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Just the Time for a Little Speculation

April 30, 2011

May I say … How nice to have the FY 11 appropriations process behind us? It all starts again in a few days. We will soon be in the thick of the FY 12 appropriations battle and constantly keeping an eye on the potential debt ceiling impasse. 

Defaulting on the US government’s debt is unthinkable. Therefore, most commentators believe that a lot of rhetoric will be followed by a deal that allows everyone to claim victory. The deadline is approximately July 8. House Republicans are unlikely to be satisfied without more budget cuts or at least an agreement on a mechanism by which more cuts will occur in the near future. This represents a threat to domestic discretionary programs, but perhaps not the most significant.

Bondholders demand a premium (higher interest rates on US obligations) to offset the risk of default. If a default occurs, this will be very expensive. Once the deadline starts getting closer (sometime in June), the fear of a default may start driving up interest rates on US debt, perhaps adding $20 to $40 billion more in interest costs and increasing the deficit. This will add to the pressure for more cuts — particularly the kind that show up quickly (program cuts) to offset the immediate increase in debt service, rather than ones that take years (entitlement cuts).

The appropriations committees want to start moving their bills as soon as possible … definitely by June. No one wants to repeat the FY 11 process that took 15 months. As history has shown, the process is rarely quick, so they hope “sooner started, sooner done.”

On the House side, there is little to gain by waiting. They have the budget resolution as a benchmark and a clear majority to vote for appropriations bills that exact large cuts and push changes in entitlements. The strategy, I believe, will be to get as much of this into bills and voted on … before the debt ceiling negotiations start to get desperate. If so, House appropriations subcommittees will start approving bills in May or early June. Some may even reach full committee or the House floor during this period.

It is less clear how the Senate will proceed. They are expected to debate alternative budget resolutions this week, and then move on. With a number of Democratic Senators up for re-election in 2012, many of them appropriators, there is a sense that the Senate must show its own commitment to deficit reduction. It cannot be the reluctant, back-sliding partner of the House.

So, the Senate will need to have a position and do something. There is a lot of hope that the Senate’s bipartisan “gang of six” will propose a comprehensive deficit reduction plan that includes domestic and military cutbacks, entitlement changes and tax code changes. If this were to receive broad support in the Senate, then the appropriations process could proceed with a sense of how far budget-cutting will need to go.

There is much that is speculative about this analysis. The situation is fluid and even House and Senate leadership may not have a good sense of what will happen next.

The best course for the Alliance is to continue to show why FDA needs to be an exception to budget-cutting. If (and this is a big if) we can achieve Congressional consensus on the special role and needs of FDA, then the agency’s fortunes may become less dependent on the outcomes of this larger, very uncertain, very messy budgetary debate.

Note: This analysis and commentary is written by Steven Grossman, Deputy Executive Director of the Alliance.

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