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OMB Mid-Session Review projects slight improvement in FY2016 deficit

Tuesday, July 19th, 2016

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The FY2016 federal budget deficit will be only $16 billion lower than the administration estimated in February, according to the Office of Management and Budget (OMB).

In its annual Mid-Session Review of the Budget, OMB now expects the FY2016 deficit to be $600 billion compared to $616 billion, the projection made when the FY2017 budget was released in February.  The deficit for FY2017 is expected to be $441 billion, $63 billion lower than OMB’s earlier estimate of $503 billion.

Measured as percentage of Gross Domestic Product (GDP), the deficit is expected to be 3.3 percent in FY2016, unchanged from OMB’s previous projection.  OMB expects the deficit’s share of GDP to begin declining in FY2017 (2.3 percent) and even further to 1.7 percent in FY2018.  That share will hover around 2 percent from FY2019 to 2021 and stay in the 2.4 percent to 2.6 ercent range from FY2022 to 2026, according to OMB.

A $59 billion expected decline in receipts for FY2016 (-1.7 percent) is more than offset by a $75 billion decrease (1.8 percent) in expected expenditures.  The lower estimate in revenue is primarily due to technical adjustments based on new tax collection data.  Decreased estimates of both discretionary (spending from appropriations) and mandatory spending in FY2016 also reflect economic changes and technical re-estimates.

While OMB now expects cumulative deficits through 2026 to be 14 percent ($880 billion) lower than their February projections, annual deficits will still rise to $731 billion in 2026 from $600 billion in FY2016, totaling $5.2 trillion.  Almost 60 percent of the revised total expenditure estimates (-$1.3 trillion) through 2026 are due to expected lower interest payments (-$770 billion), based on revised economic assumptions.  OMB expects mandatory expenditures to decline by $597 billion during 2017-2026.  Discretionary spending will increase by only $48 billion during the period.

The OMB projections are based on the administration’s economic assumptions and its proposed spending and revenue proposals. The unemployment rate is expected to average 4.8 percent in 2016 (down from 5.3 percent in 2015) and is projected to decline slightly to 4.7 percent in 2017. OMB expects the unemployment rate to stay in the 4.6 to 4.9 percent range through 2026. OMB estimates the annual change in consumer prices (CPI-U) to rise to 2.2 percent in 2017 from 1.2 percent in 2017, and level off at 2.3 percent by 2019.

CBO warns unchecked long-term spending and revenue imbalance could lead to growing deficits and record high debt levels

Wednesday, July 13th, 2016

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The Congressional Budget Office (CBO) warned this week that unless policymakers make significant changes in government policies on taxes and spending (particularly for Social Security and Medicare), the federal budget deficit and debt would grow steadily over the next 30 years, with potentially significant negative effects on the federal budget and the U.S. economy.

According to CBO’s analysis, future spending growth will outpace modest increases in revenue over the next 30 years.  Much higher spending on Social Security and Medicare will reflect the aging U.S. population.  By 2046, programs for the 65 and over age group will account for almost half of all federal spending, excluding interest payments.  CBO states that health care costs will increase due to the aging population and new medical technologies and high personal income.

CBO presents it analysis primarily in terms of the budget deficit and federal debt share of the Gross Domestic Product (GDP).

In the absence of action to reduce the government’s spending and revenue imbalance, federal deficits as a share of GDP will rise significantly, CBO’s study shows.  In 2016, the deficit measured as a share of GDP will be about 3 percent (down from its high of almost 9 percent in 2009).  For the 2017-2026 period, the deficit’s annual average share of GDP would rise to 3,9 percent.  And, unless policy changes on spending and taxes are put in place, CBO estimates that the ratio would increase dramatically to over eight percent in 2037-2046.

At the end of 2007, the federal debt accounted for 35 percent of GDP.  Since then, that share as skyrocketed.  By the end of 2015, the federal debt reached 74 percent of GDP, the highest since World War II.  Between 2017 and 2016, CBO estimates that the average annual debt to GDP share will rise to 86 percent.  The average debt to GDP ratio will jump to 110 percent in 2027-2036 (exceeding the previous high of 106 in 1946) and reach 141 percent in 2037-2046.

While higher deficits resulting from this spending/revenue imbalance might boost demand and increase output in the short term, CBO warns that resulting high debt levels over the long term would have negative consequences on the budget and the economy.

Growing deficits and large debt levels would limit the government’s options on how to deal with domestic and foreign policy problems. High deficits and debt levels would restrict the government’s ability to borrow money and constrain spending needed to address exigencies.  In addition, higher deficits and long-term debt levels could have significant negative effects on the economy.  Lower national savings and income, constrained domestic investment, and increased interest costs could increase the chances of fiscal crises, according to CBO.

DoD moving forward with phased retirement

Thursday, June 30th, 2016

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The Department of Defense (DoD) is now set to begin accepting eligible civilian employees into the phased retirement program. Under the program, eligible federal employees approaching retirement are able continue working part time, while beginning retirement. 

Implementation of the Phased Retirement Program has taken longer than expected to implement in the federal government. The program was approved by Congress in July of 2012 and the Office of Management and Budget (OMB) issued implementation rules in 2014. To date less than 100 employees, government wide, are participating.

For DoD, Acting DoD Under Secretary for Personnel and Readiness Peter Levine issued a memorandum on June 21st that describes the policy, responsibilities, and procedures under which eligible employees can apply for and be accepted into the program.

Levine said the DoD program “is designed to assist DoD Components with the transfer of knowledge and continuity of operations on a short-term basis.” The program is voluntary and participation requires the approval of both the employee and an authorized Component official. Components can limit the number of employees as necessary. Levine said.

To be eligible for the program employees must have been in full employment status for the previous three years and be eligible for immediate retirement under either the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS). Employees subject to mandatory retirement, such as law-enforcement officers, firefighters, air traffic controllers, or nuclear materials couriers are not eligible for DoD’s phased retirement program.

The eligible employee receives income from a combination of part-time salary (50%) and partial annuity payments (50%). The phased retiree also accrues future retirement benefits proportional to the time they work. Phased retirees are expected to spend 20 percent of their time mentoring other employees.

The DoD directive-type memorandum requires DoD Components to have “written criteria in place that will be used to approve or deny applications for phased retirement before approving or denying such applications.” Employees that are eligible for phased retirement will complete Standard Form 3116 “Phased Employment/Phased Retirement Status Elections.”

Applications must be improved in writing and the phased retirement time period must be established in accordance with DD Form 3018 “Phased Retirement Request and Agreement.”

The Assistant Secretary of Defense for Manpower and Reserve Affairs (ASD(M&RA)) has overall policy responsibility for the DoD program and Component heads have approval authority.

DoD Comptroller tells Congress DOD is on track to meet audit goals

Friday, June 24th, 2016

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The Department of Defense (DoD) is making sound progress toward meeting full audit accountability and DoD's leaders expect to meet the goal of full financial statement audit readiness by FY2018, according to DoD's Comptroller Mike McCord.

Testifying before the House Armed Services Committee, McCord told the committee achieving auditability is a key element of Secretary Ash Carter's goal of reforming how DoD does business. He said Secretary Carter and the senior leaders of the Military Departments were committed to “achieving and sustaining auditable financial statements.”

McCord stressed that the successes experienced to date demonstrate that DoD is on track to meet its audit goals. “Our focus on the audit has yielded substantial and measurable results over the past couple of years,” he said. He pointed out that the Military Departments audited their budgets for FY2015 and there have been “successful recurring audits” by other DoD components, e.g., the Defense Finance and Accounting Service (DFAS) and Defense Commissary Agency, and Defense Contract Audit Agency (DCAA).

While McCord noted that the Military Department audits did not receive a clean audit statement, “we learned a great deal from our initial effort.” He said “we are making progress, and are fully committed to getting it done.” DoD has a good audit readiness plan and will stick to it, McCord said.

Appearing with McCord were: Robert M. Speer, Assistant Secretary of the Army (Financial Management and Comptroller), Susan J. Rabern, Assistant Secretary of the Navy (Financial Management and Comptroller), and Rocardo A. Aguilera, Assistant Secretary of the Air Force (Financial Management and Comptroller).

In a joint statement the witnesses told the committee that audit readiness is a top priority for the Military Departments. The Army has been using results from its audits to prepare “corrective action plans to focus efforts and resources on remediating deficiencies.” Navy plans “emphasize sustainable, standardized, efficient business processes, improved controls over business processes, and consolidation of information technology (IT) systems.” The Air Force is working closely with auditors “to prioritize findings and recommendations from the audit and implement cost-effective corrective actions.”

The witnesses emphasized that it takes time for an audit infrastructure to be set in place and to “mature.” For example, it took Homeland Security 10 years to get an unmodified opinion on its financial statements for budget resources totaling $89 billion. DoD has about $1 trillion in budgetary resources.

Nevertheless, they stressed that DOD and the Military Departments remain committed to the goals and benefits from achieving clean financial audits.

House passes FY2017 DoD Appropriations bill, White House threatens veto

Tuesday, June 21st, 2016

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Last week, the House passed the FY2017 Department of Defense (DoD) Appropriations bill (H.R. 5293),278-149. Forty three Democrats joined 235 Republicans voting for passage.

House Appropriations Committee chair Rep. Hal Rogers (R-KY) said the bill provides for the defense needs of the country by “funding those military needs that must be addressed now, planning and preparing for the future, and respecting the taxpayer by making commonsense budgeting decisions.”

The House bill would provide $517 billion for the DoD base budget (excluding military construction). The House followed the House-passed FY2017 Defense Authorization bill's plan for funding Overseas Contingency Operations (OCO) by providing only $42.9 billion through April 2017. The president requested $58.6 billion to fund OCO for the entire year. In addition, the House would use $15.7 billion in OCO funding for base budget requirements, increasing total base budget funding to $533 billion.

The House action on OCO funding has drawn a veto threat from the White House. In a Statement of Administration Policy (SAP), the Office of Management and Budget (OMB) called the redirection of OCO funding to the base budget “dangerous and wasteful.” The SAP also complained that this funding approach gambles with warfighting funds and “risks the safety of our men and women fighting to keep America safe, [and] “undercuts stable planning and efficient use of taxpayer dollars.”

The House bill includes an additional $340 million to fund a 2.1 percent military pay raise (the president requested a 1,6 percent raise) that is authorized in the House-passed FY2017 Defense Authorization bill. House bill also would fund the higher active duty (+27,000) and guard and reserve (+25,000) strength levels that would be authorized by the House.

Procurement funding in the bill would buy 15 ships (including three Littoral Combat Ships), 74 F-35 aircraft, 16 F/A-18E/F planes, 72 UH-60 helicopters, 15 KC-46 tanker aircraft, and 123 Stryker upgrades.

With only a few weeks remaining before Congress adjourns for an extended recess for the party conventions, both House and Senate have passed only three FY2017 appropriations bills each. The House has passed the DoD, Legislative, and Military Construction/VA bills and the Senate has passed the Energy & Water, Transportation/HUD, and Military Construction/VA bills. The Military Construction/VA bill, having passed both chambers is now in conference to reconcile the differenced.

Six bills await floor action in the House (Agriculture, Commerce/Justice/Science, Energy & Water, Financial Services, Interior & Environment, and Transportation/HUD) while eight are ready for the floor in the Senate (Agriculture, Commerce/Justice/Science, DoD, Financial Services, Homeland Security, Interior & Environment, Labor/HHS/Education, Legislative).

The House full appropriations committee has not taken action on three bills (Homeland Security, Labor/HHS/Education, and State/Foreign Operations. In the Senate only the State/Foreign Operations bill has not been completed by the Senate Appropriations Committee.

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