Politics

Obama Pitches Major New Investments in Budget Plan

Here’s a rundown of the proposals that would most affect states and localities and how stakeholders reacted to the president's budget.
by , | March 5, 2014
Copies of President Obama's proposed budget for fiscal 2015 set out for distribution by the Senate Budget Committee.
Copies of President Obama's proposed budget for fiscal 2015 set out for distribution by the Senate Budget Committee. AP/J. Scott Applewhite

The United States would spend more on infrastructure, education, tax incentives for low-to-moderate-income people and other initiatives under a budget proposal released by President Barack Obama Tuesday.

Obama’s plan for the 2015 federal fiscal year, which starts Oct. 1, would spend $56 billion more than what’s allowed under the budget deal signed into law earlier this year -- one reason it is unlikely to win Congressional approval. In fact, many of Obama’s boldest budget proposals in recent years haven't translated into policy. Instead the document may serve as a statement of priorities in an election year when much of Obama's policy wish list faces dim prospects in the Republican-controlled House.

Underscoring the divide was a report released by U.S. Rep. Paul Ryan—the day before Obama unveiled his budget—that challenged the effectiveness of many of the programs that Obama's budget would support, such as Head Start, which provides nutritional and educational funding for lower-income children.

Regardless of their legislative hopes, here’s a rundown of the proposals that would most affect states and localities.

Earned Income Tax Credit

Proposal: Obama would extend eligibility to the federal Earned Income Tax Credit (EITC) to adult workers with no dependent children, a segment of the working poor mostly excluded by the current program. The White House estimates that the expansion would cost about $60 billion over 10 years and would benefit 13.5 million workers. However, the impact to the deficit would be negligible if Congress also eliminated currentl payroll tax exemptions for some self-employed workers and private equity fund managers.

The president wants to raise the maximum credit that a childless worker can receive from its current level (about $500) to about $1,000, while lifting the threshold by which workers no longer qualify for a credit from less than $15,000 to about $18,000.

Reaction: "The President is right to see an expanded EITC as a critical element in the fight against poverty, particularly for young men," said former mayor of New York City Michael Bloomberg in a written statement. "Leadership in both houses of Congress should seize the opportunity for bipartisanship."

Context: Economists on the left and right say the EITC is the most effective federal policy for lifting people out of poverty. Its expansion could be especially relevant in big cities and rural counties, where the poverty rate is often much higher than the national average.

The notion of expanding tax credits for the working poor is nothing new, but the idea gained attention in recent months as either a complement or substitute to raising the minimum wage. Ohio Sen. Sherrod Brown and Illinois Sen. Dick Durbin introduced a bill last year that addressed childless workers. The proposal stalled in the Senate Finance Committee with no Republican co-sponsors. Though some prominent conservatives, including economist Gregory Mankiw and Rep. Ryan, have called for expanding the credit, that support is not unanimous. Florida Sen. Marco Rubio, for example, used the 50th anniversary of President Lyndon Johnson's War on Poverty to propose that Congress dissolve the tax credit in favor of monthly wage enhancements.

Many states offer a small match worth a fraction of the credit that workers receive from the federal program. Last fall New York City’s Center for Economic Opportunity, under the Bloomberg administration, launched a three-year pilot project to test the impact of extending tax credits to adult workers without dependent children. City officials said they would not be able to fund a permanent citywide expansion, but hoped the project would inform debates over tax reform and anti-poverty policy at the federal level.

Early Childhood Initiatives

Proposal: Obama again called for tens of billions to fund a universal pre-kindergarten program, along with $750 million in preschool development grants for states. He also called for about $1.7 billion for infant and toddler childcare, which would provide services for more than 100,000 children and attempt to strengthen existing state services. Lastly, Obama’s budget includes $15 billion over 10 years to expand home visiting programs, which connect families to social and educational services to support childhood development.

Reaction: “We know the gap [in childhood development between the rich and poor] is huge in the first few years, so we’re thrilled that much of this proposal is starting at the front line, and it continues that all the way through,” said Adele Robinson, deputy executive director of policy and public affairs for the National Association for the Education of Young Children.

Context: Obama’s proposal comes on the heels of a Congressional spending plan that ignored his State of the Union call for universal pre-k but included $250 million in competitive grant money to spur program development at the state level, where dozens of states have already expanded eligibility over the past year and more are expected to do so this year. That budget also expands child care services through the Head Start program—just not as dramatically as Obama wants.

Competitive Grants for Energy Efficient Infrastructure

Proposal: The Energy Department would provide $200 million in one-time performance grants to support state governments that want to cut energy waste and modernize their power grids.

Reaction: Environmental groups are sure to welcome the proposal -- they did last year -- but mayors should be pleased, too. Last week the U.S. Conference of Mayors released a report on how cities leveraged one-time federal funds from the 2009 economic stimulus package for energy efficiency projects, such as wind turbines, LED street lights and retrofitted buildings. The group is asking Congress to revive that block grant program.

“At the local level, so much of your budget is pre-determined,” said Bill Finch, mayor of Bridgeport, Conn., who used a stimulus grant to pay for a feasibility study of an anaerobic digester in his city. “Discretionary money is almost non-existent unless you want to raise regressive property taxes. If you want to make these kinds of investments, it’s almost got to come from the federal government.”

Context: The White House outlined the same idea last year though no competitive grant program for energy projects materialized. The push to reward energy efficiency, however, does appear in a current bipartisan bill introduced by Ohio Sen. Rob Portman, a Republican, and New Hampshire Sen. Jeanne Shaheen, a Democrat. The senate proposal would focus on updating state and local building codes to encourage energy savings.

Transportation

Proposal: Obama’s budget would nearly double public transit investments to $14 billion, providing funding for buses, subways, light rail and commuter trains. The budget would also include $302 billion to “repair and modernize” highways and bridges, paid for in large part by eliminating deductions and exemptions in the corporate tax code.

Reaction: “This would really focus on damaged roads and crumbling bridges before engaging in new expansion of highway projects,” said Jaimie Woo, a tax and budget associate at the U.S. Public Interest Research Group. “Nearly 70,000 of our nation’s bridges are classified as structurally deficient, so that needs to take priority over possibly new highway expansion projects.”

Context: As Americans are driving less they've been calling for greater investment in public transit. The average number of miles traveled per capita has fallen every year since 2004 and is now at its lowest level since 1996, according to the U.S. Public Interest Research Group. Obama has also long pushed for more spending on the nation’s deteriorating infrastructure, calling for $50 billion in 2010. He's continued to press Congress in the years since without success, but Republican Rep. Dave Camp of Michigan recently pitched a plan that would fund infrastructure investments through tax reform, signaling at least some appetite for the idea among Republicans.

Workforce Development 

Proposal: The budget includes a $6 billion, four-year program of grants designed to partner community colleges with employers, nonprofits and others to create apprenticeships to initiate students to new fields. The program aims to double the number of apprenticeships over the next five years. Apprenticeships more commonly apply to skilled trades and often involve more active job shadowing than internships. 

Context: A formal apprenticeship system has existed in the United States since 1937, but as of 2012 there were only 358,000 active apprentices, which is only 7 percent of the number in England, according to the Center for American Progress, a liberal think tank. Typically employers or associations sponsor apprentices and pay for the most of the costs of the program. Some experts argue a more robust apprenticeship program would help meet projected shortages of skilled workers, which could reach 5 million by 2020, according to CAP.

Community Development Block Grants

Proposal: The Obama administration would cut $230 million from the Community Development Block Grant program, which disseminates funds to 1,209 units of state and local government across the country. The money supports a variety of uses, including economic development, neighborhood revitalization and affordable housing, mostly in low-income communities.

Reaction: “We are baffled,” said Tom Cochran, executive director of the U.S. Conference of Mayors in a written statement. Cochran called the grants “the most targeted and flexible stream of federal dollars allocated directly to cities.”

Context: While the grant program saw a brief funding surge when Obama first took office, the long-term trend has been less money over time. Between 2001 and 2012, the grants saw a 33 percent decline in funding, from about $4.4 billion to $2.9 billion, according to a report last year by the Government Accountability Office. Critics have complained that the U.S. Department of Housing and Urban Development does not maintain sufficient oversight over how the money is spent and frivolous projects wind up receiving money. The Heritage Foundation, a conservative think tank, has called for the complete elimination of the program.

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