OMB released the FY 2009 Mid Session Review (MSR) today, and the headlines are blaring that the document revises the White House's projected deficit for FY 2009 upward to $482 billion from February's projection of $407.4 billion. Headline worthy indeed, but a little context here is essential in understanding how OMB reached this figure.

Seemingly miniscule changes to assumptions about the economy, Congress, interest rates, etc. can swing the bottom line figure quite a bit, and administrations are prone to jigger these one way or the other for political reasons. The game is usually played such that White House budget forecasters inflate projected deficits so that when the actual number materializes, it will likely be lower than estimated, and the administration can pat itself on the back for being a better-than-expected steward of the budget.

We'd like you to forget for a second the headlines and focus instead on what the MSR said about FY 2008's likely deficit. In February, the White House projected a deficit of $410 billion for the current fiscal year (FY 2008). Now, it projects that number to be $389 billion. Although today's FY 2009 projection is drowning out any adulation for the administration's deft ability to beat budget projections, we suspect we'll be hearing a round of applause in October when the final FY 2008 deficit figure is released.

Those wacky legislators in Congress are at it again. Democrats have added language to once again increase the national debt ceiling, or debt limit, which is the maximum amount of debt the federal government can issue. Democrats added language to a housing relief bill increasing the limit by another $800 billion to an astounding $10.615 trillion (that's trillion with a "t"). While the current national debt stands at $9.456 trillion, about $400 billion below the current debt limit according the Treasury Department, their projections show that limit might be reached before the year is over and after Congress has ajourned for the year. It seems the Dems are taking this action mostly as a precautionary move.

This will mark the sixth time in the last seven years that Congress has increased the debt limit (see chart below). Most of those increases came during Republican control of Congress, although the last two increases have been while Democrats control both chambers.

Unfortunately, it is unlikely the trend will change anytime soon as Congress has only given lip-service to issues of fiscal responsibility. Congress' current committment to pay-as-you-go (PAYGO) rules is tenuous at best, and Craig posted last week about a Congressional Budget Office report showing some pretty dire consequences for the national debt if Congress does not adopt more responsible tax policies than they are currently considering.

With the Congressional appropriations process grinding to a halt in the House and the future of FY 2009 appropriations bills in doubt, Democratic leaders announced ($) last week that they absolutely intend to pass one appropriations bill before the start of the fiscal year on Oct. 1 - the Defense Department appropriations bill. Speaker of the House Nancy Pelosi (D-CA) said that she knows the bill will be passed because, "that is our responsibility." Apparently she doesn't feel the same responsibility to pass the other 11 appropriations bills on time. Hmmmm.....

The White House also wants to the bill to be passed before Congress leaves town for the elections this fall. According to this CQ story, not passing the bill will cause problems:

The White House and the Pentagon badly want the Defense bill enacted before Congress leaves so the department does not have to deal with the planning and accounting problems associated with not having its full budget in place at the start of the fiscal year.

Unfortunately, the White House doesn't appear to have any concerns about the "planning and accounting problems" all the other federal agencies will inevitably experience if and when Congress fails to enact those appropriations bills. Looks like for both the Democratic Congress and the White House, defense funding is the only game in town. I guess educating, feeding, housing, and giving people health care just isn't that sexy anymore.

Well, at least we aren't experiencing an economic downturn that is putting pressure on average Americans and their economic well-being. Yes, thank goodness for that.

The Center on Budget and Policy Priorities has released a report from leading economists and budget experts criticing a recent paper from the Brookings Institute and the Heritage Foundation called "Taking Back Our Fiscal Future." From the CBPP press release:

Sixteen leading economists and budget experts issued a major critique today of a recent proposal to address future federal budget deficits through radical changes in budget procedures for Social Security, Medicare, and Medicaid.

These experts, who include a Nobel Laureate in economics, two former Office of Management and Budget Directors, and a former Deputy Director of the Congressional Budget Office, agree that the nation faces large, persistent budget deficits that would ultimately risk significant damage to the economy. They also concur that policymakers should begin now to make the tough choices needed to avert such deficits.

But they believe the methods set forth in "Taking Back Our Fiscal Future" (TBOFF), a recent proposal by some analysts at the Brookings Institution, the Heritage Foundation, and other groups, are misguided. Instead, they believe policymakers should begin the hard work of building consensus on specific spending and tax measures that would start reducing longterm deficits, and they recommend a series of such measures.

So, the Brookings/Heritage paper was signed by 16 "longtime federal budget and policy experts" and now CBPP has released their own report from another 16 prominent and expert folks. Seems like the right-of-centrists and left-of-centrists are gearing up for what could be major reforms to fundamental federal government supports and programs in 2009. Should be quite a fight - stay tuned.

Reports:
CBPP: A Balanced Approach to Restoring Fiscal Responsibility
Brookings/Heritage: Taking Back Our Fiscal Future

Commentary:
Matthew Yglesias (The Atlantic): Fiscal Sanity How?
Matthew Yglesias (The Atlantic): Leninism's Return
Robert Kuttner (The American Prospect): Sensible Budget Wonks Strike Back Against Conservatives
Mark Schmidt (The American Prospect): "Leninist Strategy" 2.0
Matt Lewis (Inclusionist): A Better Way on Long-Term Deficits
Diane Lim Rogers (EconomistMom): But Really, Fiscal Responsibility Is Easier Under a Benevolent Dictatorship

Things just keep getting worse and worse for the FY 2009 appropriations bills. First, House Appropriations Committee members get all hot and bothered with each other and refuse to continue to work on appropriations bills. Then, House Majority Leader Steny Hoyer (D-MD) casts doubt that any appropriations bills will be passed by the House this year.

And now, Senate Majority Leader Harry Reid (D-NV) has speculated he believes Congress won't enact any bills until long after President Bush starts working on his presidential library. The Hill reported today that Reid

expects Congress will not pass any annual spending bills this year, saying lawmakers will likely postpone that responsibility until President Bush is out of office.

So no appropriations bills this year. That gives Congress only about 6 or so weeks left of work this year. Quite the haul. That should give them enough time to pass another (yes, another) supplemental appropriations bill. Senate Appropriations Chair Robert Byrd (D-WV) announced today his committee would mark up a second supplemental bill on July 22.

ugh...

The Hill reports today about some border-line shady behavior from Rep. Paul Kanjorski (D-PA) related to his earmark requests in the 2005 transportation bill. Turns out the earmark request Kanjorski submitted to build a parking garage at, of all places, the Kanjorski Cetner (pictured above) did not meet federal guidelines. From The Hill:

The Department of Transportation is refusing to move forward on an earmark backed by Rep. Paul Kanjorski (Pa.), the rare House Democrat facing a tough reelection this fall.

Transportation (DoT) is blocking funds to build a $5.6 million parking garage to the Kanjorski Center, which was constructed to attract economic development in the city of Nanticoke in Kanjorski's Eastern Pennsylvania district. Kanjorski's earmark for the project was included in the 2005 transportation bill.

DoT contends the garage does not meet federal rules intended to spur the use of public transportation. Those rules allow federal funds for parking garages only if they are connected to other public transportation facilities outside a business area with a population of 50,000 or more, or if it serves high-occupancy vehicles (HOVs) and public mass transportation passengers.

Turns out this isn't an isolated incident for Kanjorski. The Department of Transportation has "taken exception to more than 20" of his transportation earmarks over the last couple of years. And local leaders and Democratic party officials aren't that happy with some of the optics of Kanjorski's ties to the beneficiaries of his earmark requests.

But Kanjorski's family ties to some of the groups that have benefited from his earmarks have stirred criticism and animosity among local Democratic officials.

While I'm hoping that recent transparency reforms and a continued focus on developing a more accountable government will eventually bear fruit, this looks like more politics as usual.

The Hill: Big earmark headache for Rep. Kanjorski

One feature I'd love to see added is a summary or way to total earmarks data by sponsor. In order to see who requested or sponsored an earmark, you currently have to drill down a long way in the database - sometimes four or five levels. Adding up the total amounts of earmarks secured by legislator - or by the president - would go a long way to improving accountability for federal spending.

While OMB has done a good job making this kind of data accessible and understandable, we could know a lot more if better data was required to be made public. More importantly, it would be significantly easier to hold our elected leaders accountable if the information was available before debate and voting on appropriations bills took place in Congress. That's what would be required if a provision originally sponsored by Sen. Jim DeMint (R-SC) would be adopted by Congress. DeMint's provision was originally included in a reform package passed by the Senate in early 2007, but it was later dropped in conference.

It's almost assured Congress will not adopt anything like the DeMint amendment this year, but I'm hopeful when the 111th Congress begins in January, better reforms will be adopted that allow the public to weigh in on spending proposals before Congress passes them.

CBO has released its Monthly Budget Review for June. It finds that while the stimulus payments accounted for a $21 billion decline in monthly revenue (compared to last June), June's surplus would still have been lower than last year's when the rebates are accounted for. Details below.

The federal government incurred a deficit of $268 billion for the first nine months of fiscal year 2008, CBO estimates, $148 billion more than the shortfall recorded during the same period in 2007. About $79 billion of that change is due to the distribution to individuals of the tax rebates enacted in the Economic Stimulus Act of 2008. Compared with their level in 2007, outlays have risen by more than 6 percent, whereas revenues have declined by about 1 percent.

[...]

The surplus for the month this year was about $51 billion, CBO estimates, $23 billion more than the corresponding figure last year. The increase in the June surplus is largely attributable to certain one-time receipts and to differences in the timing of some payments. Adjusted for those factors, the surplus would have been lower than it was last June, even in the absence of rebate payments, which totaled $28 billion this June.

CBO estimates that net receipts were about $21 billion (or 8 percent) lower this June than they were in June 2007. Nearly all of the decline—$19 billion—can be attributed to payments to individuals of the tax rebates (in addition, an estimated $9 billion of those rebates was recorded as outlays).

CBO: Monthly Budget Review

CQ reports ($) that Congress intends to reverse OMB's decision to stop issuing printed budgets to various government offices.

The committee report accompanying the fiscal 2009 Financial Services appropriations bill, which includes funds for White House operations, instructs OMB to send paper copies of the budget to Capitol Hill next year.

"Committees and Members' offices frequently rely on the printed budget as one of many tools to analyze the president's proposals," the report reads.

The report also complains that the administration's decision "appeared to be a matter of shifting costs to the legislative branch from the executive branch" by requiring congressional offices to buy their own copies of the president's budget.

OMB has responded by saying that printing the budget documents is wasteful -- about 480 trees are felled each year to print the volumes and that printing is simply unnecessary when the documents are available online.

The Fiscal Policy Team and Congress both return to action this week with a number of fiscal policy issues to be tackled during the next five weeks. Below is a rundown of issues coming up soon, with most of the action happening in the Senate:

• Debate continues between Senate Democrats and Republicans over whether to offset the cost of a popular package of tax breaks called the "extenders." The latest development is that Senate Republicans are now challenging Democrats to offset the cost of the package with spending cuts rather than other tax increases. BNA ($)
• The Senate will also resume work on a bill to stave off a cut in payments to Medicare physicians by giving them the same reimbursement levels they had during the first six months of this year. Senate Republicans, who blocked legislation before the July 4 recess by one vote, have agreed to take up the legislation again this week after intense pressure from outside groups, particularly the American Medical Association. AMA Statement, AMA Television Ads
• Legislation to help people hurt by the mortgage crisis was also blocked before the holiday recess by Sen. John Ensign (R-NV), who wanted to have an amendment added to the bill to give tax cuts to encourage the production of renewable energy. The Senate plans to take another crack at that bill this afternoon.
• The appropriations season is well under way in Washington, but not much has been accomplished. With only about 10 weeks left until the start of the new fiscal year, neither the House nor Senate has approved any appropriations bills yet. After a old-fashioned temper-tantrum in the House appropriations committee before the July 4 holiday, prospects for completion of even one appropriations bill by Congress this year seems less and less likely.
• Finally, the Government Accountability Office has a new report out showing the weapons systems currently being developed by the Department of Defense will cost an astronomical $1.6 trillion to complete, of which $335 billion will be needed in the next five years. Yikes! Washington Post