The fight was long and ugly, and there were no clear-cut winners. But Congress last week finally passed a budget for fiscal year 2011.
Included in the budget deal was a record $38 billion in spending cuts, ushering in what is likely to be a new era of austerity for federal regulators and programs. The cuts were spread widely among agencies and programs, though a select few escaped the ax. Among them: the U.S. Securities and Exchange Commission (SEC); the Commodity Futures Trading Commission (CFTC); and Article III courts, all of which won modest budget increases. The Department of Justice, the Legal Services Corp. and the Environmental Protection Agency were not so fortunate and face painful cuts.
Although the budget deal averted a government shutdown, the fight has only begun. Appropriators are likely to clash over raising the debt ceiling, which currently stands at $14 trillion. During the next month, the United States is expected to hit its limit on borrowing, requiring approval from Congress to go deeper in the red. And the 2012 budget is likely to prove even more contentious. President Barack Obama last week offered a plan to cut $4 trillion in spending over the next 12 years, while Republicans led by Rep. Paul Ryan (R-Wis.) want to go further and cut taxes.
In that context, the 2011 budget, which covers the remaining five months of the fiscal year, is only the first skirmish, but it gives a sense of where the battle lines are being drawn.
The SEC and CFTC fared better than most agencies, though their increased funding looks more like half a loaf than a feast. That’s because financial regulators in 2010 were handed a major new mandate — implementation of the Dodd- Frank financial reform law.
Often described as the biggest overhaul to financial services since the Great Depression, the law charges the SEC and CFTC with regulating the swaps market for the first time. It’s no small job — according to the comptroller of the currency, the 25 largest banks currently have swaps with a notional value of $277 trillion.
Under the fiscal year 2011 budget, the SEC gets $1.185 billion — up $74 million from 2010, but $100 million less than Democrats wanted. On the bright side for the agency, House Republicans earlier this month passed a measure that would have reduced domestic spending to 2008 levels. For the SEC, that would have meant a $116 million cut and hundreds of layoffs, according to Chairwoman Mary Schapiro.
As for the CFTC, its 2011 budget is $202.7 million — up 20% from 2010, when its funding was $169 million, but well below the requested $261 million. In their plan, House Republicans would have slashed the CFTC’s budget by $91 million.
The two agencies aren’t the only ones to take on new responsibilities under Dodd-Frank, but the Federal Reserve and the Federal Deposit Insurance Corp. are self-funded, and the new Consumer Financial Protection Bureau survived an attempt by Republicans to limit its budget (its funding comes from the Fed).
Both Schapiro and CFTC head Gary Gensler have repeatedly gone hat in hand to Congress to make a case for more money. In the past six months, for example, Gensler made eight appearances before committees in which he concluded his testimony by reminding legislators how badly the CFTC needs a budget increase. “The CFTC’s current funding is far less than what is required to properly fulfill our significantly expanded mission,” he told the Senate Agriculture Committee last month. “To take on the challenges of our expanded mission, we will need significantly more staff resources and — very importantly — significantly more resources for technology.”
He got his wish for technology funding. The CFTC budget includes $37 million earmarked for information technology — an increase of $17 million from current spending. The agency also has two years to spend the money, instead of the usual one-year use-it-or-lose-it authority.
Republican Commissioner Scott Malia has been outspoken about the need to beef up CFTC’s information-technology abilities, and he praised appropriators in a statement. “This sustained investment in advanced technology is essential to enable the commission to leverage its federal resources to improve our surveillance of the derivatives market,” he said. According to Malia, the IT money will be used for projects such as developing automated alerts, advanced analytical capabilities and systems to integrate futures, options and swaps data.
The SEC has also stressed that it needs IT upgrades. At a speech at a securities conference in February, Schapiro said the agency’s 2010 budget “has hampered our ability to do what investors and capital markets deserve.…We need to ask ourselves if we want our market analysts to continue to use decades-old technology to recreate market events or to monitor trading that occurs at the speed of light,” she said.
Perkins Coie partner Pravin Rao, a former SEC branch chief, said there’s already been belt-tightening at the SEC, including limits on travel and the use of expert witnesses, as the agency tries to stretch existing resources to handle new responsibilities. “Although the SEC is one of the few agencies to get an increase, I’m not sure it’s enough to keep up with the pace of things,” he said. “They’re got to prioritize which types of cases they want to bring.”
Buoyed by bipartisan support for prosecutors, the Justice Department avoided major cuts to its core legal work. Instead, congressional appropriators took knives to anti-crime programs and aid for states and localities. Community Oriented Policing Services, a program known as COPS that pays for local police officers, will see its funding cut by 17.4% compared to last year, down to $246 million. As a result, a department spokeswoman said it expects to pay for about 200 fewer officers than last year.
“The department will be able to maintain its core national security and law enforcement functions under this 2011 budget,” the spokeswoman, Jessica Smith, wrote in an e-mail, “but in these tight economic times, the budget does affect our ability to fund a number of fundamental programs, to enhance the department’s technology, and to provide state and local assistance.”
Non-COPS funding for state and local law-enforcement assistance will be cut by $415 million. The budget subtracts $20 million from “Weed and Seed,” a crime-prevention program started under then-Attorney General William Barr in the early 1990s. And juvenile-justice programs lose $148 million compared with last year.
The budget deal included a $15.8 million cut for Legal Services Corp., but officials there were able to breathe a small sigh of relief in avoiding a $70 million cut that House Republicans wanted. “We are grateful that funding cuts will not be as deep as initially proposed,” Sidley Austin partner John Levi, chairman of the Legal Services Corp. board, said in a statement. Last year’s budget was $420 million.
Now officials in Washington and at legal aid programs nationwide are bracing for likely layoffs and reduced services. Legal Services Corp. is the largest source of funding for civil legal aid, and it provides grant money to 136 organizations. Each of those organizations is expected to see a cut equal to 4% of its annual funding from Washington, and each will have to squeeze the reduction into less than a full year.
Paul Furrh, chief executive of Lone Star Legal Aid, one of three legal aid programs in Texas, said he’s preparing to close one of his 13 offices and lay off some of his 200 staff members. “Everybody’s already got a full caseload, so anything you do, you’re putting additional work on the people who are left behind,” he said. The Texas Legislature could step in with some aid this year, he said, but the program is also facing reduced funding from Interest on Lawyers’ Trust Accounts, known as IOLTA funding. “This is just a dickens to plan for,” Furrh said.
For next year, Legal Services Corp. President James Sandman asked a congressional panel this month for an increase in funding to $516.5 million, citing mounting demand for legal aid due to high unemployment. Pressure from Republicans to cut spending could lead Congress in the other direction, but there is still majority opposition in the House to eliminating legal aid funding altogether, as some have proposed.
“You have my word, from the Republican leadership, we will not kill the Legal Services Corporation,” Rep. Pete Sessions (R-Texas) told a group of American Bar Association lawyers on April 14. Sessions is head of the House Republicans’ campaign arm, and although he’s not a lawyer, he’s been a supporter of legal aid. “We can work through this,” he said, “for the reason that people back home who are most vulnerable should not be left without.”
Article III courts came out relatively unscathed in the budget deal. In effect, courts will receive $75 million more than they did last fiscal year. Of that, $50 million is expected to go toward indigent-defense payments under the Criminal Justice Act, a program that court officials have said faced a critical shortfall without an infusion. James Duff, director of the Administrative Office of the U.S. Courts, said the budget provides enough to prevent a shortfall. “As a result, payments to private panel attorneys…may now be made in a timely way throughout the fiscal year,” Duff said in a statement.
The balance of the funding increase is headed for courthouse security and for salaries and related personnel expenses. “We are grateful that in these times of serious budgetary concerns the Congress has recognized the cost-containment efforts of the Federal Judiciary in recent years,” Duff said, calling the funding “fair and sufficient.”
Among the savings the judiciary has touted are those from rent payments to the U.S. General Services Admini­stration — payments that judges say are well below what they were projected to be years ago because of scaled-back growth. During a congressional hearing this month, U.S. Circuit Judge Julia Gibbons, chairwoman of the Judicial Conference Budget Committee, laid out a request for a funding increase of $299 million next year.
Like the financial regulatory agencies, the Food and Drug Administration was also given a major new responsibility by Congress last year. The Food Safety Modernization Act expands the FDA’s reach to enhance safety of domestic and imported food — the biggest change in food law in 70 years.
The cost of implementation? An estimated $1.4 billion during the next five years. What the FDA got for 2011 was an increase of $107 million — a 4% bump to $2.462 billion.
The Alliance for a Stronger FDA in a news release said that given the “tremendous downward pressures on the federal budget,” it was pleased. “Food contributes nearly $1.2 trillion to our economy, or 8% of the U.S. gross domestic product. Ensuring the safety of our food supply is as essential as providing for our national defense,” said Caroline Smith DeWaal, an Alliance board member and director of food safety at the Center for Science in the Public Interest.
Although other regulatory agencies didn’t win budget increases, they were largely spared significant cuts. Some, like the Federal Trade Commission, are money-makers for the government, collecting more in fines and penalties than they spend. The agency’s 2011 budget came in at $291.1 million, compared to $291.7 million in 2010. In Obama’s original budget request, the FTC would have received a $22 million raise and hired 40 new staffers.
The U.S. Equal Employment Oppor­tunity Commission, which saw its funding dwindle away during the Bush administration, held steady in 2011. Its budget remained the same as 2010 (minus the 0.2% across-the-government rescission) at $367 million. The Federal Communications Commission also saw its 2011 budget remain at the 2010 level — $336 million.
One budget loser was the Environ­mental Protection Agency, which saw a $1.6 billion cut — a 16% reduction compared to 2010. EPA Administrator Lisa Jackson said spending on state and local water projects will take the biggest hit. But none of the 15 riders that would have restricted EPA activities in areas such as climate change made it into the final bill.
“These riders wouldn’t have saved the government a single cent, but they would have imposed costs on those suffering from the additional pollution,” wrote David Goldston, director of government affairs for the Natural Resources Defense Council, in a blog. He added, “As ugly and prolonged as the [budget] process was, it is merely prologue to the difficult battles ahead.”