In this election year, during which White House and Senate control are both at stake, it will likely be a bruising road to agreement on the details of a final FY17 budget. Under a two-year budget agreement enacted last fall, lawmakers were given a one-year spending gain for FY16, but the deal left them with an essentially flat budget for FY17, leaving little room for any growth.
The political environment, however, did not prevent the president from outlining an ambitious agenda. Obama’s plan sticks to the agreed-upon budget framework and doesn’t significantly increase spending over that of FY16; but, in order to make room for a number of priority initiatives, he has proposed several tax and other changes to offset the costs.
Many of Obama’s initiatives for FY17 target college affordability and access, and a mixed bag of proposed tax changes would have implications for students and families, donors, and colleges and universities. While the administration has been supportive of university-based research in the past and has outlined ambitious goals in this year’s request, budgets for basic research, overall, are largely flat.
Elements of the FY17 budget proposal relate to education, research, tax reforms, and student aid enforcement.
The president’s education budget proposal includes changes to Pell Grant awards and campus-based aid programs, with continued efforts for mandatory funding for America’s College Promise.
- Pell Grant awards. The FY17 White House proposal would increase the maximum Pell award by $120, to $5,935, in academic year 2017–18.
- Pell Grant bonus. The proposal calls for a bonus of $300, bringing a maximum award to $6,235, for students who take at least 15 credits per semester in an award year.
- Year-round Pell Grant. A restoration of year-round Pell eligibility would allow for use in a third semester during an academic year, if a student has already completed a full-time load of 24 credits.
- America’s College Promise. The president’s proposal calls for $1.257 billion in mandatory funding, to cover two years of community college at no cost for eligible students. The program would also fund two years of tuition and fees at four-year historically black colleges and universities and other minority-serving institutions.
- Other federal grant aid. The FY17 request provides only level funding for the Federal TRIO programs at $900 million; Federal Work-Study at $990 million; Supplemental Educational Opportunity Grants (SEOG) at $733.1 million; GEAR UP at $323 million; and Graduate Assistance in Areas of National Need at $29.3 million.
- Campus-based aid programs. Obama would overhaul campus-based aid program formulas for SEOG, Work-Study, and the Federal Perkins Loan Program. Allocations would take into consideration the enrollment and graduation of students who receive Pell, as well as successful employment and repayment outcomes.
- The 90/10 rule. The budget also requests changing the 90/10 rule to 85/15—the government would require that 15 percent of total revenue at for-profit schools come from sources other than federal student aid—and would include the Department of Veterans Affairs and Department of Defense education benefits within the 85 percent.
By adhering to the agreed-upon budget framework for FY17, the administration was limited in its ability to call for robust increases for federal research agencies.
- Agriculture. The proposal doubles (to $700 million) the budget for the Agriculture and Food Research Initiative, a program of the Department of Agriculture’s National Institute of Food and Agriculture.
- Defense. The budget proposes $2.1 billion for Department of Defense basic research—a $207 million reduction from FY16 enacted levels—and would fund science and technology programs at $12.5 billion, a reduction of $749.6 million.
- Energy. The Department of Energy Office of Science would see an increase of 4.2 percent. The budget also proposes a new $100 million competitive research fund for universities.
- National Institutes of Health. NIH would see an increase of $825 million over FY16 enacted levels. However, some of this increase is the budget carve-out for the vice president’s “cancer moonshot” initiative.
- National Science Foundation. NSF would see a $500.5 million increase over FY16, an increase of only 1.3 percent.
A Department of Treasury document containing the administration’s revenue proposals for FY17 accompanies the president’s budget request. While these provisions are not analyzed as a part of the appropriations process, lawmakers will likely evaluate the proposals as they discuss overhauling the tax code.
Here are some of the president’s requests:
- New community college credit. The president is proposing a new “Community College Partnership Tax Credit,” a $2.5 billion tax credit to incentivize companies to train and hire new community college graduates. The proposal would also create an incentive for businesses to hire graduates from community and technical colleges. It would be a component of the general business credit and allocated annually to states on a per capita basis.
- Education credit reforms. In an effort to simplify and expand education tax credits, the president proposes modifying the American Opportunity Tax Credit. Instead of remaining at the current four years, the AOTC would be available for the first five years of postsecondary education. Eligibility for the AOTC would expand to include less-than-half-time undergraduate students. The administration would increase the refundable portion of the AOTC and index that amount to inflation. The Lifetime Learning Credits would also be repealed. Additionally, Pell Grants would be excluded from gross income.
- Student loans. The proposed budget repeals the student loan interest deduction. Certain debt relief and scholarships would be excluded from gross income.
- Charitable treatment of ticket purchases. The White House once again proposes to disallow the charitable deduction for contributions that entitle donors the right to purchase tickets to sport-ing events at colleges and universities. Currently, donors may deduct 80 percent of the contribution.
- Charitable deduction. The administration again proposes a 28 percent cap on the charitable deductions. However, charitable giving carve-outs are built into the proposed “Buffett Rule” tax.
- Municipal bonds. The administration again calls to limit to 28 percent the exclusion of tax-exempt interest for municipal bonds.
It is unlikely that Congress and the White House will come to any agreement on the budget before Oct. 1, 2016, the beginning of the federal fiscal year. Many of these issues are likely to be settled during a lame-duck session, or even after a new president and new Congress are sworn in next year. While a government shutdown is unlikely in this election year, NACUBO foresees lawmakers passing temporary continuing resolutions that will enable the government to operate at FY16 funding levels until they can compromise on FY17 spending levels.
ED Forms Student Aid Enforcement Unit
In his FY17 budget request, President Obama asked for $13.6 million for the new Student Aid Enforcement Unit—a division of the Department of Education—to investigate allegations of illegal actions by institutions of higher education.
The Student Aid Enforcement Unit is set to have four subgroups with the following responsibilities:
- Investigations. Focuses on “potential misconduct or high-risk activity” at institutions.
- Borrower defense. Handles matters related to federal Direct Loans.
- Administrative actions and appeals service. Manages program appeals and various actions against institutions.
- Clery. Concentrates solely on compliance with the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act.
Led by former Federal Trade Commission attorney Robert Kaye, the unit is expected to employ 50 professionals at its outset, and, according to ED, will work with state and federal agencies to investigate claims of institutional violations.
ED officials have stated that the new division will operate with or without the extra funds requested for FY17.
RESOURCE LINK Look for additional details about the FY17 budget request on the NACUBO website, under the “Initiatives” tab.