FUNDED Articles

The Debt Debacle in Washington

Jul 15

Written by: Grants Office, LLC
Friday, July 15, 2011  RssIcon

By Christopher Haight
July 2011

Ever since last November, when Republicans retook the majority in the U.S. House of Representatives, the G.O.P. has successfully focused the national policy agenda almost entirely on debt and deficits.

The first battle of the newly empowered opposition to President Obama's agenda actually resulted only in a further deficit-widening measure through the year-long extension of all Bush-era tax cuts. The second debt debate targeted the unfinished business of Fiscal Year (FY) 2011 appropriations, which resulted in further cuts to Federal grant programs such as the Teaching American History Grants and Interoperable Emergency Communications Grant Program. The current focus on the nation's debt ceiling could mean further drastic impacts on critical grant programs.
Below, we answer some of the most frequently asked questions about how the debt deal could impact current and future grants:

What is the debt ceiling?
The debt ceiling is the maximum amount of debt the U.S. Treasury may legally incur, as authorized by Congress. The national debt is the overall amount of money owed by the United States, whereas the "deficit" is reflective only of a single year's negative difference between revenues and spending.

How is the debt ceiling different from annual budgets and appropriations?
The Budget, Appropriations, and Debt Ceiling are three separate pieces of legislation, although all affect one another. The Budget is more of a directive plan that broadly outlines revenues and spending. Appropriations bills actually authorize spending measures each year, including specific amounts for individual programs or beneficiaries. The debt ceiling is reflective of how much overall debt the U.S. Federal government owes, rather than for any single budget or appropriations bills (although these collectively contribute to the need to raise the debt ceiling).

Congress may currently pass a Budget and Appropriations bills without raising the debt ceiling simultaneously, even if these bills add to the national debt - that is why a separate action is often necessary. In other instances, such as the American Recovery and Reinvestment Act (ARRA), or the "Stimulus," Congress raised the debt ceiling as a part of the overall law so it would not have to take it up separately.

When will we reach the debt ceiling?
The United States has, in fact, already exceeded its statutory debt limit but has been able to sustain operations through a series of emergency measures executed by the Treasury Department, headed by Secretary Timothy Geithner. Congress must act to raise the debt limit before August 2 - the date Geithner has indicated is when his emergency measures will no longer be able to finance Federal activities.

What happens to grant programs if there is no increase in the debt ceiling by August?
Absent any action by Congress, grant programs are likely to be the first spending measures to be sacrificed. Even when taken collectively across agencies, grant programs do not measure up to the constituencies for Social Security, Medicaid and Medicare, national defense, and U.S. bond holders. In the event the Treasury must make tradeoffs as to which to continue funding until a debt deal is reached, grant programs are not going to make it to the front of the line.

…and if a deal is made before August?
This ultimately depends on the contours of the debt debate as we edge closer to the brink. A number of options are under negotiation. The initial debt talks, led by Vice President Joe Biden, sought approximately $2 trillion in cuts over ten years. When Republican leadership balked at Democrats' insistence on at least $400 billion in new revenues (mostly through elimination of tax breaks for the wealthier interests), talks collapsed. Since then, President Obama has proposed an even larger deal that could mean up to $4 trillion in a combination of cuts and revenue increases over ten years.
Even if a deal is successfully delivered before August, it is certain to mean more pain for grantseekers looking to Federal sources. Programs previously eliminated in the FY2011
appropriations are not likely to be revived. Also watch for grant programs already funded at low levels to be completely eliminated.

A key trend instructive in considering which grants will survive is to look towards the administration's 2011 and 2012 budgets. These both proposed consolidation of various grant programs into larger, more comprehensive ones. As the final 2011 appropriations illustrated, these proposed "consolidations" actually resulted in out-right elimination of funding, as individual programs themselves did not have the administration's full support and deficit-conscious politicians saw easy targets.

How can a nonprofit organization or public agency strengthen its grants development strategy?
Think like an investor and diversify your funders, partners, and projects. By considering multiple sources of funding (not just Federal grants, but also state or privately funded opportunities), you are better assured some funding will be available. Partnering with other agencies in your community, whether a government agency or nonprofit organization, and considering creative projects "outside the box" can also broaden your eligibility for grants. See side box for how Grants Office is able to help!

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