12.21.05

HIGHLIGHTS OF THE BUDGET SAVINGS PACKAGE

Agriculture

The bill reduces conservation, research, rural development and commodity programs by $2.7 billion over the five-year period. It also extends for two years the Milk Income Loss Contract, which compensates dairy farmers when milk prices fall below a level set by the federal government. The cost of this extension is $998 million.

The greatest savings comes from reducing advances on direct subsidy payments to farmers to 40 percent of the payment from 50 percent for the 2006 crop year and to 22 percent for the 2007 crop year, saving $1.5 billion.

The measure also reduces funding for agriculture conservation programs by $934 million over five years and lower funding for agriculture research programs by $620 million.

Anti-Dumping Trade Rule

The agreement phases out a trade law (PL 106-387) known as the Byrd amendment that sends trade dumping penalties to aggrieved companies instead of the U.S. Treasury. The World Trade Organization has found that the rule violates international trade laws.

Complete repeal, as called for the in House bill, would have resulted in a savings of $3.2 billion over five years. But negotiators agreed to phase in the changes starting on Oct. 1, 2007, and reduced the projected savings to $300 million.

Child Support

The agreement saves $1.5 billion over five years through changes to the child support enforcement program by ending, effective in fiscal 2008, the federal match on child support spending that states finance with incentive payments. The federal incentive payments will continue to be provided to states, but states will not be able to receive federal matching funds for the incentive payment funds they spend on child support enforcement.

Digital Television

The conference report includes language setting Feb. 18, 2009, as the deadline for television stations to complete their transition from analog to digital signals. The government estimates it would generate about $10 billion by auctioning the analog frequencies to the communications industry.

The bill provides the Department of the Treasury a net $7.3 billion after spending on a number of programs, including up to $1.5 billion to help consumers pay for equipment to keep their analog sets working after the digital transition.

Energy Assistance

The Low-Income Home Energy Assistance Program, funded at $2.2 billion in fiscal 2005, receives an additional $250 million in fiscal 2007 for the program and an additional $750 million for providing assistance to offset higher-than-anticipated energy costs caused by hurricanes Katrina and Rita. None of the money can be spent after the end of fiscal 2007.

FDIC

The conference report makes changes to federal deposit insurance levels. The insurance ceiling for certain types of individual retirement accounts will be more than doubled to $250,000, while the Federal Deposit Insurance Corporation (FDIC) is authorized to increase the $100,000 deposit insurance available on most bank accounts to compensate for inflation.

Additionally, the report allows the FDIC to merge its two deposit insurance funds, as well as offer credits to banks that contributed to the insurance fund prior to 1997.

The measure also allows the FDIC to establish a risk-based pricing system for deposit insurance. This is expected to lead to an increase in premiums collected.

The deposit insurance provisions are expected to save about $250 million over five years.

Federal Housing Administration

The measure will suspend for five years the Federal Housing Administration’s spending authority for rehabilitation grants and below-market sales — properties sold below market rates to preserve them as affordable housing. Rehabilitation grants are provided to multifamily purchasers when selling property from the FHA housing inventory that is in need of rehabilitation.

The agreement allows the FHA to continue to sell properties at below-market prices over the next five years, if funds are appropriated in advance in amounts sufficient to offset the lost sales receipts. The provision will effectively make the programs part of the appropriations process.

The FHA provisions save $270 million over five years.

Medicaid

The agreement will save a net of $4.8 billion from Medicaid, the federal-state health care program for the poor. Overall, according to preliminary Congressional Budget Office (CBO) numbers, the conferees found a net of $6.9 billion in Medicaid savings, but of that total, $2.1 billion was reallocated to states most affected by Hurricane Katrina to help with Medicaid costs.

The Medicaid savings will be achieved by reducing the price Medicaid pays for prescription drugs by $3.9 billion, increasing cost-sharing for Medicaid beneficiaries and allowing states to reduce benefits, for a savings of $3.2 billion.

It also will tighten asset transfer rules to make it more difficult for people to qualify for long-term care coverage, for a savings of $2.4 billion.

Medicare

The agreement will reduce Medicare spending by a net $6.4 billion over five years by reducing Medicare payments for some imaging services and requiring beneficiaries to purchase, rather than rent, some medical equipment after a certain time period. It also lowers payments to home health care providers.  Medicare payments to physicians will be frozen at current levels for the next year, eliminating a scheduled 4.4 percent reduction.

Pensions

The conference report increases the premiums paid by employers to the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures private pension plans. The PBGC had a deficit of $22.8 billion as of Sept. 30, and has been a focus of lawmakers’ attempts to enact broader pension overhaul legislation (S 1783, HR 2830).

Under the conference report, the flat-rate premiums companies pay the PBGC annually per plan participant increase to $30 from $19 and the premiums paid by managers of multi-employer pension plans will rise to $8 from $2.60 per worker.

The agreement also establishes a new premium to be paid by companies that terminate their pension plans while in bankruptcy. Those companies will have to pay the PBGC $3,750 over three years for each plan participant once emerging from bankruptcy protections.

The premium increases are expected to raise an additional $3.6 billion over five years for the PBGC.

Student Loans

The agreement saves $12.7 billion over five years by increasing interest rates and fees paid by students and parents and reducing subsidies to lenders.

Transportation

The agreement increases tonnage duties on all vessels entering the United States from a foreign port, and on foreign vessels that depart from and return to a U.S. port without an intervening stop.  The fees will be assessed based on the cargo capacity of the vessel.

The agreement increases fees from 2 cents per ton to 4.5 cents per ton for vessels that arrive from a foreign port in North America, Central America, the West Indies, the Bahamas and Newfoundland. It also increases from 6 cents per ton to 13.5 cents per ton fees for vessels arriving in the U.S. from any other port.

The CBO has estimated that the fees will generate $30 million in fiscal 2006 and $156 million over five years.

Supplemental Security Income

The bill makes two changes — in retroactive benefits and in reviews of disability determinations — to the Supplemental Security Income (SSI) program, which provides payments to poor, elderly and disabled individuals. The CBO estimates that these changes will reduce federal spending by a total of $732 million over five years.

TANF Reauthorization

The agreement also includes provisions to reauthorize the welfare program known as Temporary Assistance for Needy Families (TANF) through fiscal 2010, at the current level of $16.5 billion a year for basic block grants.  Supplemental grants are reauthorized for three years at the current level, $319 million a year.