The debt ceiling deal: our take

August 2, 2011 / Comments (0)


Aug 5 – President Obama has signed the Budget Control Act of 2011 (BCA) into law. The bill raises the debt ceiling, thus averting an economic catastrophe.


The White House’s summary of the deal is available here.


“We are at this moment evaluating exactly how badly the newly adopted federal deficit/debt ceiling act will impact Montana public programs and services,” said MEA-MFT President Eric Feaver. 


“At first glance we do not expect the impact to be soft and gentle. More as we learn more.  It is conceivable that because of this action the governor will call the legislature back into special session – maybe not to invest some of our state’s growing ending fund balance in k-higher education and state employee pay – but in maintaining what we have now and nothing more. We shall see.”


The AFT provides this preliminary analysis of the deal and how it could affect our members and the people they serve:


This agreement cuts the deficit by more than $900 billion over ten years and lays the groundwork for Congress to decide upon $1.2 trillion in additional deficit reduction this fall. The bill is designed to reduce government spending by $2.1 trillion over the next 10 years.


While we are still sorting through the details and measuring their impact, there is little doubt that maintaining a robust federal investment in education will be tough…


Step 1—To achieve the budget savings outlined in the new law, a number of actions must be taken in the coming months. The first set of cuts (of the $900 billion over 10 years) will be decided through the appropriations process over the next few months.


Step 2a—A joint committee of Congress will be formed this summer made up of 12 members appointed by the Senate Majority and Minority Leaders and the Speaker and Minority Leader of the House of Representatives.


The joint “super” committee will attempt to produce legislation by Nov. 23 that reduces the debt by the additional $1.2 trillion from current spending levels. If the joint committee reaches an agreement on legislation, Congress must then take an up or down vote on this reduction package no later than Dec.23, 2011.


Revenue (taxes) in addition to spending cuts can be included in the legislation developed by the joint committee, as can changes to entitlements, such as Social Security, Medicare and Medicaid.


Step 2b—If the joint committee fails to produce legislation or the committee’s product is not approved by Congress at the start of 2013, an enforcement mechanism known as “sequestration” will kick in and automatically make $1.2 trillion in across-the-board cuts over 10 years.


The BCA virtually ensures that Congress will be focused on budget cutting instead of on jobs and investment in the immediate future. It also means the fights to protect education and child care funding, Social Security, Medicare and Medicaid will be very intense this fall.


BCA details

While much of the upcoming process is unclear, there are some additional specifics from the BCA that you need to be aware of moving forward:


Higher Education funding—The Pell Grant maximum is for the most part protected for the next two years. The Pell Grant program is the primary form of needs-based financial aid that helps more than 9 million students and families afford a higher education.


As more students and workers attend college during the economic recovery, the Pell Grant program’s costs have increased. This program has been under threat from Republicans, because of its expense, but the final version of BCA provides $17 billion in funds for the Pell Grant program. These funds, however, came at the expense of two programs: the Subsidized Stafford Loans for Graduates, which allows the federal government to make interest payments on student loans for graduate students, who qualify based on their financial need, while they are studying or in deferment; and an incentive program to encourage graduate students to pay off their loans early.


To make matters worse, the $17 billion is likely not enough to meet all of the costs of the program—so this fall there may have to be additional cuts to protect the Pell Grant program.


Programs for the most vulnerable Americans—In case the joint committee fails to come to an agreement and across-the-board cuts are instituted, a number of critical programs are excluded from these automatic reductions. They include: Social Security, Medicaid, Medicare benefits, unemployment insurance, Academic Competitiveness/Smart Grant Program, Child Care Entitlement to States, Child Nutrition Programs (with the exception of special milk programs), Children’s Health Insurance Fund, Commodity Supplemental Food Program, Family Support Programs, Federal Pell Grants, Grants to States for Medicaid, Payments for Foster Care and Permanency, Supplemental Nutrition Assistance Program (Food Stamps), Supplemental Security Income Program, and Temporary Assistance for Needy Families. Cuts to Medicare would be capped at 2 percent of Medicare spending and be limited to providers.


Balance—While the agreement does not include revenues, it does seek to ensure that all aspects of discretionary spending (including defense) face cuts of similar magnitude. Of the initial $900 billion (over 10 years) in cuts, the $10 billion in reductions over the first two years will be equally divided between defense/security and nondefense domestic spending.


Similarly, if Congress fails to move a bill this fall making $1.2 trillion in required reductions, automatic across-the-board cuts would kick in. However, roughly half of these cuts will come from defense spending.


The next few months will be fast-paced given all of the things the new law requires before the end of the year, as well as the annual appropriations process for FY 2012. We will need your help as we work to bring greater balance to future budget cuts so that those least able to withstand these cuts are protected, while others who have given little thus far are called on to give their fair share.



View the White House summary here.


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