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Washington Highlights

Debt Deal Caps Discretionary Spending, Sets Up Spending Showdown

August 5, 2011—After months of ongoing negotiation, and with just hours to spare, congressional leaders and the Obama administration Aug. 2 reached agreement, passed and signed into law the Budget Control Act of 2011 (P.L. 112-25), a bipartisan plan to reduce the deficit and raise the debt limit.  The agreement averted the immediate debt crisis but sets the stage for a contentious FY 2012 budget debate.   

The compromise legislation:

  • Includes a minimum debt limit increase of $2.1 trillion through early 2013 (and up to $2.4 trillion);
  • Caps discretionary spending through FY 2021 providing $900 billion in savings;
  • Establishes by Aug. 16 a new, bipartisan committee charged with finding an additional $1.5 trillion in spending cuts;
  • Provides a trigger for automatic spending cuts should the committee be unable to reach agreement; and
  • Requires a vote in both the House and Senate on a constitutional amendment to require a balanced federal budget.

For FY 2012, the agreement imposes a cap of $1.043 trillion for total discretionary spending, with $359 billion within that total specified for “non-security” discretionary spending – essentially level with the $361 billion provided for non-security programs in FY 2011. The Senate, which had not passed a budget resolution while the debt ceiling and deficit reduction negotiations were ongoing, now officially can commence its appropriations work.

House appropriators, however, have been working with a lower cap based on the budget blueprint approved by the House in April and spending allocations approved by the House Appropriations Committee in May [see Washington Highlights, May 27]. The debt ceiling agreement could provide as much as $35 billion more than the House budget for non-security programs, which include programs in the Labor-HHS-Education spending bill among others, but the House Appropriations Committee has not indicated whether (or how) it plans to revise its spending allocations. If the committee opts to proceed with the allocations it originally approved, the Labor-HHS-Education subcommittee will need to make $18 billion worth of cuts below FY 2011 to programs under its jurisdiction.

The law does provide some relief to the Labor-HHS-Education subcommittee by providing $10 billion in FY 2012 and $7 billion in FY 2013 for the undergraduate Pell grant program. The program is facing a shortfall of $11 billion, and without the supplemental funding, appropriators would have been forced either to cut the program or find the savings through cuts to other programs in the Labor-HHS-Education spending bill. The new law also eliminates the interest subsidies on Stafford loans for graduate and professional students beginning July 1, 2012. The law makes clear that graduate and professional students will have access to the same overall level of borrowing ($40,500 annually for medical students), but as unsubsidized Stafford loans. The AAMC estimates that this change will increase the cost of federal loans for the average medical student by more than $10,000 over the life of the loans.

While entitlement programs are initially protected in the agreement, the bipartisan committee is responsible for drafting legislation to cut an additional $1.5 trillion and has the authority to examine all federal spending including Medicare, Medicaid, Social Security as well as tax policy.  The non-amendable package of proposed cuts is due by Nov. 23 and a simple majority vote is required by Dec. 23.  Should the legislation fail or the committee be unable to produce an agreement cutting at least $1.2 trillion, automatic spending cuts will be enacted with 50 percent coming from non-defense spending, including up to a 2 percent cut in Medicare spending, and 50 percent coming from defense spending.


Dave Moore
Senior Director, Government Relations
Telephone: 202-828-0559


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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

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Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806