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Ongoing TCS Analysis of the FY2012 Budget Proposal

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March 10, 2011

The FY2012 Presidential Budget Request was released this morning. TCS staff will be posting relevant documents and analysis as we digest this proposed budget over the coming days. 

 

Relevant Documents:

The Budget (Full)

President's message  

Terminations, Reductions, and Savings

Analytical Perspectives

Historical Tables

Appendix  

Budget Overview


(March 10, 2011) 5:25 P.M.

Department of Energy Overview

The President’s energy budget request for fiscal year 2012 hasn’t changed all that dramatically from past years, though the Department of Energy does get an overall increase to almost $18 billion for non-security programs. Most other departments saw either spending remain static or a decrease in their budgets.

Many of the budget’s terminations for energy are the same. It would close eight holes in the tax code that favor oil and gas and four that favor coal to save over $46 billion over the next ten years. The budget expanded the reduction of some Fossil Energy Research and Development programs, again including the termination of the Unconventional Fossil Technology Program while adding new reductions in the Natural Gas and Oil Technology Programs, saving $219 million just in 2012. While closing these loopholes for the amazingly profitable oil and gas companies is a good first step, the President needs to work hard to ensure that these cuts are actually put in place; this is the third year that many of these cuts have been included in the President’s budget and yet the loopholes still riddle our tax code, even after large oil and gas companies raked in billions of dollars in 2010.

Other parts of the budget gained significant boosts as part of the President’s effort to invest in renewable technology. Comparing to actual spending levels in 2010 since the government has been funded under a continuing resolution so far this fiscal year, vehicle, building, and industrial energy efficiency technologies all see increases of more than $200 million. Biomass, wind, and geothermal also saw modest increases to their budgets, while the budget for solar also increased by over $200 million. The Office of Science saw an increase in their requested budget to $5.4 billion, of which almost $2 billion will go towards basic energy science research.

Many subsidies and supports for mature energy technologies that don’t need government unfortunately saw little change. The budget doesn’t touch the more than $5 billion yearly subsidy to ethanol, and calls for an additional $36 billion in loan guarantee authority for nuclear energy. Also, clean coal technology research gets hundreds of millions dollars more in funding.

 


(February 18, 2011) 4:30 P.M.

Mixed Messaging on Coal

The President's Budget for FY 2012 called for the repeal of several holes in the tax code for Big Coal. The budget proposes the elimination of four coal tax preferences, including eliminating the percentage depletion allowance for hard mineral fossil fuels and eliminating the expensing and exploration of development costs, saving taxpayers more than $2.5 billion over the next ten years. This is a good first step.

But what doesn't make sense is why the President supports repealing these preferences while leaving in place others and, even worse, creating new subsidies! When the budget defends its repeal of those four coal tax preferences, it reads, "Especially during a time of fiscal challenges, it makes little sense to provide incentives for fossil fuel producers..." But the President's budget would do just the opposite when it comes to coal, maintaining a tax credit for investment in "clean" coal facilities that will cost taxpayers $1.8 billion over the next five years. There's no difference between tax credits for standard coal facilities and clean coal facilities, especially since "clean" coal is still a pipe dream even after taxpayers have spent billions on it since the 1980s.

On top of that, the budget proposes $453 million for a "fossil energy research and development portfolio focused on carbon capture and storage technologies." Of that, $291 million is new funding for carbon capture and sequestration (CCS), advanced coal-fueled power systems that support CCS, and cross-cutting research. Not only is CCS not commercially viable, but it's enormously expensive, increasing capital costs and creating coal plants with costly upkeep and maintenance. With a projected deficit of $1.65 trillion for 2011, taxpayers simply can't afford adding hundreds of millions more in "clean" coal funding.
 


(February 14, 2011) 7:00 P.M.

Army Corps Civil Works Budget and Trust Funds

The Army Corps of Engineers has released their Civil Works project budget (Download PDF [2.2MB])

Before even diving into the specific projects the Administration is throwing its weight behind, a number of interesting changes jump off the budget page.

The first is that the Administration assumes there will be a fix to the Inland Waterway Trust Fund, a mechanism designed to get users of the country’s waterway systems to pay for some of its costs of construction and maintenance. The IWTF is effectively bankrupt and the biggest beneficiaries of the system, barge companies, have been trolling for a bailout.

Today the Administration stated they would “proposes changes in the way that Federal navigation activities are funded.” Now, the Administration did not present its proposed changes, stating instead they “will work with Congress to reform the laws governing the Inland Waterways Trust Fund, including increasing the revenue paid by commercial navigation users sufficiently to meet their share of the costs of activities financed from this trust fund.”

But the Administration must really believe in their ability to hammer out a fix because the budget presented today assumes the IWTF will soon see a significant increase in revenue. From an estimated $87 million in FY2012 to $196 million in FY2013 to $163 million in FY2014. All told, assumptions of revenue generated total $566 million over the next 5 years and $917 million through 2021 (See table S-8, p. 192 and 193).

While on the issue of trust funds, the Administration’s plans for the Harbor Maintenance Trust Fund are sure to rock some boats. The Administration states “legislation will be proposed to significantly expand the authorized uses of the Harbor Maintenance Trust Fund so that its receipts are available to finance the Federal share of efforts carried out by several agencies in support of commercial navigation through the Nation's ports.” In other words the Harbor Maintenance Trust Fund will be tapped to finance some of the costs of inland waterways -- Construction ($65.44 million) and Flood Control, Mississippi River and Tributaries ($1.6 million).
 


(February 14, 2011) 6:55 P.M.

Department of Homeland Security Budget Proposal

The Department of Homeland Security made out better than most federal agencies, probably by virtue of being considered a “security” agency. The agency’s FY12 budget request would give DHS $43.2 billion, $309 million above FY10 but $411 less than the FY11 request. Border security and the Coast Guard received minor bumps over FY10 ($263 million and $83 million, respectively), while state and local grant programs were severely cut back. The Inter-city Bus Security Grant Program and the Emergency Operations Center Grant Program were wiped out completely, the latter because it was “largely comprised of congressionally-directed earmarks.”

Though the request summary extols its commitment to border security by funding border patrol officers and expanding the E-verify program, it actually carves a good hunk from the account that pays for the physical and “virtual” fence. The Border Security Fencing, Infrastructure and Technology (BSFIT) account includes funding for the entire Secure Border Initiative (SBI), which includes miles of vehicle and pedestrian barriers. BSFIT would receive $527.6 million, nearly $300 million less than FY10 and $272 million less than the FY11 request. That might be due to the fact that the Boeing technology boondoggle known as SBInet was canceled last month after years of criticism. Now there are some pennies well pinched.

 


(February 14, 2011) 5:52 P.M.

Boost to NNSA Budget: A Little Concerning

The President enshrined his desire to bump up the nuclear weapons budget in today’sFY2012 Department of Energy budget request, promising to maintain the funding over the coming years. The White House last year released a plan to pump an additional $80 billion into the National Nuclear Security Administration (NNSA) over the next decade as a measure of the Obama administration’s “commitment” to maintaining the United States’ nuclear infrastructure. That commitment had come under fire by members of Congress debating the New START treaty, and NNSA succeeded in winning more support despite its poor record of fiscal responsibility. Perhaps coincidentally, the Government Accountability Office released a report this very day that concluded NNSA did not have reliable data about the condition or costs of the facilities it oversees.

So the fact that NNSA would receive a nearly $2 billion boost in FY12 to $11.8 billion is a little concerning. This includes $7.6 billion for “weapons activities,” $1.2 billion over FY10. Much of the budget increase would go to nuclear laboratories such as Los Alamos in New Mexico and Pantex in Texas. The White House budget summary specified that the increases were part of a “multi-year effort” that would be “included in NNSA’s budget each year.”

Another notable change was the migration of some future NNSA funding into DOD’s accounts. Past proposals to put nuclear weapons funding under DOD management were nixed out of concern that the money would garner less oversight once submerged into the mammoth DOD budget.

 


(February 14, 2011) 5:30 P.M.

FY2012 Department of Agriculture Budget Proposal

The President’s proposed FY2012 Department of Agriculture (USDA) budget is $23.9 billion, down from $27 billion in 2010. Many of the cuts and reductions proposed were also in last year’s proposal by the President. The notable exception is the Market Access Program which was spared, even though it subsidizes ad campaigns for major corporations. In addition, this budget has nine new program eliminations and reductions in eight new programs from the FY2011 budget. Also, cuts to programs that were targeted last year are deeper. Chart comparing cuts available here. Some examples include:

  • The FY2012 budget reduces the payments to wealthy farmers whose average farm adjusted gross income exceeds $500,000 and non-farm adjusted gross income exceeds $250,000. The proposed change will save taxpayers $2.5 billion over the next 10 years.
  • It would eliminate cotton and peanut storage credits, saving $1 million over the next 10 years. The government currently pays for the storage of cotton and peanuts, but not any other crops. The administration suggests that this is an unfair subsidy that encourages unnecessarily long storage.
  • The budget would make the amount charged for catastrophic coverage on crop insurance policies more accurate, saving $1.8 billion in payments to insurance companies over 10 years.
  • The budget proposes several opportunities to consolidate funding for programs that are duplicative across different departments. This includes elimination of the High Energy Cost Grants because it is duplicative with the Rural Utilities’ Service Electric Loan program and largely supports fossil fuel activities, saving $18 million. It also includes eliminating Public Broadcasting Grants in the Department of Ag that helps public broadcast companies convert to digital transmission, a task the President says is largely complete and duplicative with the Corporation for Public Broadcasting, saving $5 million.
  • The Forest Service’s International Forestry programs are eliminated, saving $10 million. The administration argues that the program is duplicative with other agencies and outside the scope of the Forest Service.
  • The Animal and Plant Health Inspection Service had a budget of $912 million in 2010. The FY2012 budget reduces that by $75 million, reducing support for a number of pest and disease programs because some programs are no longer needed and other programs are attempting to deal with an infestation that may not be able to be controlled any longer.

 


(February 14, 2011) 4:57 P.M.

A Visual Representation of the FY 2012 Budget

 

FY 2012 Budget (Full)

 

FY 2012 Discretionary Spending

FY2012 Mandatory Spending

 


(February 14, 2011) 4:13 P.M.

Department of Defense Budget Request: Still Climbing

Since the Defense Department is responsible for the biggest portion of the discretionary budget, some may have expected it to shoulder some of the heavier cuts in the fit-and-trim FY12 budget. They would be wrong.

The rollout of the Defense Department’s request contained fewer surprises than other agencies because Defense Secretary Robert Gates showed some of his cards last month. In an attempt to align DOD with the budget-cutting zeal overtaking the Hill with the new Congress, Gates had announced a flurry of cutbacks in each of the military services, including the Marine Corps’ Expeditionary Fighting Vehicle and the Army’s Non-Line-of-Sight missile launch system. But most of the savings from those cutbacks will go right back into DOD’s budget rather than the U.S. Treasury.

For that reason, the budget request—today’s principal piece of news—is still climbing, up to $553.6 billion in the request for the base DOD budget and $118 billion for war funding for a total of $671 billion. It’s tricky to say how much of a jump that is from previous funding since DOD is currently funded at FY2010 levels under a continuing resolution, but DOD is taking credit for an overall 6.6% reduction over the FY11 proposal. But these numbers aren’t quite that simple. Most importantly, the $671 billion includes all DOD spending, including that for the wars in Iraq and Afghanistan. Shrinking funds for Iraq accounts for most of the topline decrease, while DOD admits that the base budget—a more important measure of DOD’s budgetary trajectory—will actually grow by more than 4 percent over FY10.

So a budget cut this ain’t. Just to drive this home, Gates and DOD Comptroller Robert Hale today warned Congress against funding DOD at FY10 levels for the rest of the year by passing a CR. Hale said “bad things will happen” if this is the case, such as the Navy not being able to buy a Virginia Class submarine. So, DOD is still committed to functions that will require an ever-growing budgetary bill in years to come.

 


(February 14, 2011) 3:00 P.M.

Transportation: Major Structural Changes

The President's FY2012 Budget makes some major structural changes to the way the program is currently run (more on this to come). This includes overhauling the account into which our gas taxes flow to pay for highways and transit. The President would replace the exisiting Highway Trust Fund with a Transportation Trust Fund (TTF). Here are some of the big picture changes proposed:

  • Gas tax proceeds that currently fund the HTF would continue to be dedicated solely to Highway and Mass Transit accounts under the TTF.
  • Two additional accounts would be created:
    • Rail Account - To support the newly created "National Rail System program", which includes High Speed Rail, AMTRAK
    • National Infrastructure Bank
  • The President proposes tranferring $26.0B for FY12 from General Funds into the TTF, in part to increase overall spending and in part to bring some programs that have previously been paid for with general funds into the TTF.

 


(February 14, 2011) 2:20 P.M.

Fossil Fuel Subsidies on the Chopping Block

As with the two previous budgets, the Fiscal year 2012 budget request eliminates several longstanding oil and gas subsidies. The President's plan calls for the elimination of eight subsidies and the elimination or reduction of five programs that aid the oil and gas industry saving taxpayers an estimated almost $44 billion from 2012-2021. 

Specifically, taxpayers would save $18 billion by repealing the Domestic Manufacturing Tax Deduction for oil and gas companies, $12 billion by repealing expensing of intangible drilling costs and $11 billion by terminating Percentage Depletion for oil and natural gas wells. 

The President's budget also calls for the elimination of four coal industry tax preferences, saving taxpayers more than $2.5 billion from over the next ten years. This includes $ 447 million in savings from repeal of the expensing of exploration and development costs. The budget also calls for the repeal of the percentage depletion allowance for hard rock minerals fossil fuels, saving taxpayers another $1 billion. These outdated and unnecessary taxpayer subsidies were enacted decades ago.

While these cuts are a step in the right direction, the President must pursue a more aggressive plan, if he truly intends to end all subsidies to the highly profitable oil, gas and coal industries.

 


(February 14, 2011) 2:05 P.M.

Transportation Funding Breakdown

In today's transportation budget, the President proposes $50 billion in spending that he calls "Up-Front Investments." This is a boost above current levels for additional spending on roads, railways, and runways. A.K.A.: Stimulus Spending. Here is how the spending would break down:

  • Critical highway infrastructure on an enhanced National Highway System: $25B
  • Support significant improvements at land ports of entry: $2.2B
  • Additional TIFIA credit assistance: $450M
  • TIGER grant awards: $2.0B
  • FAA NextGen: $250M
    • Accelerate applied research, advance deployment, and implement engineering solutions ($200M)
    • Upgrade capital infrastructure, such as power systems, control centers, and towers ($50M)
  • Grants-in-Aid program: $3.1B
  • Mostly for runway construction and other airport improvement projects
  • FAA budget for ongoing grants is otherwise reduced by $1.1B, eliminating guaranteed funding for large and medium hub airports; these facilities will be eligible to compete for funds under the Grants-in-Aid program
  • High speed rail network planning and construction: $3.0B
  • Additional transit New Starts investment: $1.0B
  • Bus and Rail State of Good Repair: $7.5B
  • Transit Formula Grants: $3.0B
  • Reduce the maintenance backlog for Amtrak fleet and infrastructure, particularly station compliance with the Americans with Disability Act: $2.5B
     

 


(February 14, 2011) 2:02 P.M.

Increased funding to DOE's Loan Guarantee Program

The President’s FY2012 budget proposal triples funding to the Department of Energy Loan Guarantee Program. This includes $36 billion in new budget authority for Treasury-backed loan guarantees to the nuclear industry and appropriates $200 million to cover credit subsidy costs for renewable and efficiency projects. The DOE Loan Guarantee program currently has more than $50 billion in loan guarantee authority, $18.5 billion of which is earmarked for nuclear reactors, bringing the total available to nuclear reactors up to $54.5 billion. With tens of billions of dollars in guarantee authority already available, providing the DOE with billions in additional loan guarantee authority is nothing more than a needless giveaway to the nuclear industry that puts billions of taxpayer dollars on the line.

The Loan Guarantee Program presents enormous risks to taxpayers. The program currently allows DOE to guarantee a loan for up to 80% of a project’s costs, placing far more of the financial burden of the project on taxpayers than other project creditors. It also jeopardizes taxpayers’ ability to recoup lost assets if a project defaults on their loan. With $54.5 billion in loan guarantees for nuclear reactors that could spell billions in losses—because nuclear reactors have been estimated to have a 50% default rate! 

On top of the risks associated with nuclear reactors overall, the loan guarantee program is shrouded in mystery since the DOE refuses to allow transparency and accountability for their program by sharing information about the loan process under the Freedom of Information Act. With the country’s hands already full bailing out other industries, throwing money at projects that aren’t ready for prime time is just fiscally reckless.


(February 14, 2011) 1:56 P.M.

Corps of Engineers - Parochial Meddling & Fuzzy Math

Cost savings aren’t the most interesting aspect of the President’s budget request when it comes to the Civil Works of the Army Corps of Engineers. While the $4.6 billion request is nearly 17% below the spending level of 2010, it’s how the President expects to get to this level that is important.

The Corps of Engineers Civil Works program is notorious for being a hotbed of parochial meddling.

The President’s budget calls, once again, for removing the Corps completely from activities, like local water and wastewater treatment projects, outside of its primary mission areas of commercial navigation, reducing the risk of flood and storm damage, and restoring significant aquatic ecosystems. The request also seeks reductions in many non-essential activities, like the Formerly Utilized Sites Remedial Action Program and operations and maintenance of waterways with little commercial navigation.

But in seeking to eliminate low-priority construction projects (to the tune of $317 million), this budget puts a special emphasis on projects that are worth the taxpayers’ investment. Thus for projects that are being undertaken for their economic impact, the President’s 2012 Budget claims to only include those projects with a benefit-cost ration of 2.5 or higher. Since most construction projects only must have a benefit-cost ratio of 1.0 to be approved, and the Corps is notorious for its fuzzy math, this could at least be a step in the right direction. We’ll see if this is so when the Corps releases more budget details this afternoon.

 


(February 14, 2011) 1:35 P.M.

FY 2012 Budget Breakdown

A Few Numbers on the Budget:

  • Total FY12 Budget proposal: $3.729 trillion
  • FY12 Receipts: $2.627 trillion
  • FY12 deficit: $1.101 trillion (30% of the budget is not paid for)*
  • Predicted FY12-16 deficit: $3.769 trillion

Budget breakdown:

  • Discretionary: $1.340 trillion (36% of budget)
  • Non-Security: $456 billion (34% of discretionary)
  • Security: $884 billion (66% of discretionary)
  • Non-Discretionary (Mandatory): $2.140 trillion** (57% of budget)
  • Social Security: $761 billion (36% of mandatory)
  • Medicare: $485 billion (23% of mandatory)
  • Medicaid: $269 billion (13% of mandatory)
  • Net Interest Payments on Debt in FY12: $242 billion (6% of budget)

* Budget also updated predicted FY11 deficit: $1.645 trillion, a record in dollar terms and 43% of the FY11 budget
** Rest of Mandatory spending is scattered across several different programs.

 


(February 14, 2011) 11:19 A.M.

Terminations, Reductions and Other Savings – Bottom Line Analysis

One of the most interesting budget day reads is the Terminations, Reductions and Other Savings list. This list identifies items cuts against funding levels for various programs in FY10. As usual, there are some familiar entries such as not purchasing additional C-17sor the alternate engine for the Joint Strike Fighter. But one of the interesting shift of tactics that the Administration has pursued is expanding the playing field to obtain more savings.

In the FY11 budget request, the total savings from the “Terminations, Reductions and Other Savings” list was $10.3 billion, in FY12, it’s $24.8 billion. That’s because the total amount of discretionary FY10 funding that was being reviewed went from $14.6 billion in the FY11 budget to $39.8 billion in the FY12 version. Almost all of that was because the number of FY10 programs being considered for reductions more than doubled to over 60 and the total FY10 spending being evaluated for reductions went from $6.2 billion yielding $1.9 billion in cuts to $33.7 billion yielding $11.1 billion in cuts.

One reduction in particular caught our eye. In the FY11 proposal, Low-Priority Corps of Engineers Construction projects were targeted yielding $214 million in savings. Like many areas, this same area was targeted yet again in the FY12 budget but now $317 million worth of projects were identified as low priority. That could easily reflect that in a tight budget environment the bar has to be raised on what the government is willing to fund.

 


(February 14, 2011) 9:59 A.M.

Budget Release - What to Expect

TCS staff will be scouring the budget (released at 10:30 AM ET) and separating fiscal fact from fiction. Here's a release the Obama Administration put on budget highlights early this morning:

The Hill: Obama 2012 budget proposes $1.1T deficit cut over next decade

Note: Administration predicts a $1.645 trillion budget deficit for FY2011, outstripping the Congressional Budget Office prediction of $1.48 trillion of just a month ago.

Filed under: Increase Transparency, Prioritize Investments

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