As you know, Congress finally completed their work on August 2, 2011 to address the federal budget deficit and the debt ceiling. They are now on their August congressional break, not scheduled to return until after Labor Day. In case you didn’t catch the highlights of the final agreement:

Mechanics of the debt deal

• Immediately enacted 10-year discretionary spending caps generating nearly $1 trillion in deficit reduction; balanced between defense and non-defense spending.

• President authorized to increase the debt limit by at least $2.1 trillion, eliminating the need for further increases until 2013.

• Bipartisan committee process tasked with identifying an additional $1.5 trillion in deficit reduction, including from entitlement and tax reform. The committee is required to report legislation — which receives fast-track protections — by November 23, 2011. Congress is required to vote on Committee recommendations by December 23, 2011. (For the six Republicans and six Democrats, the toughest-to-swallow items on the deficit-cutting menu await. This group, to be named from the House and Senate in two weeks, must find at least $1.2 trillion in budget cuts by Thanksgiving and Congress must approve them by year's end — or take the blame for deep and broad spending cuts that would strike GOP priorities like defense and Democratic favorites like programs for the poor.)

• Enforcement mechanism established to force all parties — Republican and Democrat — to agree to balanced deficit reduction. If the committee fails, enforcement mechanism will trigger spending reductions beginning in 2013 — split 50/50 between domestic and defense spending. Enforcement protects Social Security, Medicare beneficiaries, and low-income programs from any cuts.

Minnesota officials are now reviewing the deal and determining what it means to various Minnesota programs:

1. Unemployment insurance extensions will end. Folks laid off today would see no extension of benefits beyond the 26 weeks the state offers. (This could affect 124,737 Minnesotans now on unemployment.)

2. The plan to trim nearly $1 trillion nationally in the coming decade could have painful implications in Minnesota. Federal funds make up about 27 percent of the state's $62 billion total two-year budget. Most of that goes to Medical Assistance, cash and food assistance, highway projects, and school funding. Exactly how those cuts will ripple out is not yet known, but job cuts may be in the offing. Federal money helps pay the salaries of at least 15 percent of Minnesotans.

3. Many of the worst cuts will come toward the end of the 10-year agreement, a provision designed to ensure that spending reductions don't snuff out the nation's already anemic recovery from the worst recession in decades.

How did the Minnesota delegation vote on the negotiated agreement? Senators Klobuchar and Franken voted yes. Representatives Walz, Kline, Paulsen and Peterson also voted yes. Representatives McCollum, Ellison, Bachman and Cravaack voted no.

Here are a few more details to help you understand what action Congress and the President just agreed to:

Initially, the debt limit is increased by $400 billion. After October 1st, 2011, the president would get another $500 billion debt limit increase if Congress does not pass a resolution disapproving of the increase. The total up-front increase would therefore be $900 billion. Immediately upon passage of the Act, discretionary spending (annual appropriations) will be cut and capped, with projected savings of $917 billion over 10 years. This is more than the initial $900 billion of debt limit increase allowed to the President.

If this new joint bi-partisan committee legislative process fails to result in a proposal that can be passed, then there will be no tax increases and there will be triggered $1.2 trillion of across-the-board spending cuts in discretionary spending, Medicare, farm subsidies, and a few smaller entitlements. These triggered spending cuts would hit defense more deeply than other types of spending. Social Security, veterans’ benefits, civilian and military retirement, and all low-income subsidies including Medicaid and the “welfare” programs (food stamps, SSI, etc.) would be exempt from the trigger.

The amount of the President’s last opportunity to raise the debt limit depends on what happens with the joint bipartisan committee and a balanced budget amendment:

• If the Joint Committee process fails or produces less than $1.2 trillion of deficit reduction, then the President can get a final debt limit increase of $1.2 trillion;
• If the Joint Committee process results in a law that reduces the deficit between $1.2 trillion and $1.5 trillion, then the President can get a debt limit increase of the same amount;
• If the Joint Committee process results in a law that reduces the deficit by more than $1.5 trillion or if a balanced budget amendment passes the House and Senate and is sent to the States, then the President can get a final debt limit increase of $1.5 trillion.

Patti Cullen, CAE
952.851.2487
pcullen@careproviders.org

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