bills.

However, both sides of Capitol Hill see little chance, given the limited time, to complete all the spending bills by the start of the new fiscal year on October 1. Another continuing resolution is more likely. The objective is to avoid the kind of protracted spending negotiations that dragged on six months into the 2011 fiscal year before Congress voted an end to funding process.

Here are the highlights in the Budget Control Act:

• The bill allows a debt ceiling increase by as much as $2.4 trillion dollars in total. Included is an immediate increase of $400 billion dollars. President Obama would be permitted to request another $500 billion increase in the coming months, which Congress could vote to disallow by a veto proof two-thirds margin. A further increase of between $1.2 trillion and $1.5 trillion would be available after the special congressional committee does its work and identifies matching levels of additional spending cuts.

• Discretionary spending would be further cut by more than $900 billion over ten years. It would include security-related and non-security-related cuts. According to the Congressional Budget Office, discretionary spending would be decreased by $21 billion in 2012 and $42 billion in 2013.

• The 12-person House and Senate special committee, in addition to identifying spending cuts, could propose tax code reforms and make savings in benefit programs like Medicaid, Medicare or Social Security. Congress could not modify the committee’s recommendation.

• If the special committee deadlocks or Congress rejects the committee’s recommendations, automatic across-the-board spending cuts of at least $1.2 trillion would go into effect.

• The agreement requires that the House of Representatives and the Senate vote on a Balanced Budget Amendment to the Constitution, although its passage is not guaranteed.

NASAA continues to pursue our advocacy agenda focused on achieving the best results in the 2012 funding bill for the National Endowment for the Arts, with attention to policy issues of interest to state arts agencies. We are engaging our members with contacts to key legislators charged with the decision-making in the bringing a budget to conclusion for the next fiscal year.