The White House yesterday released its proposed 2020 fiscal year budget. While congress has the responsibility to legislate a budget for the President to sign into law, this proposed budget is packed with items that will create controversy in a Congress that is divided by a Democratic majority in the house and a Republican majority in the Senate.
It’s rare for Congress to pass a President’s budget as proposed. It raises questions about what it might take to avoid a veto. It also makes clear the priorities of the President, and therefore might be an indicator of where the Senate may align and where the House may differ.
Here are a few key items that are of interest to our industry:
- Zeros out support for the Housing Trust Fund and Capital Magnet Fund. In a separate line, it also eliminates allocations for these two funds.
- Repeals accelerated depreciation for renewable energy property.
- Repeals energy investment credits and repeals credit for energy efficient property.
- Increases and extends guarantee fees charged by the GSEs. It extends the 10bp payroll tax fee which was set to expire after ten years and adds a new fee of another 10bps.
- Reduces the HUD budget by 16.4% or $8.7bb.
- Eliminates funding for CBDG (community block development grants).
- Reduces rental assistance programs based on a “workability” test and mandates a work requirement for non-elderly and non-disabled recipients.
- Adds $20 million for FHA technology in 2019 offset by a new explicit FHA fee to be collected as a pay-for.
The budget proposal is filled with a variety of other proposals affecting non-housing areas, but there are points that may impact housing indirectly. These include:
- $1.5 trillion in cuts to Medicaid over 10 years, implementing work requirements as well as eliminating the Medicaid expansion under the Affordable Care Act. The budget instead adds $1.2 trillion for a “Market Based Health Care Grant” — blocks grant to states, instead of paying by need. It’s not clear whether that would be part of Medicaid.
- An $845 billion cut to Medicare over 10 years, about 10 percent, to be achieved through targeting wasteful spending and provider payments and lowering prescription drug costs.
- $25 billion in cuts to Social Security over 10 years, including cuts to disability insurance.
- A $220 billion cut to Supplemental Nutrition Assistance Program (SNAP), commonly referred to as food stamps, over 10 years, including mandatory work requirements. The program currently serves around 45 million people.
- A $21 billion cut to Temporary Assistance for Needy Families, an already severely underfunded cash-assistance program for the nation’s poorest.
- $207 billion in cuts to the student loan program, eliminating the Public Service Loan Forgiveness program and cutting subsidized student loans.
- Increases defense spending by $34 billion next year, to a $750 billion budget baseline. That makes up a 5 percent boost to defense and military spending. To keep the defense budget within current caps, the White House uses a gimmick, putting $164 billion of this budget increase in an uncapped overseas contingency (OCO) fund.
- $8.6 billion in funding for the southern border wall, separated between increased funding for the Department of Homeland Security and funding for military construction.
- Overall, there is a 9 percent cut to non-defense programs, which would hit Section 8 housing vouchers, public housing programs, Head Start, the Women, Infants, and Children (WIC) nutrition program, and Low-Income Home Energy Assistance Program, among others.
A summary of net agency impact has been created by the CBPP:
At a minimum, this is a massive budget proposal, and will likely create so much controversy that some analysts are wondering if it could lead to a future government shutdown as a result of such a wide divide between this proposal and what congress may actually be willing to enact.
While likelihood of passage is extremely low, we will be looking for signals from the White House about where their lines in the sand issues are as that may determine whether a functioning 2020 budget can be created.
David H. Stevens, CMB, is Senior Advisor at Mortgage Media, and former SVP of Single Family at Freddie Mac, former EVP at Wells Fargo Home Mortgage, former President and COO of the Long and Foster Realty Companies, former Assistant Secretary of Housing and FHA Commissioner, former CEO of the Mortgage Bankers Association