On July 31, Congressional Leaders and President Obama reached agreement on a bill that will avoid government default on its obligated payments and reduce the deficit by at least $2.1 trillion dollars over the next 10 years. The House passed the bill by a vote of 269 to 161 and the Senate passed it by vote of 74 to 26.

The text of the legislation is available here and an analysis of the bill prepared by the Congressional Budget Office (CBO) is available here.

The Debt Ceiling

Through a multi-step process, the debt limit will be increased by $2.1 to $2.4 trillion over the next year.

Discretionary Spending Caps

The bill puts in place annual discretionary spending caps that were included at the request of the House. But those caps, from $1.043 trillion in fiscal 2012 to $1.234 trillion in fiscal 2021, are now split between ‘security’ and ‘non-security’ spending, enforceable by across-the-board cuts. The bill defines the ‘security category’ as ‘discretionary appropriations associated with agency budgets for the Department of Defense, the Department of Homeland Security, the Department of Veterans Affairs, the National Nuclear Security Administration, the intelligence community management account, and all budget accounts in international affairs. Overall, the caps lead to approximately $917 billion in cuts over 10 years.

Impact on Research

The debt agreement created a special committee of six Republicans and six Democrats to come up with the $1.5 trillion in budget savings by December 23. If those savings are not enacted, sweeping automatic budget cuts totaling $1.2 billion would be triggered, starting in 2013. Defense spending would be reduced by 9.1 percent while non-defense programs (NIH, NSF, ED, etc.) would be targeted for a 7.9 percent cut. A 7.9 percent cut for NIH would be the largest in the agency’s history, amounting to about a $2.5 billion reduction in 2013. By comparison, the agency was cut $317 million this year. For the NIH and other agencies whose budgets must be approved each year by Congress, those cuts would come on top of reductions lawmakers also agreed to as part of the debt-limit deal.

Student Financial Aid

The legislation includes $10 billion for the Pell Grant Program in FY2012 and $7 billion in FY2013. While not completely eliminating the funding gap for next year, the additional resources significantly improve the situation for the Pell program.

The increases would be paid for by changes to the student loan program.Starting in July 2012, graduate and professional students, with few exceptions, would no longer be eligible to participate in the subsidized loan program.  Incentives for borrowers in the direct loan program to make on-time payments, in the form of reduced origination fees, would also be eliminated. In total, the student loan programs changes provide a savings of $21.6 billion, of which $17 billion would go to the Pell and $4.6 billion would go to deficit reduction. The undergraduate in-school interest subsidy may be targeted for elimination during the next round of discretionary budget cuts.

Pell’s Future

The debt agreement lists Pell Grants as an essential program for low-income individuals that would be protected in the event of an automatic across-the-board cut to meet deficit reduction targets. However, even with the additional funding, Pell Grants will need an additional $1.3 billion in this fall’s appropriations process to maintain the $5,550 maximum grant. Funding for the other student aid programs – SEOG, Federal Work-Study, Perkins, TRIO, GEAR UP, graduate programs — and funding for agencies such as NSF, NIH and the Department of Education also need to be approved this fall. These decisions will be made under the new spending cap set in the debt bill. The cap is $24 billion more than the House-passed budget, but $7 billion below last year’s total spending level.

The Supercommittee

Republican and Democratic leaders in each chamber appointed three members each to a 12-person joint select committee that will be charged with coming up with $1.2 trillion or more in deficit reduction. The “Supercommittee” would report by Nov. 23, and votes on the committee’s plan are expected in each chamber by December 23. If the committee fails to report a bill by Nov. 23 — or either house fails to act within a month after that, new cuts based on the difference between $1.2 trillion and whatever is enacted would go into effect. The reductions would be divided equally between security and non-security programs

Supercommittee Membership

The Members of the Supercommittee were announced this week.

• Senate Democrats Patty Murray (WA), John Kerry (MA) and Max Baucus (MT)
• Senate Republicans Rob Portman (OH), Pat Toomey (PA) and Jon Kyl (AZ)
• House Republicans Jeb Hensarling (TX), Dave Camp (MI) and Fred Upton (MI)
• House Democrats James Clyburn (SC), Xavier Becerra (CA) and Chris Van Hollen (MD).

Senator Murray (WA) and Rep. Hensarling (TX) will serve as the co-chairs of the committee.

Links

Debt Deal May Offer Only Temporary Reprieve for Student-Aid Programs, Chronicle of Higher Education

College Grants Spared From Spending Cuts, Wall Street Journal

Advocates Cheer Pell Grant Funding, Worry About Second Round of Cuts, Congressional Quarterly

Alzheimer’s Research Among Science Efforts at Stake in Debt Deal

Sources

APLU (Association of Public and Land-grant Universities)
Bloomberg.com
Politico.com