Federal Update
Highlights of the President’s FY14 Budget Request
April 11, 2013
The President’s FY14 Budget Request (PBR) proposes more spending and taxes, and makes a renewed effort to
replace the sequester as part of a grand bargain with the GOP. The PBR proposes to use $1.76 trillion in deficit
reduction over the next decade to replace the sequester, starting in FY14 and including $583 billion from new
tax revenue and some $1 trillion in alternative spending cuts. Still, it would increase spending in 2014 by nearly
$160 billion beyond what the Congressional Budget Office projected in February. Many of the president’s plans
to cut spending would phase in toward the end of the 10-year budget window, effectively trading the pain of
the sequester now for trims to entitlements later. Still, the deficit would drop to $744 billion, or 4.4 percent of
GDP — and continue its downward trajectory to 2.8 percent of GDP in 2016 and 1.7 percent in 2023 if the
economy continues to improve.
The most notable concession that the President made was the inclusion of “chained CPI”; a measure of
inflation for cost-of-living adjustments for federal entitlement programs which would save $230 billion. Other
savings include $400 billion in health savings that target waste and fraud in Medicare and $200 billion in
reductions to farm subsidies and reforms to federal retirement benefits.
The budget also proposes to rebalance the tax code as a “down payment on comprehensive tax reform.” The
plan would raise taxes by limiting the value of deductions for high-income earners to 28 cents on the dollar
and implement the Buffet Rule which would require households with incomes over $1 million to pay at least
30 percent of their income (after charitable giving) in taxes. Together, those two provisions would reduce the
deficit by $583 billion. The budget would also restore the estate tax to its 2009 levels, raising $71.7 billion over
10 years. As with past budgets, a portion of the proposed tax increases are offset by tax cuts, aimed generally
at small businesses and low-income families.
The budget is a blueprint for the initiatives the President would fund if he was not constrained by Congress.
Congress may use the budget as a starting point for appropriations, but also has the capacity to ignore
Obama's suggestions and will likely change some of the levels of funding if it passes appropriations bills for
FY14.
Sequestration is also introducing considerable uncertainty into this year’s budget process. The Continuing
Resolution passed last month did not adhere to the budgetary caps of sequestration, as laid out in the Budget
Control Act of 2011, and neither has the President’s FY14 budget request. Ignoring the reality of sequestration
makes the budget somewhat meaningless, as many of these numbers will drop considerably unless Congress
and the President pass legislation to undo sequestration.
Obama also is proposing various new domestic spending initiatives, and proposes to enact or expand a host of
other domestic spending programs and tax credits, with higher subsidies for child care, an extra $50 billion for
infrastructure, money for states to rehire teachers, assorted new tax cuts for small business and other
priorities, many of which he has proposed before in his American Jobs Act or in previous budgets without
success. The budget will also show a willingness to engage in tax reform that on the corporate side would be
revenue-neutral and would lower rates, although if tax reform is not achieved the president still wants to close
assorted loopholes, including those for carried interest, corporate jets, and oil companies.
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The following are some relevant details from the PBR. Note that the President’s budget compares everything
to FY12 – presumably because FY13 was not resolved in time to be incorporated into the PBR.
US DEPARTMENT OF EDUCATION
The PBR calls for $71.2 billion in discretionary funding for the Education Department, which is 4.3 percent, or
$3.1 billion, more than both pre-sequester FY13 discretionary appropriations and FY12 discretionary
appropriations. Of this amount, $22.8 billion alone is designed to fund the Pell Grant program and its
maximum grant of $5,785 for the 2014-2015 award year. This continues to be the largest single discretionary
program (not counting its additional mandatory funding) at the Department.
Other programs and initiatives of interest:
STEM The request proposes several new STEM initiatives totaling $265 million, and a new authority modeled off the
current ED Mathematics and Science Partnerships program. These STEM initiatives are described as part of a
government-wide realignment that would consolidate or restructure 90 STEM-related programs across 11
agencies. The new initiatives include:
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STEM Innovation Networks ($150 million) – competitive awards to institutions of higher education,
nonprofits, and others to replicate evidence-based practices across a regional network of participating
schools. Networks would be focused on utilizing other STEM assets in their region, including research
facilities and other Federal STEM resources.
STEM Teacher Pathways ($80 million) – competitive grants aimed at producing 100,000 new STEM
teachers over the next 10 years.
STEM Master Teacher Corps – recognizing and rewarding the nation’s most talented STEM teachers
and building local and regional communities of practice. Additionally, the request creates a new Effective Teaching and Learning program that would replace the
existing Mathematics and Science Partnerships program and make awards to states or consortia of states and
other entities to implement a comprehensive strategy for STEM instruction to students. High-need schools
could be targeted for assistance through a 20 percent reservation of grant funds. This initiative has been part
of the Administration’s ESEA reauthorization blueprint and has been in the budget the last few years.
RTT – College Affordability and Completion
The request calls for $1 billion for RTT for a college affordability and completion competition. The request
would fund up to 10 states to carry out projects that focus on several reforms, including sustaining state fiscal
support, removing barriers that prevent innovative methods of student learning and new degree pathways,
enhancing transparency designed to improve consumer choice, and supporting transferring between
institutions of higher education.
First in the World (i3 for higher education)
The request repeats the call for “First in the World,” an i3-like program with a higher education focus that was
first proposed in the FY 2013 request. In the FY 2014 request, $260 million would support efforts targeted at
college completion and creating validation systems identifying competencies necessary for high-need fields, as
well as pay-for-success projects aimed at providers producing free degrees tied to these validation systems.
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New Student Loan Interest Rate Structure and Expansion of Pay as You Earn
Interest rates on subsidized student loans are scheduled to rise from 3.4 percent to 6.8 percent in July of this
year. Congress and the Administration delayed the increase in these rates for one year last July. To respond to
this increase, the request calls for a variable interest rate structure for subsidized and unsubsidized Stafford
loans and PLUS loans. The rate structure would set rates once a year and a loan would have a fixed rate for the
life of the loan. There would be no cap on the interest rate, and the existing cap on consolidation loans of 8.25
percent would be eliminated. The interest rate structure would be based on the 10-year Treasury note with
add- ons of:
 0.93 percent for subsidized Stafford loans;
 2.93 percent for unsubsidized Stafford loans; and
 3.93 percent for PLUS loans. The rate structure is paired with an expansion of the Administration’s Pay as You Earn Plan. Under the request,
anyone with any Federal loan (that isn’t in default) would be eligible. Previously, borrowers were only eligible
for Pay as You Earn if they had no loans as of 2007 and had received a Direct Loan after 2011. Under the
request, starting in July 2014, everyone with any Federal student loan balance would be allowed to participate
in Pay as You Earn. Student loan payments would be capped at 10 percent of a borrower’s prior-year
discretionary income and forgiveness of remaining loan balances would take place after 20 years. Community College Initiative The request includes a new initiative, also proposed in the FY 2013 request, jointly administered by ED and the
Department of Labor to improve access to job training and increase community college partnerships with
business. This initiative would be funded at $8 billion over three years. Campus-Based Aid Changes The request level funds the Supplemental Educational Opportunity Grant (SEOG) program and increases Work
Study funding by $150 million compared to the FY 2012 enacted level. The Administration proposes to change
the formula that allocates SEOG and Work Study funding to institutions of higher education (IHEs) in order to
provide larger amounts to IHEs that hold down tuition and costs and graduate high numbers of Pell-eligible
students. The Administration also proposes a new Perkins Loan program similar to its proposal in past budget
requests. The existing Perkins Loan program is scheduled to expire in 2014. The request estimates that this
new program will provide $8.5 billion in new loan volume annually. Loans would be serviced by ED and not
colleges. The request claims this change would produce savings that would be used to maintain the funding in
the Pell program and fund the maximum Pell Grant. Pell
The budget request maintains a $22.8 billion discretionary level of funding, the same as the FY 2012 enacted
level. The maximum Pell Grant is scheduled to increase to $5,785 for the 2014- 2015 award year. The
Department projects that the request will provide 9.4 million students with Pell Grants. The request notes
that the Pell program is expected to encounter funding deficits in future award years and makes two changes
to student loan programs to provide savings to fund Pell. With these two changes the request states that the
Pell program will be fully funded through the 2015-2016 award year. The first change is the creation of the
new Perkins Loan program as described under the Campus-Based Aid Changes section above. The second is a
change in how guaranty agencies (GAs) are compensated when rehabilitating a loan. Under the request, if a GA
is unable to find a private buyer for a rehabilitated loan, it would be required to assign it to ED. In addition, the
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request calls for a reduction in the fee that GAs can charge borrowers who have rehabilitated their loans from
18.5 percent to 16 percent. The request estimates this will save $3.7 billion over 10 years and calls for these
savings to be used for future Pell funding shortfalls.
Presidential Teaching Fellows Program
The TEACH Grant program is proposed to be replaced in the budget request by a Presidential Teaching Fellows
program (PTF). This proposal was first made in the FY 2012 budget request. PTF, funded with mandatory
spending, would provide grants to states to award scholarships of up to $10,000 to individuals who attend
high-performing teacher preparation programs and commit to teaching in a high-need school.
HEA Program Evaluation and Dual Enrollment Demonstration
The budget request provides $67.6 million to support the collection and analysis of performance data and
evaluation of Higher Education Act programs that don’t have funding set-asides for this purpose. In addition,
$32 million of this amount would be reserved for demonstration and evaluation of dual enrollment programs
with $10 million in additional funding from Career and Technical Education National programs at the
Department.
HEA-Title VI and Fulbright-Hays
The budget requests an increase of $6.9 million for Title VI, a 10.4 percent increase over the FY12
level. Fulbright-Hays would remain at the FY12 funding level.
Institute for Educational Sciences (IES)
The budget request increases research, development, and dissemination funding for IES by $12.5 million, to
$202.3 million total. This is intended to permit IES to make new awards and support a new program focused on
understanding strategies intended to support continuous improvement of educational systems. Special
education research would receive an increase of $10 million compared to FY 2012. NCES would receive $14
million in additional funding to support state participation in the Program for International Student
Assessment (PISA) and to begin collecting certain National Postsecondary Student Aid Survey data every two
years.
Regional Educational Laboratories would maintain level funding of $57.4 million, compared to FY 2012. The
funding is intended to support the third year of the contracts with the Labs.
Statewide Data Systems would receive an additional $47 million for a total of $85 billion. The request states
that up to $25 million would be used for awards to public and private agencies to support activities to improve
data coordination, quality, and use. $36 million of the $47 million increase would be used for new grants
emphasizing early childhood data linkages and better use of data in analysis and policymaking, and $10 million
would be focused on improving information on students as they move from high school the college and the
workforce.
HEALTH AND HUMAN SERVICES (HHS)
Overall, the PBR calls for $80.1 billion in discretionary funding for the Department of Health and Human
Services. That’s $3.9 billion more than the fiscal 2012 enacted level. Obama proposes increasing the budget at
the National Institutes of Health (NIH) by $472 million in FY14.
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National Institutes of Health (NIH)
The NIH program level for FY14 is $31.3 billion, a $472 million increase (1.5 percent) from the FY12 program
level of $30.86 billion. The FY14 budget level is $274.3 million above the FY13 level. The $31.3 billion includes
the $150 million mandatory Type 1 diabetes research and a $79 million transfer from the Interior department
related to Superfund activities. This is estimated to produce an increase of 351 total research project grants
(RPGs). Because of turnover of grants, the number of new and competing awards is actually higher, an
estimated increase of 1,283 compared to FY12.
In FY14, the budget proposes to increase stipend levels for trainees receiving National Research Service
Awards (NRSAs) – essentially a 4 percent increase for postdocs and a 2 percent increase for grad students. This
would come at the expense of the total number of positions, which would decline by 108. Also, funding for
Research Centers will see an overall decrease of $194.5 million. The National Children’s Study would be funded
at $165 million, a $28 million decrease from FY12.
Programs emphasized within the NIH budget include: the BRAIN initiative; opportunities and challenges
associated with big data; translational research; and enhancing diversity in biomedical research together with
the continuing effort to assess the overall biomedical workforce.
Health Resources Services Administration (HRSA)
The FY14 Budget includes $9 billion for HRSA, an increase of $841 million above FY12. It includes $3.8 billion
for the Health Centers program, including $2.2 billion in mandatory funding provided through the Affordable
Care Act Community Health Center Fund. In addition, the PBR provides $47 million for research, screening,
and promoting evidence-based interventions for children with autism spectrum disorders and their families.
The FY14 request includes $10 million to the 340B program – an increase of $6 million above FY 2012, through
a new cost recovery fee. The user fee will help improve the program’s operations, oversight and
integrity. Participants in the 340B program include safety-net clinics and hospitals such as community health
centers, Indian Health Service tribal clinics, children’s hospitals, critical access hospitals, Federally Qualified
Health Centers and look-a-likes, and programs that target sexually transmitted disease and tuberculosis
prevention and treatment among others.
Centers for Disease Control and Prevention (CDC)
The FY14 request for CDC is $5.217 billion, which is $432 million below FY12. CDC’s Program Level (which
includes Budget Authority, Public Health Service Evaluation Tap, Public Health and Social Services Emergency
Fund Transfer, and the Affordable Care Act’s Prevention and Public Health Fund) for FY14 is $6.589 billion,
which is $276 million less than the equivalent FY12 Program Level.
The PBR requests $272 million for National Institute of Occupational Safety and Health (NIOSH) programs, $53
million below FY12. The Budget continues targeted reductions to programs such as the Education and
Resource Centers and the Agriculture, Forestry, and Fishing Program within the National Occupational
Research Agenda.
The PBR also includes $1.0 billion, $175 million less than FY12, for Chronic Diseases Prevention and Health
Promotion, of which $416 million is funded through the Prevention Fund. The request proposes a $79.7
million decrease for Community Transformation Grants.
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Global Health programs will be funded at $393 million, a $16 million increase over FY12. The PBR includes an
additional $15 million to enhance CDC’s effort to eradicate polio worldwide.
Biodefense and emergency preparedness activities in CDC are funded at $1.3 billion for a decrease of $48
million below FY12. Within that total, $658 million is requested for Public Health and Emergency Preparedness
(PHEP) grants, $8 million below FY12.
Programs with new or increased investment in the FY14 budget request include the Advanced Molecular
Detection initiative, food safety, domestic HIV/AIDS prevention, and healthcare safety to protect Americans
from infectious diseases; polio eradication to protect against global threats; and violence prevention, tobacco
prevention, health statistics, lead poisoning prevention, and heart disease and stroke prevention to monitor
and prevent the leading causes of death.
Agency for Healthcare Research and Quality (AHRQ)
The FY14 budget includes a total program level of $434 million for the Agency for Healthcare Research and
Quality (AHRQ), $29 million above the FY12 level. This total includes $334 million in Public Health Service (PHS)
Evaluation Funds, a decrease of $35 million below FY12, and $100 million from the Patient-Centered Outcomes
Research Trust Fund.
Centers for Medicare & Medicaid Services (CMS)
The PBR request for the Centers for Medicare & Medicaid Services (CMS) is $854.3 billion in mandatory and
discretionary outlays, a net increase of $60.2 billion above the FY13 level. Highlights include:
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Proposes $5.6 billion in Medicare payment cuts and about $400 billion in total federal healthcare
savings over the next decade.
The budget would derive much of the $5.6 billion in FY14 Medicare savings from $3.1 billion it expects
to save by adopting a Medicaid drug-rebate program for the dual-eligible population. The drug rebate
program requires refunds from pharmaceutical manufacturers to Medicaid programs.
Many of the healthcare savings proposed in the budget were derived through various drug cuts,
including $740 million in separate drug savings in FY14 from barring pharmaceutical firm agreements
to delay the availability of generic versions of brand name drugs.
Other Medicare cuts in the budget included $780 million in graduate medical education, $830 million
from post-acute care providers, $200 million less for hospital bad debt payments, $190 million in cuts
to inpatient rehabilitation hospitals, and $90 million in cuts to critical-access hospitals.
DEPARTMENT OF COMMERCE
The PBR includes $1 billion in mandatory funding to establish a National Network of Manufacturing Innovation
(NNMI) institutes, coordinated through NIST, that will develop cutting-edge manufacturing technologies and
capabilities to propel the competitiveness of US manufacturing.
The Budget also includes $113 million for the Economic Development Administration (EDA) to create the
Investing in Manufacturing Communities Fund, which will be invested in those regions that have created
economic development strategies that build on the region’s comparative advantages and leverage privatesector resources.
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Other agency highlights:
National Institute of Standards and Technologies (NIST)
The PBR provides $928 million, $176 million above the FY12 enacted level, for the NIST in FY14.
This budget, which prioritizes advanced manufacturing and cybersecurity, includes $153.1 million, a $25
million increase over FY12, for the Hollings Manufacturing Extension Partnership (MEP) to assist manufacturers
in adopting new technologies to improve their competitiveness. It also includes $21 million for the Advanced
Manufacturing Technology Consortia to develop road maps that would address common challenges faced by
manufacturers.
National Oceanic and Atmospheric Administration (NOAA)
The budget request for NOAA Office of Oceanic and Atmospheric Research (OAR) is $472 million for FY14, a
significant increase when compared to $385 million in FY12. Of note to universities, NOAA aims to increase its
extramural to intramural R&D spending ratio, from approximately 26 percent of its total budget in FY12 to 34
percent of its total in FY14.
DEPARTMENT OF DEFENSE (DOD)
The budget request for the DOD proposes to fund both basic research (“6.1”) and applied research (“6.2”)
programs at higher levels in FY14 than the FY13 requested level. Specifically, the Pentagon budget seeks
approximately $2.165 billion for 6.1 research while proposing to fund 6.2 research at $4.627 billion. These
amounts represent increases of 2.3 percent and 3.3 percent, respectively, above the FY13 requested levels.
The Defense Advanced Research Projects Agency (DARPA) would be funded at $2.865 billion, an increase of 1.7
percent over the current year request.
Within basic research, Army 6.1 would be funded at $436.7 million, Navy 6.1 would be funded at $615.3
million, Air Force 6.1 would be funded at $524.8 million, and Defense-wide basic research programs would be
funded at $588.1 million.
The Pentagon is seeking to fund applied research in the following manner: Army 6.2 at $888.9 million, Navy
6.2 at $834.5 million, Air Force 6.2 at $1.23 billion, and Defense-wide 6.2 at $1.78 billion.
DEPARTMENT OF ENERGY (DOE)
The PBR provides $28.4 billion in discretionary funds for the DOE, an eight percent increase above the FY12
enacted level. It provides $5.152 billion for the DOE Office of Science, a 4.4 percent or $217 million increase
over the FY12 level.
Office of Science
Of note to universities, the Office of Science Basic Energy Sciences program will continue to support Energy
Frontier Research Centers (EFRCs), including undergoing an open re-competition that will include a selection of
new EFRCs and consider renewal applications for existing EFRCs. The Budget also includes one-time funding to
fully forward fund some five-year awards for new or renewed EFRCs for an overall FY14 total of $169 million
for the Centers.
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Advanced Research Projects Agency–Energy (ARPA-E)
The Budget includes $379 million for ARPA-E, an increase of 38 percent or $104 million over FY12.
Fossil Energy R&D
Of additional interest, the Budget provides $421 million for the Fossil Energy Research and Development
program, including an investment of $266 million in fossil energy R&D primarily dedicated to developing costeffective carbon capture and storage and advanced power systems.
Energy Efficiency and Renewable Energy (EERE)
The Budget also provides $2.77 billion for EERE. One new EERE cross-cutting initiative of interest may be the
Clean Energy Manufacturing Initiative, which focuses on dramatically improving US competitiveness in the
manufacturing of clean energy products (like solar modules, LEDs, batteries, and wind blades) and through
increased energy productivity in manufacturing industries. This initiative is a strategic integration of efforts in
EERE’s Advanced Manufacturing Office and technology specific offices.
OTHER INDEPENDENT AGENCIES
NASA
The FY14 budget requests $17.7 billion for NASA, a decrease of 0.3 percent or $50 million below the FY12
enacted level. The breakdown within the NASA Science Mission Directorate includes:
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$1.8 billion for Earth Science (includes funding for the Joint Polar Satellite System and the Landsat
program)
$1.2 billion for Planetary Science (within this level of funding, there will be funding for the Asteroid
mission, support the fall launch of the MAVEN mission, and develop a new Mars Rover.)
$642 million for Astrophysics
$654 million for Heliophysics
$658 million for the James Webb Space Telescope. This budget maintains a strong commitment to the
launch of JWST in October 2018
The budget requests $743 million for Space Technology and $566 million for the Aeronautics mission
directorate. For aeronautics, support for Next Generation technologies will be important, as well as the
development of composite materials for next generation aircraft.
NASA Education programs are funded at $94 million. Again, the Administration is calling for the consolidation
of STEM Education programs across the government. However, NASA will continue to support important
programs like Space Grant and Space Technology Fellowships. For the Space Technology Fellowships, the
Administration is requesting $15 million for FY14.
The Administration is requesting $78 million for FY14 to develop the technologies needed to rendezvous with
an asteroid. The plan to visit an asteroid consists of three separate steps: (1) identify an asteroid; (2) capture
and redirect the asteroid to a high lunar orbit; and (3) have astronauts visit the asteroid. The plan is to have
humans land on the asteroid by 2025. This is estimated to cost between $1 billion and $2.6 billion over 11
years.
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National Endowment for the Humanities (NEH)
The PBR provides the National Endowment for the Humanities (NEH) with $154.4 million. The National
Endowment for the Arts (NEA) is recommended at the same amount.
National Science Foundation (NSF)
The FY14 request provides $7.626 billion for NSF, 8.4 percent or $593 million above the FY12 enacted level,
including strong support for cross-cutting research priorities such as advanced manufacturing and clean
energy. Specifically, the Budget proposes:
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$6.2 billion for Research and Related Activities, a $523 million or 9.2 percent increase over FY12;
$880 million for Education and Human Resources, a $51 million or 6.2 percent increase over FY12;
$210 million for Major Research Equipment and Facilities Construction (MREFC), a $13 million or 6.6
percent increase over FY12.
As mentioned earlier, the Administration is proposing a government-wide reorganization of STEM education
programs and NSF education programs would follow a new strategic framework. In terms of graduate
education, the President’s budget would fund NSF at $325 million for the National Graduate Research
Fellowship program (NGRF), which builds on and expands the NSF Graduate Research Fellowship program
(GRF). Through this expanded program, NSF expects an increase of approximately 700 fellows, bringing the
total estimated number of new fellows awarded in FY14 to 2,700.
TAX PROVISIONS
Here are a few quick highlights of higher education related tax provisions in the PBR:
The FY14 budget would make permanent the partially refundable American Opportunity Tax Credit (AOTC),
which is scheduled to expire on December 31, 2017.
The FY14 budget would exclude from gross income amounts forgiven at the end of the repayment period for
federal student loans using the income-contingent repayment or the income-based repayment options.
The FY14 budget also proposes to limit the value of certain tax expenditures and itemized deductions to 28
percent for income taxpayers, including:
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the deduction for charitable contributions to organizations such as colleges and universities;
tax-exempt interest on municipal and private activity bonds;
employer sponsored health insurance; and
retirement contributions.
END
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