The New Jersey state government received $14.6 billion in federal aid in fiscal year 2017 and expects to receive $15.1 billion in the current year. The governor’s fiscal 2019 budget proposal assumes New Jersey will receive $15.6 billion — an increase of $ 1 billion over actual receipts in fiscal 2017 — and maybe more, depending on how funds for the train tunnel are finally negotiated. The estimates are pretty secure as the federal budget signed by the president was quite generous.
Despite a lot of concern about the budget President Donald Trump proposed in May 2017, wiser heads prevailed. In fact, the final Omnibus Appropriations bill (an aggregation of the 12 individual appropriation bills) of $1.3 trillion provided a $140 billion increase for the discretionary portion of the budget, including $80 billion for defense, and a net $60 billion for domestic programs.
Remember, each year the Congress acts only on the discretionary portion of the budget. The largest portion of the federal budget, termed mandatory, is basically on autopilot and is authorized without further actions of the Congress. Mandatory spending and debt service total $2.9 trillion (70 percent of all spending) and includes big items, such as Social Security, Medicaid, Medicare, and a wide range of income-security programs. Congress could take extraordinary actions to change the level of funding for these programs — which they recently attempted with Medicaid — but no material reductions have been made to these programs for many years.
Virtually all reductions and some of the proposed increases by the president were reversed. Instead of 30 percent reductions in EPA programs, for example, funding was increased, including dollars for energy research. Funding for the Community Development Block Grant was nearly doubled — the president had proposed its elimination. Funding was doubled for childcare for low-income families, and funding for so-called TIGER (Transportation Investment Generating Economic Recovery) Grants for transportation was tripled. Funding was increased for affordable housing and rental assistance. A wide range of education programs and low-income assistance grants were increased by sizable amounts rather than being reduced. I could go on, but you get the point — almost all domestic programs were retained and many received sizable increases. This is all very good news for New Jersey and all state governments.
Unfortunately, no actions were taken to stabilize the Affordable Care Act (ACA) health insurance markets, and no actions were included to address the DACA program for the “Dreamers.” Hopefully, both of those important issues will be addressed by separate legislation.
The Omnibus law includes hundreds of other line items and many policy decisions, that — while they have no immediate impact on revenue coming to New Jersey — still have long-range implications. For example, the $900 million promised for the Gateway project was not included, but congressional staff have suggested that hundreds of millions in appropriated “unallocated funding” could very well go for the project. Not great news, but still an indication that at least some members of Congress believe the initiative to be critical to the economy of the Northeast and the country.
Other budgetary actions that may have no direct impact on New Jersey but are of interest to our citizens and support the old axiom: The president proposes but only the Congress disposes. Specifically, increases were made to the National Endowment for the Arts and Humanities — the president wanted it to be eliminated; more money was allocated for border security but no money for a wall; funding for private-school vouchers was barred; a sizable increase of $3 billion was approved for the National Institutes of Health; no language was included to target Planned Parenthood; and language to defund “sanctuary” cities was removed. And amazingly, language was added that allows the Centers for Disease Control and Prevention to conduct research on gun violence; such research was effectively stopped in 1996.
What is next?
This Omnibus Appropriations bill provides funding through September 30, 2018, and then we start all over again. In March 2019, the debt limit will again become an issue. But perhaps the situation will not be as bad — at least let’s hope. Here is why.
Specifically, as part of a deal reached in February 2018, the Congress agreed to a two-year arrangement covering fiscal 2018 and fiscal 2019. The deal increased defense spending by $160 billion, domestic spending by $130 billion over the two budget years. The first part of the deal is now implemented; the second half of the deal will have to withstand actions by the president, but my thinking is after a lot of horse trading the fiscal 2019 process will also be executed and federal aid to New Jersey will continue at these higher levels with even further increases.
A worst-case scenario is that there could be a continuing resolution (CR) for parts of fiscal 2019, but it will be based on an expanded base from fiscal 2018, which is good. Confusing? You said it! But the entire federal budget process is a sad commentary on how not to run a $4.2 trillion corporation.
I would be remiss if I did not comment about the elephant in the room. Can the U.S. government continue to run up massive deficits each year, which leads to even larger debt? The federal government had a deficit of $585 billion in fiscal 2016; projections for fiscal 2027 are $1.4 trillion, and the total debt is projected to exceed 102 percent of gross domestic product (GDP). Interest on the debt is $307 billion in the current year; it will be at least $800 billion in 2027.
These projections were made before the recent sizable tax cut, which will reduce federal revenue. The Congressional Budget Office (CBO) has not yet released its updated projections, but most savvy folks predict significant increases in both deficits and debt.
The impact of these numbers and possible options are for another discussion at another time.