Federal Budget Process
By Pamela Martineau
7 min read
How Does it Work? What Does it Mean for Affordable Housing This Year?
From dramatic increases in the volume of Low Income Housing Tax Credits to gains in the Housing Trust Fund, the Biden administration’s 2023 federal budget proposal includes some massive gains for affordable housing, but the fate of these increases is unclear and may not be determined until after a new Congress is seated in 2023.
As budget negotiations churn forward this spring, we offer a primer on the federal budget process and how it might impact some of the housing proposals within the Administration’s budget. President Biden’s budget contains an additional $6.2 billion for the Department of Housing and Urban Development over 2021 funding, a 60 percent volume increase in LIHTCs, and $35 billion for the Housing Trust Fund.
President Biden’s budget also provides $15 billion for Project-Based Rental Assistance (PBRA), which is more than $1 billion more than FY 2022.
Scott Olson, president of Olson Advisory Group, LLC, says the proposed boost in the LIHTC and increase in the Housing Trust Fund are the most significant of Biden’s affordable housing proposals and perhaps the most likely to be approved too, especially the LIHTC, he says.
“The LIHTC is the work horse for building affordable housing units in this country,” says Olson. “Of all of the things in the affordable housing proposals that have a chance this year, I think the LIHTC may have the best chance of passing.”
The proposed volume increase in LIHTC is similar to the one proposed in Build Back Better (BBB), which stalled in the Senate. Like BBB, which moved through the reconciliation process, Olson says that the LIHTC tax provision and several other affordable housing proposals also may need to move through a special reconciliation process.
Below we provide an overview of the budget process and types of federal spending.
Mandatory Versus Discretionary Spending
As complicated as the federal budget can be, federal spending falls into three basic categories: mandatory, discretionary and interest on the national debt.
Mandatory spending is spending dictated by permanent laws that determine the amounts that must be spent on key programs. Social Security, Medicare, Medicaid and federal retirement programs are among the programs that receive mandatory funding.
Discretionary funds are appropriated by Congress and go to programs without set funding limits and targets, such as: housing assistance, community and regional development, defense, education, transportation, health, veterans’ benefits and services, administration of justice, general government and other programs.
Paying interest on the national debt is another type of spending that incrementally pays down the federal deficit.
Overall, in the last 50 years, discretionary spending has been declining as a percentage of the federal budget. In 1960, about two-thirds of the federal budget went to fund discretionary programs. In 2022, that figure had dropped to about 30 percent of the budget.
Congress has no control over the amount of money spent on mandatory programs, although it can alter policies related to those programs, which in turn, impacts how their funds are spent. For instance, when Congress raised the Social Security Retirement age, it changed the financial structure of the SSA program by changing its governing policy but did not change its funding.
The Budget Process
The Congressional Budget Act of 1974 lays out the formal framework for developing a budget resolution. In recent years, its deadlines are rarely met. Under the Act, the President is mandated to present Congress with a proposed budget by the first Monday in February. President Biden released his FY 2023 budget March 28. There are no penalties if the budget deadlines are missed. As with all presidential budgets, Biden’s budget lays out the Administration’s priorities.
Months of work go into preparing the President’s budget. Officials from federal agencies negotiate with officials from the Office of Management and Budget (OMB) to develop specific funding proposals per agency. This process takes months, with a lot of back and forth, hence its nickname – the pass-back process. Ultimately, the OMB develops the Administration’s budget, and it is released to the public and Congress.
The budget’s journey through Congress is labyrinthine. House and Senate budget committees review the budget, holding hearings on its provisions and questioning administration officials on their requests. Then Senate and House budget committees develop their own budget resolutions and look for controversial policies that may need to move through the budget reconciliation process. The resolutions are then sent to the floor for a vote. Differences between House and Senate proposals are sent to conferences to resolve, then the House and Senate appropriations committees divide the appropriations measures among the 12 budget subcommittees for further hearings. After the hearings, each subcommittee votes out a bill that then goes back to the budget committees and ultimately heads back to each respective chamber for a vote.
Congress is supposed to pass a budget resolution by April 15 but that rarely happens. In recent years, Congress has often not passed a budget resolution at all. To keep government funded beyond the October 1 launch of the new fiscal year, Congress passes a continuing resolution to keep government funded at current levels and avoid a government shutdown. The continuing resolutions are sometimes extended beyond the new year.
The Reconciliation Process
The budget reconciliation process can speed up budget bills by avoiding a Senate filibuster by passing on a simple majority vote. BBB moved through the reconciliation process, but still did not obtain a majority of votes in the Senate. In order to launch the reconciliation process, the House and Senate must agree on a budget resolution that includes reconciliation directives. The reconciliation process is often used to pass more controversial legislation because it does not require bipartisan support.
Olson expects some of the affordable housing provisions to move through the reconciliation process.
“If they do it, it will need to get done before the election,” Olson says of some of the reconciliation proposals, adding that such pre-election timing rarely happens.
If a budget is not approved by the election—which many policy advisors believe it in all likelihood will not—the new Congress will take up the budget in January. Such a scenario makes it even harder to predict an outcome for affordable housing budget proposals.
The Jockeying
Many pundits say Presidential and Congressional budget bills often contain provisions budget designers know will later be cut or perhaps restored. For instance, the President will frequently cut a budget program for the sake of presenting a leaner budget, knowing Congress will later restore that same program, thereby shifting responsibility for a larger budget onto Congress. Congress does the same to the President. Other jockeying includes actions, such as proposing cutting the FEMA budget, knowing it will likely be restored through emergency appropriations.
Some political analysts argue that in the past decade or so, most administration budgets have been largely irrelevant because Congress ultimately has the final control. The President is not required by law to sign a budget bill, so congressional changes cannot be overwritten by the President.
Budget watchers also say that issues that are “subterranean”—meaning they don’t capture headlines—can frequently garner the greatest consensus among the Democratic and Republican leaders in both houses. Several proposals impacting affordable housing this year have not captured news headlines, so under that logic, they may stand a greater chance of passing through Congress.
