Nooley Reinheardt & Associates
Providing Government Relations and
Public Affairs Strategies Since 1981
February 11, 2013
WASHINGTON REPORT
By Nooley R. Reinheardt
The Sequester
Families, the elderly, and others who receive some form of Federal rental assistance have not yet been told to pack their bags or to prepare to dig into non-existent savings accounts to cover rent increases as a consequence of the arbitrary, indiscriminate, and economy-damning sequestration which, absent Congressional action, will kick-in on March 1.
But rent increases and even possible tenant displacement are among the unending examples of the possible repercussions of sequestration piled atop already severe reductions in discretionary domestic spending in recent years.
In its escalating campaign to pressure Congress to accede to at least a short-term package of spending cuts and new revenues, from closing tax loop holes, to avert the sequester, the Obama administration last Friday released a laundry list of the consequence if the cuts are allowed to go into effect. The only housing reference was that 125,000 families in the Housing Choice Voucher program “would be at immediate risk.”
The president will continue to push Congress in his State of the Union speech Tuesday night, and Senate Democrats this week hope to have their own plan to remodel the sequester with a mix of cuts and new revenues from “low hanging fruit” harvested by closing an oft-cited list of loopholes they find unacceptable.
House Republicans, in a cuts-only mode, are equally adamant that Democrats must agree to equivalent spending cuts elsewhere in the budget, without increasing taxes. The Republicans, in the longer term, see closing tax loopholes and tax reform as a way to lower taxes, not to increase revenue.
Each time some section of the tax code is addressed singularly, like the New Year’s fiscal cliff deal which raised some taxes, it becomes a bit more difficult politically to craft comprehensive tax reform of the magnitude of the bipartisan Tax Reform Act of 1986 – a fact not lost on the chairs of the two committees responsible for tax policy.
It will be interesting to watch this new Senate since any sequestration deal, or any larger budget deal, involves three strong committee chairs, two of whom are new to their roles. Senator Patty Murray (D-Washington) chairs the Budget Committee, Senator Barbara Mikulski (D-Maryland) heads the Appropriations panel and Montana Democrat Max Baucus continues as chairman of Finance.
The Congressional Budget Office (CBO) and the Bipartisan Policy Center (BPC) both estimate that sequestration could cost upwards of one million jobs.
In this instance the dire warnings of the impact of the once improbable sequester on national defense as well as law enforcement, education, affordable housing, health care, and on and on, are more fact than hype.
The automatic across-the-board cuts, totaling $85B, from March 1 to September 30 and split evenly between defense and non-defense spending, leave departments and agencies little, if any, latitude in apportioning the remaining available funds. The New Year’s fiscal cliff deal, which produced about $600B in new revenue over 10 years, reduced the sequestration amount to about 7.9 percent for defense and 4.6 percent for other discretionary non-defense domestic spending. The total dollar amount went from $100B to the $85B.
With less than three weeks remaining until the March 1 sequestration witching hour, the next battle looms with the CR (Continuing Resolution) funding the government for the first six months of this fiscal expiring March 27.
Unlike sequestration which goes into effect automatically if new legislation is not adopted, Congress has to pass a six-month, or shorter, omnibus spending bill to keep the government from shutting down.
The same is true for the next fiscal year which begins October 1. The president’s budget (and policy) recommendations for FY2014 were due on the Hill February 4, but OMB had earlier warned that they would not meet that deadline and offered no indication of when to expect the submittal.
And there is the important, at least to members of the Senate and House, deadline of April 15 for passage of a concurrent budget resolution which would, arguably, be the first passed by the Senate since 2009. As part of the deal to lift the debt ceiling deal, Congress agreed to have its pay withheld if they do not produce a budget by the specified date. Note that by law Congress cannot in any session alter its pay, so the idea of no budget, no pay is really no budget, get paid later.
For the annual civics lesson, the budget is a non-binding internal Congressional document which sets categorical spending targets within the larger overall spending cap and does not go to the president for action. Actual program-by-program funding comes via the appropriations process.
All of this is not to forget that the U.S. will again run out of borrowing authority sometime between mid-May and early summer. How contentious raising the debt ceiling will become depends to a large extent on what happens in the funding battles.
Tax Reform
The chairmen of the tax-writing committees – Representative Dave Camp (R-Michigan) of Ways and Means and Senator Max Baucus (D-Montana) of Finance – continue, at times in actual consultation with one another, to develop their blueprints for broad tax reform.
As improbable as a major bill seems today, I don’t know of any special interest that is not advancing its legislative agenda, albeit quietly until things begin to sort out.
CONSIDER THIS ADVANCE PLANNING BOTH PRO-ACTIVE AND DEFENSIVE.
For us, the orientation and continuing education of House members and Senators has to be a dynamic process. Take into account that roughly 39 percent of those serving in the House have been there less than three years.
As for the Senate, only 17 current senators were around for our last really critical battle, the 1995 effort, with the vital support of the Clinton administration, to defeat the proposed sunset of the LIHTC. Of the other 83 sitting senators, 14 are brand new since December of 2012.
With the much-lamented retirement of Senator Olympia Snowe (R-Maine), Idaho Republican Mike Crapo becomes the most high profile Finance Committee supporter of the Housing Credit on the minority side. Also among the Republicans, veteran senator and avowed supporter of the LIHTC, Georgia’s Johnny Isakson is a newly minted member of the Finance panel.
Senator Maria Cantwell (D-Washington), the original, or lead, sponsor of the legislation to fix the LIHTC rates at nine and four percent, remains in place. On her side of the aisle, co-sponsor Senator Jeff Bingaman (New Mexico), like Snowe, self-retired. Too bad, but they had had enough fun in the toxic political environment in D.C.
Of note, Senator Crapo is also the top Republican on the Banking, Housing and Urban Affairs Committee whose broad authority includes responsibility for HUD and USDA housing programs.
The leadership of the Ways and Means Committee, strongly inclined toward the Credit, remains unchanged on both the majority Republican and minority Democratic side of the podium. But there will always be a lot of work to do with House members across the spectrum to reinforce allies and to cultivate new allies.
More soon on tax plans and strategies for this first session of the 113th Congress.
FHA ‘Reform’
The new chairman of the House Financial Services Committee, Representative Jeb Hensarling (R-Texas) last week initiated a series of hearing on the Federal Housing Administration by saying the agency could become the next Fannie May and Freddie Mac, both of which he has previously proposed to eliminate, or even the new Countrywide.
The chairman said the FHA [single family] insurance fund, with a negative economic value of $16.3 billion, according to the most recent independent report, had strayed far from its original purpose and become an “impediment” to a healthy housing finance system that “is both sustainable and competitive.”
Three of the four witnesses invited to testify at the first February 6 hearing were highly critical of FHA.
The hearings continue February 13 with HUD’s Carol Galante, the assistant secretary for housing and Federal Housing Commissioner who has announced a series of actions designed to improve risk management and strengthen the health of the fund.
The titles of the two hearings are telling: “Bailout, Bust, or Much Ado About Nothing?: A Look at the Federal Housing Administration’s 2012 Actuarial Report” and, this week, “Examining the Proper Role of the Federal Housing Administration in our Mortgage Insurance Market.”
When the administration’s FY2014 budget package finally gets to Congress, the HUD details should indicate whether or not OMB thinks FHA will have to use its permanent authority to dip into the Treasury to keep the single family fund solvent. Most expect not.
RELATED, Congressional Democrats are pressing President Obama to renew administration efforts to replace Edward DeMarco, the acting director of the Federal Housing Finance Agency which oversees Fannie and Freddie.
In 2011 Senate Republicans blocked President Obama’s nominee for the position, North Carolina bank regulator Joseph Smith.
The recent federal court decision that severely limits any president’s authority to make so-called “recess appointments” complicates replacing DeMarco, a career federal employee who defaulted into the job in 2009.
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