Last Updated: February 19, 2012

The FY2013 Presidential Budget Request was released this morning (2/13/2012). TCS staff will be posting relevant documents and analysis as we digest this proposed budget over the coming days.

Relevant Documents:

The Budget (Full)

Cuts, Consolidations, and Savings

Analytical Perspectives

Historical Tables

Appendix

(February 19, 2012) 3:44 PM

International Budget Intrigue

The international affairs request provides a lesson in the kinds of budget gerrymandering we’re sure to see more of in the months and years ahead. The official topline for the State Department and foreign aid is $51.6 billion, a 1.6 percent jump over the FY12 bill passed in December and a 10 percent hike from FY11. This slight but steady increase, however, is due not to increases in State Department programs or sub-agencies—only some of which recovered after big dips in FY12—but to huge fluctuations in funding for Overseas Contingency Operations (OCO).

This year’s budget includes OCO funding in state’s topline request because of President Obama’s promise to reincorporate the funds–originally known as wartime supplemental—into the base budget process. The trick is, OCO is still not subject to the budget caps imposed by the Budget Control Act. That means lots of things generally funded in State and DOD’s base budgets can be tucked safely away in OCO.

This year’s OCO funding for State and foreign aid is now $8.2 billion—nearly 10 percent of its budget. The administration’s budget document takes pains to say that OCO represents “temporary and extraordinary” funding and that some of that money represents some 400 functions that State took over from DOD in Iraq. But beyond that, we only know State and USAID will get $3.3 billion for Afghanistan, $1 billion for Pakistan, and $4 billion for Iraq. Ironically, the administration says this approach “promotes transparency and efficiency in the Budget” by separating OCO from the base budget. It also proposes a “binding cap” of $450 billion on OCO spending between 2013 and 2021, while admitting that Congress can change that at any time in the future.

Aside from the OCO switcheroo, notable additions to the request include the creation of a new Middle East and North Africa Incentive Fund as well as a Counterter­rorism Bureau. State and USAID will also aim to save an unspecified bundle by using the phone and teleconferencing instead of travel, along with other efficiency measures. They will also try to reduce service contracts by up to 15 percent below 2010 levels.

(February 16, 2012) 4:10 PM

$150 million for Piketon Uranium Enrichment Plant

It comes as no surprise that the President’s budget request includes $150 million for United States Enrichment Corporation’s (USEC) uranium enrichment project in Piketon, OH. Late last year the Department of Energy (DOE) offered $300 million in Research, Development and Demonstration money (pending congressional approval) instead of offering them the $2 billion loan guarantee. While we were happy to see DOE giving the brush off to the loan guarantee (once again), we were disappointed to see DOE offering any money to the financially troubled project.

USEC’s loan guarantee denial was not its first. DOE first said no to the project in 2009 raising concerns on the project’s cost and reliability. But in response to political pressure, DOE retracted their original decision, allowing USEC to stay in contention for the guarantee. At that time, DOE also offered USEC a consolation prize–$45 million for ongoing research and development.

It’s time to stop this tortured process–deny the $150 million request and put the final stake in the USEC loan guarantee.

(February 16, 2012) 3:10 PM

Small Modular Reactors

The Administration has included funding for Small Modular Reactors (SMRs) in its FY2013 Nuclear Energy budget proposal. The budget request provides $770 million total for the Office of Nuclear Energy, which includes $65 million for SMRs –a slight decrease from FY2012. The funding request is for slated for SMR Licensing Technical Support.

SMRs are small-scale nuclear reactors that produce significantly less power than a traditional nuclear reactor. They produce about 300 MWe or less, whereas a normal sized reactor would produce about 1,000 MWe or more. They are intended to be factory fabricated and transported by truck or rail to their destination. Although much is still unknown about these so called “mini” nukes, their cost has been estimated to be upwards of $2 billion for each reactor.

In the agency’s materials on SMRs, DOE argues that there is a “need and a market” in the United States for the reactors. If this is true, we think the nuclear industry should be getting private financing, not federal tax dollars.

(February 14, 2012) 7:00 PM

Department of Homeland Security

DHS emerged relatively unscathed from the budget blade, but some funding priorities were rearranged. The $39.5 billion was less than a 1 percent decrease from the FY12 bill, and most of the major sub-agency budgets fluctuated little. Customs and Border Protection, the largest DHS agency, received a $200 million bump to $10.3 billion. The request dedicates more money to immigration services that would help move people to citizenship, but Immigration and Customs Enforcement, which is tasked with arrests and detention, saw its budget cut 5 percent to $1.3 billion. Another winner: cybersecurity, which received more than $1.4 billion for federal network security and new research.

The bill-payer for these increases was $853 million the administration claims to have cut from overhead such as travel, overtime, and fleet management, as well as elimination of duplicative and low-priority programs. The latter would include the Federal Flight Deck Officer Program and the National Bio-Agro Defense Facility, according to the Cuts, Consolidations and Savings document.

Another source of money could be the consolidation of $2.9 billion in state and local first-responder programs under the Federal Emergency Management Agency. TCS has joined many voices in criticizing this program for lacking focus and falling prey to parochial interests such as earmarks. The new structure would eliminate “duplicative, stand-alone grant programs”—such as the National Pre-Disaster Mitigation Fund, a major earmark magnet—and consolidate them into a National Preparedness Grant Program. The admin also promised to put the whopping $9 billion worth of projects currently stuck in the bureaucratic pipeline “to work immediately.”

(February 14, 2012) 5:30 PM

Hardrock Mining Royalties & Abandoned Mine Land Cleanup

Currently, under the 140 year old General Mining Law of 1872, valuable taxpayer lands and hardrock minerals are essentially given away to multinational mining conglomerates for free. To add insult to injury, these same mining companies often abandon their mines once they are no longer profitable, or declare bankruptcy—sticking U.S. taxpayers with the costly tab of mine cleanup.

The FY 2013 DOI budget request proposes a five percent royalty on hardrock mining for resources such as gold, silver, and copper extracted from public lands—estimated to generate nearly $75 million over the next ten years. In addition, the President is asking mining companies to pay a small fee to support the cleanup of spent hardrock mines–estimated to raise nearly $2 billion over the next ten years. Also, unlike previous budget requests, the Abandoned Mine Land (AML) program would see increased funding in FY 2013. The AML program would receive a slight increase of nearly $30 million.

With more than $15 trillion in debt, any royalty on hardrock mining is a small step in the right direction but the President must take a bigger stride to ensure taxpayers receive their fair-share. For instance, coal companies pay up to a 12% royalty on coal extracted from public lands. Moreover, taxpayers should not be shelling out additional funds to reclaim the abandoned mine sites when industry should pay that cost.

(February 14, 2012) 1:29 PM

BABS is Back

The President’s budget includes a revival and expansion of the Build America Bonds program, originally an American Recovery and Reinvestment Act program that expired at the end of 2010. The program enables state and local governments to sell federally subsidized debt. The budget request not only reauthorizes the program, it expands the Build America program and it makes it permanent. The proposal allows the program to operate for its first two years at a subsidy amount of 30% of the coupon interest on the bonds and 28% thereafter. The ARRA version of the Build America Bonds program allowed Treasury to offer a 35% subsidy. The program is also expanded from its original stimulus jurisdiction to go “beyond new investments in gov¬ernmental capital projects” and include “additional program uses for which State and local governments may use tax-exempt bonds under existing law.”

Although lawmakers have also tried to bring back the program since its expiration, efforts in 2011 stalled. Under the original BABs program, $181.5 billion in bonds were issued.[1] That tallies up to billions of dollars in interest payments on behalf of the federal taxpayer.

(February 14, 2012) 10:20 AM

Deptartment of Interior—Expanded Offshore Oil and Gas Leasing

The President's Budget Request for FY13 calls for $164 million and $222 million, respectively, for the new Bureau of Ocean Energy Management (BOEM) and Bureau of Safety and Environmental Enforcement (BSEE). In the State of the Union address, the President proposed a new leasing program to open up more than 75 percent of all recoverable oil and gas lands for development. Together, BOEM and BSEE will work to expand outer continental shelf oil and gas leasing and meet these leasing targets.

This increased production could generate significant revenue in royalties. Unfortunately, over the years, taxpayers have lost billions on royalty-free oil and gas leases. Taxpayers have also lost because of a corrupt and inadequate royalty collection system. In today’s budget climate, we cannot afford to lose this valuable revenue. These problems must be resolved as we move forward with additional energy production on federal lands and waters.

(February 13, 2012) 7:45 PM

Tax Expenditures

Unlike the FY12 budget proposal, the FY13 request makes no pretense of supporting tax simplification. However, it does list the exact same tax expenditure proposals from last year.

Beyond the well reported proposals to extend the 2001 and 2003 tax breaks only to those making less than $250,000 (they expire at the end of 2012), the President proposes to limit itemized deductions for these filers to a maximum of the 28 percent rate. This would apply to all itemized deductions including tax-exempt interest, employer provided health insurance, income exclusions for retirement contributions, and others. The rationale behind this is that tax deductions, which reduce taxable income, become more valuable the more you earn. This is because your marginal tax rate is higher. In our current tax code, a $2,000 mortgage interest deduction for a filer in the 35 percent bracket is more valuable than the same deduction is for a filer in the 28 percent bracket, because it reduces the amount of income subject to the higher tax. This proposal is an effort to reduce that discrepancy.

Elsewhere we note the variety of energy tax expenditures the budget request is targeting (again). They also claim to allow several tax expenditures expire at the end of the year (again).

Separately, the budget proposes to make the research and experimentation tax credit (also known as the R&D tax credit) permanent. This credit has been extended with occasional lapses since 1981, and is supported by such struggling companies like ExxonMobil or Northrup Grumman or AT&T.

(February 13, 2012) 7:21 PM

Department of Defense

The basic message of today’s FY13 defense budget request was not radically different from the preview DOD Secretary Panetta gave two weeks ago. Stuck between the rock of the fiscal crunch and the hard drawdown of the wars in Iraq and Afghanistan, DOD released a strategic review early in January to reassure everyone that strategy was dictating budgetary decisions rather than the other way around. That was followed by the budget preview, probably to further distance DOD from budget politics in this election year. The scorecard we released after the preview summarized the high and low lights of the budget request, such as the funding freeze for the new SSBN(X) nuclear submarine and full funding for the next-generation bomber plane.

Today’s biggest news was probably the list of program terminations released with the White House budget request. DOD programs on that list include:

• C-27J cargo aircraft. The strategic review revealed that C-130s would do the job of flying equipment around overseas. DOD also decided to curtail its ambitious, $6 billion program to modernize the C130s. Savings: $480 million in FY12 alone.
• Defense Weather Satellite. This Air Force program was a spin-off of the National Polar Environmental Satellite, a prototype of DOD’s overloaded, over-budget satellite programs. Savings: $3.8 billion.
• High Mobility Multipurpose Wheeled Vehicle (HMMWV) capitalization. The Army had planned to upgrade 6,000 of the vehicles so they could be used in “air assault operations.” Documents admit the effort “would cost too much for a niche capability.” Savings: $489 million.
• Joint Air-to-ground Missile. This program has had a bulls-eye on its back for a while, owing to the fact that its function is essentially being filled by other missile programs. Savings: $1.6 billion.
• Sea-Based X-Band Radar – this missile defense program will go on “limited test support,” meaning it can be used in testing but won’t be operational due to its “costly, maintenance-intensive” platform. DOD officials said today they would trim the sea-based elements of missile defense but protect “homeland” programs and the European Phased Adaptive Approach. Savings: $500 million.

Despite these changes, it’s important to remember that DOD’s topline is slated to continue growing after a small dip in FY13. In fact, the chart on page three of the budget materials handed out today shows that the budget’s five-year projected level is on par with the peak of President Reagan’s Cold War buildup. And it may not even go down that far: Another chart on page 21 shows that DOD is banking on $61 billion of the $279 billion it plans to save over the next five years coming from “more disciplined use of resources.”

We’d love to believe that the Pentagon can become that efficient that fast. But since DOD is also not planning for sequestration, they need to get a Plan B fast in case all those improvements don’t materialize.

(February 13, 2012) 6:40 PM

Pruning Crop Insurance

The President’s budget request for the Department of Agriculture spells out a number of positive tweaks to federally subsidized crop insurance that, if enacted, are estimated to save more than $7.5 billion over the next decade.

Crop insurance is significantly different than the home, car, or health insurance policies that are familiar to most people. Instead of individuals or companies covering the full cost of their insur­ance protection, the federal taxpayer pays, significantly subsidizing insurance policy holders, agents, and companies. Beneficiaries, on average, pay only 40 percent of the cost of their insurance policies.

The budget’s specific steps for savings from the federal crop insurance program:

• Reduce federally subsidized crop insurance companies rates of return to be more in line with the returns expected by private companies = Savings of $1.2 billion
• Taxpayers reimburse crop insurance companies for the costs of administering the crop insurance program. The budget proposes basing these reimbursements on insurance premium costs from 2006 (closer to an average year for crop prices) instead of 2010, a record year = Savings of $2.9 billion
• In most places the costs of a basic catastrophic crop insurance (CAT) is fully funded by taxpayers. The budget proposes minor adjustments in calculating the costs of these policies = $255 million in savings
• Require agricultural producers to pay a greater share of the costs for optional coverage beyond the fully taxpayer-subsidized CAT policy = Savings of $3.3 billion
• Total savings of $7.621 billion

If enacted, these would be positive steps, but even with these tweaks, the budget assumes taxpayers will spend just shy of $98 billion providing subsidized crop insurance over the next decade.

Read more about taxpayer concerns with crop insurance: Crop Insurance: A Federal Cash Assurance Program

(February 13, 2012) 5:30 PM

Department of Energy Overview

The FY13 budget includes $27 Billion for the Department of Energy, a 3.2% increase over the enacted FY12 levels. Below are a few tidbits. More to come.

• Eliminates $4 billion/year in fossil fuel subsidies. While the President’s request doesn’t hit everything we want to cut, the budget takes the ax to several subsidies for oil and gas, and coal.
• No new Title XVII Loan Guarantee Authority. Since its creation in 2005, TCS has warned DOE loan guarantees are a bad bet for taxpayers. After two years of asking for massive increases, this year’s budget requests no increases.
• Increased Funding for ARPA-E- $350 million. TCS highlighted ARPA-E as a wasteful program that supports projects that aren’t environmentally friendly in our Green Scissors 2011 report.
• Keeps some fossil subsidies. Although the budget hits fossil fuel subsidies, it also includes $421 million in fossil fuel R&D and new line items for hydraulic fracturing.

Fossil Fuel Cuts

Similar to the FY2012 request, the President's Budget for FY 2013 calls for the repeal of twelve subsidies in the tax code for the fossil fuel industry. The budget proposes the elimination of four coal tax preferences and eight oil and gas industry tax preferences totaling a savings of more than $41.8 billion over the next ten years for taxpayers.

Among the four coal subsidy cuts is the elimination of the percentage depletion allowance for hardrock mineral fossil fuels which would save taxpayers more than $1.7 billion alone over the next ten years. Along with the coal subsidy cuts, three significant oil and gas industry subsidies made up the majority of savings for taxpayers. These included the elimination of the expensing of intangible drilling costs (nearly $14 billion), percentage depletion allowance for oil and natural gas wells (more than $11 billion), and domestic manufacturing tax deduction for oil and natural gas companies (over $11.6 billion).

(February 13, 2012) 4:35 PM

Analyzing the National Nuclear Security Agency's Budget

The agency tasked with the care and feeding of our nuclear weapons requested $11.5 billion in FY13, $7.6 billion for “weapons activities”—a five percent increase above last year. Most of that increase appears slated for nuclear counterterrorism prevention and other national security programs. But facilities construction took a big cut, primarily because NNSA is putting the brakes on one of the most pernicious porkers on the agency’s books. A two-phased project intended to replace a building that housed plutonium, the Chemistry and Metallurgy Research Replacement facility (CMRR), has been growing in size and cost at Los Alamos National Laboratory in New Mexico for too long. NNSA said it would defer the second building’s completion for “at least five years” because it determined there was adequate space to perform the building’s function elsewhere in the nuclear weapons complex. Savings: $1.8 billion.

Unfortunately, some other equally porky projects that we think should go the way of the dodo continue to win funding: the $5 billion Mixed Oxide (MOX) Fuel Fabrication Facility in South Carolina would receive nearly $570 million, even though its ostensible purpose—recycling excess plutonium from dismantled weapons into MOX—has vanished along with prospective customers for the fuel. And the Uranium Process Facility in Tennessee, now projected to cost roughly $7 billion when completed, is also being built for a purpose (warhead life extension programs) that can be performed elsewhere. A program to rehabilitate the B-61 nuclear warhead also got a big bump in its funding request, even though we’re waiting for our partners in Europe—where the bombs are located—to pick up part of the cost.

(February 13, 2012) 2:30 PM

U.S. Army Corps of Engineers Budget

The President’s budget proposes just over $4.7 billion in funding for Corps of Engineers Civil Works projects, a cut of roughly 5.4% compared to fiscal year 2012. The savings of $271 million dollars comes from a perennial target of presidential budgets, “Low-Priority Construction Projects” in the Corps’ Civil Works program. Traditionally these are projects that fall below a benefit-cost-ratio of 2.5 to 1, in other words for every dollar we spend, we must get at least 2.5 dollars back.

The main problem with relying on savings from eliminating these types of projects is Congress often disagrees, boosting the Corps budget above the president’s request by piling on extra cash for projects Congress finds dear. Under the earmark moratorium, Congress is unable to simply add extra funds and direct that they be spent on specific projects. So instead, in FY12 they relied on “slush-y funds” totaling $507 million, and directed the Corps to distribute these funds. Unsurprisingly many of these funds went to projects not in the president’s budget and even projects, like the Delaware River Deepening, that fall way short of the 2.5 BCR standard. See our criticism of this earmark-like approach.

In addition, this budget request assumes Congress will enact a user-fee on commercial cargo operators on the nation’s inland waterways. Because of cost overruns, decreased traffic, poor planning, and a fuel tax that has not increased in more than 15 years, the Inland Waterways Trust Fund is effectively bankrupt. Last fall the president proposed legislative language that would authorize the Secretary of the Army to supplement the fuel tax with an annual user fee on each vessel that transports commercial cargo on this system. Congress, however, has balked at this proposal. Yet the budget request assumes $80 million will be generated from a new “Users Fees, Inland Waterways Trust Fund.”

We will have more details after the Corps of Engineers briefs the public on their budget details at 3 PM.

(February 13, 2012) 1:35 PM

President funds transportation with irresponsible 'Peace Dividend'

Proposes a $476 billion six-year reauthorization bill. This is much higher authorization level than either the House bill ($260 billion over 5 years) or the Senate bill ($109 billion over two years) would provide.

Here is what we have found so far. Notice that this isn’t all of it. We’ll fill in the details as we find more.

*Please note that our total comes out to $474.9 billion (due to rounding), while actual budget amount is $475.9 billion. The actual budget amount is used in the table.

Pays for it with a “peace dividend”. Roughly $240 billion will be collected in gasoline tax revenues over the next six-years. The Administration would pay for the rest of its reauthorization with annual transfers (approximately $38 billion each year) from the Treasury into the Highway Trust Fund (renamed the Transportation Trust Fund), for a total transfer over six years of $231 billion. To accomplish this, the Administration proposes “utilizing savings from ramping down overseas military operations.”

This is as at least as bad a “pay-for” as both the House (which uses speculative energy development royalties and federal work pension modifications) and Senate (which uses a laundry list of unrelated provisions) proposals. But in the case of the “peace dividend” offset – it is completely fictitious. Because of the drawdown, we never anticipated spending that money so there is no savings to be had. The President’s proposes nothing more than to raid the Treasury to pay for transportation projects. In case anybody has forgotten, we are in the midst of a fiscal nightmare. With annual deficits exceeding $1 trillion and our federal debt over $15 billion, fake budgetary savings or speculative future revenue should NOT be used to pay for infrastructure spending. Period. Throughout the Bush administration the wars were “paid for” off budget (not included in the baseline) which we opposed. The Obama administration moved the war spending on budget, but now wants to keep it in the extended baseline like we were going to maintain the same war spending levels as in FY11 and FY12. This is clearly not the case and so counting on “war savings” to pay for anything is little more than a cynical budget trick.

If Congress or the Administration wants to increase spending on transportation, they should propose a way to increase revenue from the gas tax or some other user-based fee. To do otherwise is budget foolish and will only exacerbate our already difficult situation.

Provides $50 billion in immediate transportation investments, all of which would have a federal cost share of 100%. This would be in addition to the President’s reauthorization proposal (above).

• $28 billion for National Highway Program
• $9 billion for FTA bus and fixed guideway system funding
• $6 billion for Federal Railroad Agency funding, including support for high-speed rail and Amtrak capital expenses
• $4 billion in new TIGER grants
• $3 billion for the FAA for grants-in-aid to airports and facilities and equipment

(February 13, 2012) 1:14 PM

Score one for taxpayers! No new money for DOE Loan Guarantees

Abandoning the Administration’s usual drum beat for more loan guarantees for the nuclear industry ($36 billion increase requested FY11 and FY12) the President’s proposal includes NO new loan guarantee authority or credit subsidy appropriation for the Department of Energy Loan Guarantee Program. TCS has been highly critical of the loan guarantee program, which last year lost taxpayers over $500 million in defaulted loans. While the taxpayer losses will continue to add up if DOE moves forward with the existing authority, it’s good news that they aren’t getting any more!

(February 13, 2012) 1:10 PM

Analysis of “Cuts, Consolidations, and Savings” in President's FY 2013 Budget Request

FY12 and previous budgets included a “Terminations, Reductions, and Savings” document that detailed the various programs and funding that the President’s budget was proposing to eliminate, cut, or extract policy savings. This title goes back at least as far as the Bush administration. For the FY13 budget it is “Cuts, Consolidations, and Savings.” That might be related to the President’s recent legislative proposal to give the Executive power to propose agency consolidations and force a Congressional up or down vote.

Regardless, the administration claims that if all 210 proposals are enacted they would save $24 billion in FY13 and $502 billion over the next ten years. In all likliehood, some will get enacted and some will appear in the cut list for the FY14 budget, whoever happens to prepare it. Some of the proposals are “oldies, but goodies” like the Christopher Columbus Fellowship Foundation (which has been targeted through multiple administrations) and others appear to be new this year, like the CMRR (Chemical and Metallurgy Research Replacement) Facility that we’ve long argued is a white elephant. But knowing exactly how this list stacks up against previous years is tricky, because of how the Administration labels its proposals. For example this year’s “Education Research Centers and Agriculture Research” at HHS was last year’s “Agriculture, Forestry, and Fishing Program” at HHS.

(February 13, 2012) 12:20 PM

Statement by Ryan Alexander, president of Taxpayers for Common Sense on the FY13 budget request

The President’s fiscal year 2013 budget request is being released into swirling fiscal, economic, and electoral winds. Those winds promise to stall his proposals, making them little more than rhetoric to lay the political ground for his re-election run.

While the challenges facing our country should push the parties to work together for a fiscally responsible, economically sound future, politics is pushing them to talk past one another. So the President may propose billions in education increases, or tax breaks for manufacturing, or tax increases for wealthier Americans, or increasing transportation spending – he is unlikely to get any of them enacted. But he will get several planks for his reelection campaign.

Similarly, Congressional Republicans will pounce on new spending proposals as profligate, any tax increase as irresponsible, and defense cuts as unsustainable without recognizing that the economy is still fragile, we have to prioritize spending in this environment. Budgets are about more than just numbers, they represent where we as a nation place our priorities and what we believe government should do.

This year will be a series of ongoing budget, tax, and spending skirmishes. After the likely payroll tax holiday extension at the end the month, we are going to witness budgetary trench warfare. Taxpayers for Common Sense will work to bridge the gaps and advocate for responsible spending and budget policies. We hope our country’s politicians will join us.

(February 13, 2012) 10:30 AM

Ongoing Analysis of the President's FY13 Budget Request

At 11 AM this morning, the President will introduce his Fiscal Year 2013 budget request during a speech at Northern Virginia Community College. The President will propose a $3.8 trillion budget for FY13 and the document will include many different spending provisions, tax changes, and spending cuts. TCS staff will be poring through the documents and bringing you a variety of interesting nugget, analyses, and high(low)lights over the next several hours and days. Budgetpalooza is about to begin…