Law Enforcement, Environment Funds Cut in U.S. Budget Deal

The U.S. Environmental Protection Agency, high-speed rail and law enforcement are among the programs targeted for budget cuts as part of a long-fought deal to avert a government shutdown.

Details of the cuts for the fiscal year ending Sept. 30 were unveiled this morning. They are the result of a compromise to produce more than $38 billion in savings reached last week among President Barack Obama and congressional leaders just hours before the government’s spending authority was to run out.

The measure maintains funding for the Corporation for Public Broadcasting, the AmeriCorps volunteer program, the public financing of presidential campaigns and job training grants to states, all of which Republicans had slated for elimination.

House Appropriations Committee Chairman Hal Rogers, a Kentucky Republican, called the bill “the result of this new Republican majority’s commitment to bring about real change in the way Washington spends the people’s money.”

Obama and Senate Majority Leader Harry Reid, a Nevada Democrat, “made a bad situation less bad” in negotiations with the Republicans, second-ranking House Democrat Steny Hoyer told reporters today.

Hoyer, of Maryland, said he and many other House Democrats remain undecided about whether to vote for the measure. “We will have to see, first of all, what the specifics are of the legislation,” he said.

Photographer: Chip Somodevilla/Getty Images

House Appropriations Committee Chairman Hal Rogers called the bill “the result of this new Republican majority's commitment to bring about real change in the way Washington spends the people's money.” Close

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Photographer: Chip Somodevilla/Getty Images

House Appropriations Committee Chairman Hal Rogers called the bill “the result of this new Republican majority's commitment to bring about real change in the way Washington spends the people's money.”

Obama Speech

Obama is scheduled to give a speech tomorrow addressing longer-term fiscal issues and a coming vote in Congress on raising the government’s debt ceiling. He will call for a combination of spending reductions on entitlement programs and tax increases on higher-income Americans, according to a person familiar with the plan.

The $1.049 trillion legislation for the 2011 fiscal year is set for a House vote on April 14, with a vote in the Senate to follow. The bill would replace a stopgap measure keeping the government in business through April 14 and also bring to a close the first major budget battle between Republicans who won the House majority in November’s elections and Obama.

Representative Norm Dicks of Washington, the ranking Democrat on the Appropriations panel, called the measure “an imperfect result, to be sure, but it represented a compromise that the president believes is in the best interests of the nation.”

Republican Reaction

Not all Republicans, who originally pushed for $61 billion in cuts, were satisfied either.

Jim Jordan of Ohio, chairman of the House’s Republican Study Committee, a group of self-described fiscal conservatives, announced today that he would vote against the plan. “Voters are asking us to set our sights higher,” he said in a statement.

Senator Bernie Sanders, a Vermont independent who caucuses wide Democrats, said today he would vote against the plan because it cuts too much.

Lawmakers announced a framework for cutting the budget April 8, less than two hours before the government was set to begin shutting down for the first time in more than 15 years. They left the question of how to apportion those cuts among hundreds of individual programs to be settled by congressional aides who worked through the weekend and into this morning.

The agreement includes $12 billion in reductions already approved as part of previous stopgap spending bills.

Arts Endowment

A number of programs won a reprieve from the full extent of cuts House Republicans approved in February as part of their $61 billion budget-reduction measure, include food safety inspections, the National Endowment for the Arts, Head Start, the Peace Corps, Community Development Block Grants and Pell college tuition grants.

“There are many more examples in this vast budget, examples of programs Republicans wanted to destroy but that Democrats demanded we protect,” Reid said on the Senate floor today. “There are many examples where they wanted to cut recklessly and we insisted on cutting responsibly.”

The maximum Pell grant, which go to students from low- income families, would remain at the current $5,550; Republicans had proposed cutting that by 15 percent. Democrats agreed to instead cut Pell grants for students in summer school.

EPA Budget

The Environmental Protection Agency’s budget would be cut by about $1.6 billion -- about half of what Republicans had initially proposed, though still a 16 percent reduction. Grants offered by the Clinton administration’s “COPS” law enforcement program would be cut 17 percent. The National Institutes of Health would be cut by $260 million, rather than a proposed $1.6 billion.

“Democrats in Washington finally got the message,” said Senate Republican leader Mitch McConnell of Kentucky. “Spending reductions Democrats recently described as extreme and draconian, they are now calling historic and commonsense.”

The Securities and Exchange Commission and the Commodity Futures Trading Commission would get slight increases in funding -- the SEC up $74 million from fiscal 2010 to $1.185 billion, and the CFTC up $34 million, to $202.7 million. Both agencies have added responsibilities under the Dodd-Frank financial regulatory overhaul law enacted last year.

F-35 Engine

The legislation provides $513 billion for the Defense Department, $2 billion less than Republicans had sought. It doesn’t include funding for a second engine for the F-35 Joint Strike Fighter, a project backed by House Speaker John Boehner that was killed during debate over his chamber’s draft of the legislation. The Ohio Republican’s home district is near a plant that would be threatened with job losses as a result of defunding the program.

Negotiators dropped a number of policy changes Republicans had sought, including ones barring funding for the administration’s health-care overhaul enacted last year and for Planned Parenthood.

The legislation does include a Republican “rider” barring Washington, D.C., from spending local tax money to provide abortions to poor women. The city’s mayor, Vincent Gray, and other city officials were arrested yesterday protesting the provision outside a Senate office building.

“Why should women in the District of Columbia be subjected to a set of rules that no other woman is subjected to?” Gray said. “This is an absolute travesty.”

Bond Market

On the bond market, yields in the U.S. are lower now than when the government was running a budget surplus a decade ago even though Treasury Department data show that the amount of marketable debt outstanding has risen to $9.13 trillion from $4.34 trillion in mid-2007.

The yield on the benchmark 10-year Treasury note was at 3.53 percent today, below the average of 7 percent since 1980 and compared with the average of 5.48 percent in the 1998 through 2001 period, according to Bloomberg Bond Trader prices.

Derivatives tied to U.S. government debt show investor perceptions of America’s creditworthiness is improving.

Credit-default swaps on Treasuries stand at about 41.5 basis points, according to data provider CMA. The swaps are down from this year’s high of 51.5 basis points on Jan. 27 and last year’s high of 59.7 in February. The price levels are the seventh-lowest of 51 sovereign debt markets tracked by Bloomberg and CMA.

Low borrowing costs mean that the U.S. is spending less to service its debt as a percentage of gross domestic product. Interest expense was 2.7 percent of GDP in fiscal 2010 ended Sept. 30, down from 3.8 percent in 2001, the last time the U.S. had a budget surplus, according to data compiled by Bloomberg.

Foreign Investors

The shortfall is also failing to drive foreign investors away from U.S. financial assets or the dollar.

The class of investors that includes foreign central banks purchased 60 percent of the $66 billion in benchmark 10-year U.S. notes sold this year, up from 42 percent in 2010, according to the Treasury Department. Foreign investors owned $4.45 trillion of Treasuries as of January, up from $3.7 trillion a year earlier, according to the latest government data.

The dollar’s share of global currency reserves stood at 61.4 percent at the end of 2010, little changed from 61.5 percent in 2009, the International Monetary Fund in Washington said March 31. The euro’s share dipped to 26.3 percent from 27.9 percent.

To contact the reporters on this story: Brian Faler in Washington at bfaler@bloomberg.net; Catherine Dodge in Washington at cdodge1@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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