BIPOLAR BUDGET: Coupled with the 2017 $1.5 trillion tax bill, the Trump Administration’s new budget proposal relinquishes a longstanding Republican goal of balancing the budget over the next 10 years. The Administration’s proposal calls for deficit reduction of $3.6 trillion over that period and, even with major cuts to Medicare, Medicaid and a number of other social programs, it doesn’t eliminate it and also means that the Administration’s infrastructure proposal is as welcome on Capitol Hill as, well, Roy Moore. The Trump Administration scrambled to rework their numbers after Congress passed a massive two-year spending deal and their revised budget allocated more money for domestic programs across the federal government - the State Department which was originally slated for a 27 percent cut in their first draft is now looking at an increase. In essence, the Administration is delivering conflicting and confusing messages – he’s how we’d like Congress to spend the money given the new agreed upon caps while simultaneously insisting on restraint when spending those dollars.
Once this budget exercise is over, Republicans plan to refocus their attention on tax cuts, regulatory reductions, and the growth of the economy. While there are merits to the strategy, they will be relying on past actions putting them in a defensive position for the remainder of the year. Most of the big issues left - infrastructure, immigration, reauthorization of the agriculture programs, do not excite their base, and may actually upset some of them.
AND NOW BACK TO INFRASTRUCTURE "WEEK": Neither Republicans nor Democrats are thrilled with the parameters of the Trump Administration’s $200 billion proposal for new federal spending over a decade with the intent to leverage some $1.5 trillion from state, local and private sector sources. And, the Trump team isn’t spelling out how lawmakers should cover the cost. The Administration is recommending that legislators find scarce federal dollars from other programs and to even tap into some existing infrastructure programs. We don’t see that happening given the scale of last week’s budget deal. But we’re more in sync with infrastructure proponent Shant Boyasian saying that “a key indicator for the infrastructure proposal’s success on Capitol Hill will be whether Congressional negotiators start from the premise that any new infrastructure legislation must supplement, and not replace, existing federal spending. There is a fear that if this proposal replaces existing programs, it would actually be a policy regression, devolving responsibility for critical infrastructure development to the states, instead of asserting the importance of the federal role in partnering with state and local project sponsors.” So all eyes turn back to the Capitol Hill to make lemonade out of lemons.
Infrastructure plan highlights:
Still $200 billion in real money.
$100 billion for “incentive grants” at a maximum 20% fed share so leverages an additional $400 billion.
$50 billion for rural grants - $40 billion formula and $10 billion discretionary. Assume an 80% federal share so it leverages an additional $10 billion.
$20 billion for transformative projects - assume an 80% fed share so it leverages an additional $5 billion.
$14 billion for TIFIA/RRIF/WIFIA/RUS. This is where all the leverage comes.
$6 billion for the tax losses from increased PAB usage, together with a lot of loosening of rules on how PABs can be used.
$10 billion for a revolving fund for GSA real estate purchases.
The plan front-loads all the rural money - puts the entire $40 billion in formula block grants in the hands of Governors for immediate use in FY 2019 - while the rest of the spending doesn’t really get going until after the FAST Act runs out at the end of FY 2020.
The Administration may propose cutting Highway Trust Fund spending after the FAST Act and replacing it with the incentive grants.
MOVING TARGETS: While a big conservative bulls-eye may be affixed to Speaker Paul Ryan given the size and scope of last week’s budget deal, Senate Majority Leader Mitch McConnell may actually be the target of House conservatives who are incensed over his stalwart defense of the Senate’s procedural 60-vote filibuster threshold. Freedom Caucus members are agitating for fights in the coming months and are frustrated by the inability to pass legislation (and rein in spending) with one-party control of the House, Senate and White House. There may not be a gusher of legislation for the remainder of the year, but they aim to make their anger heard at every turn and will take the message on the campaign trail – likely with help from President Trump who has not been entirely silent on the issue.
LOWERED ASPIRATIONS FOR CERN? | PRESIDENT DECLINES TO REQUEST FULL FUNDING OF VA CONTRACT IN FY 2019: Our Senior Health Policy Analyst Emily Evans writes the Budget request is for $1.2 billion of which $675 million is dedicated to EHR; stabilization of VistA system suggests long road. Read her note with Andrew Freeman here.
CALL REPLAY | IT'S A MAD, MAD, MAD, MAD WORLD: The global scene is more confusing and jumbled now than we have witnessed in at least half a century. CLICK HERE to listen to a replay of General Christman's call covering the true geopolitical risks impacting business investment and operations.
