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Sunday, September 19, 2010

FY2011 Budget Proposals and Projections

D. Andrew Austin
Analyst in Economic Policy

This report provides an overview of major budget estimates and projections for the FY2011 federal budget cycle. The report presents and compares budget projections calculated by the Obama Administration’s Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). In addition, the report discusses major budgetary issues.

The congressional budget process usually begins once the Administration submits its budget to Congress. The Senate Budget Committee passed a version of a budget resolution (S.Con.Res. 60) in April, and the House adopted a deeming resolution (H.Res. 1500; H.Res. 1493) in July.

The current economic climate continues to pose major challenges to policymakers shaping the FY2011 federal budget. Although the economy has shown some signs of recovery from an economic recession that many economists consider the most severe since the Great Depression, unemployment remains at high levels. While the U.S. economy grew at an annual rate of 5.0% in the last quarter of 2009 in inflation-adjusted terms, after falling sharply in the last quarter of 2008 and the first quarter of 2009, annualized growth was 3.7% in the first quarter of 2010 and 1.6% in the second quarter. The national unemployment rate stood at 9.5% in July 2010 and is projected to decline slowly. Weakness in residential and commercial real estate, high household debt levels, and fiscal challenges facing state and local governments may contribute to a long and slow economic recovery. The recession and the prospect of a slow recovery have strongly affected budget estimates and projections. OMB issued updated budget projections in July 2010, and CBO issued a budget baseline update in August 2010.

Federal spending tied to means-tested social programs has risen due to rising unemployment, while federal revenues are falling as individuals’ incomes drop and corporate profits sink. Federal revenues fell 17% between FY2007 and FY2009. Estimated costs of federal interventions in financial markets have fallen since late 2008 and early 2009, although fiscal risks associated with mortgage giants Fannie Mae and Freddie Mac remain. Federal deficits, according to OMB and CBO projections, will likely remain high relative to historic norms over the next few years. Longrun fiscal challenges have received renewed attention as the ratio of federal debt held by the public to GDP, which compares the accumulation of federal debt (excluding intragovernmental debt) to the size of the economy as a whole, reached 53% at the end of FY2009 and, according to OMB and CBO estimates, will exceed 60% at the end of FY2010

The Obama Administration released its FY2011 budget proposals on February 1, 2010. The Administration featured policy initiatives targeted at speeding up economic recovery, reducing the unemployment rate, implementing health insurance reform, overhauling financial regulation, and stabilizing housing markets and the automobile industry. The Administration also proposed a three-year freeze in non-security discretionary spending, which currently comprises about 15% of total federal outlays. The Administration’s Mid Session Review, released on July 23, 2010, estimated that FY2010 revenues would be $33 billion lower, outlays would be $118 billion lower, and deficits would be $84 billion lower than estimates issued in February. CBO issued updated estimates on August 19, 2010.

Date of Report: September 1, 2010
Number of Pages: 37
Order Number: R41147
Price: $29.95

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