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Details of the Bush Administration's FY 2008 Budget Proposal

February 6, 2006

NIMH – First Proposed Reduction in More Than 20 Years

For FY 2008, the President is proposing $1.405 billion for scientific and clinical research at the National Institute of Mental Health (NIMH). This is $3 million above the comparable level for FY 2006. However, this request for FY 2008 is expected to be below the final amount that Congress will allocate for the current fiscal year (FY 2007).

It is important to note that even though we are already in the 5^th month of FY 2007, Congress has still not completed action on legislation covering this year’s spending bills. Last week the House passed H.J.Res. 20 – the omnibus “continuing resolution” for FY 2007. This included an overall increase of nearly $620 million for all of NIH. The Senate is expected to act on the legislation next week and send it on to the President by February 15.

Once H.J.Res 20 is signed into law, we will have a clearer picture of how much of the increased funds for NIH will be available to the NIMH for the remaining months of the current fiscal year. More details on the FY 2007 “continuing resolution” are available here.

It should also be noted that even with a slight increase for FY 2007, the recent trend in funding for NIMH (and overall funding at the NIH) in recent years is continuing to have a negative impact on the ability of the agency to sustain ongoing multi-year research grants that have been initiated over the past five years. This is further complicated by the fact holding the NIMH budget at a freeze level, or less than 1% increases, do not keep pace with the projected Biomedical Research and Development Price Index of 3.5%, i.e. the increased costs of conducting medical research.

SAMHSA & CMHS – Freeze Proposed for Most Programs, $77 Million Cut Sought for CMHS Discretionary Programs

Overall, the President is proposing a $159 million cut for the Substance Abuse and Mental Health Services Administration (SAMHSA) – dropping funding down to $3.046 billion in FY 2008. Within the Center for Mental Health Services (CMHS), funding would be reduced by $77 million, largely through reductions and terminations of a number of demonstration and technical assistance programs.

Most major activities at CMHS to be frozen at their current FY 2006 level, including:

The Mental Health Block Grant - $428 million,
The PATH Homeless Formula Grant - $54 million,
Children's Mental Health - $104 million, and
PAIMI Protection & Advocacy - $34 million.

Beyond seeking to impose level funding for these SAMHSA programs, the President’s budget seeks to $77 million in overall reductions to Programs of Regional and National Significance (PRNS) at CMHS. PRNS are largely demonstration, targeted capacity expansion and other discretionary activities at the agency. Among the proposed cuts to the PRNS account in the President’s budget are:

Mental Health Transformation Grants – The President’s budget assumes a $20.08 million reduction for grants to planning grants for the states, below the expected FY 2007 level of $39.9 million. This would occur as expiring grants would not renewed and the 9 states with continuation grants for FY 2008 see their amount reduced 24%,
Jail Diversion Grants – A $3 million reduction, down to $3.86 million (based on assumption that grants set to end in FY 2008 will not be renewed),
Co-Occurring Disorders State Incentive Grants – Proposed reduction of $9.8 million, below the current level of $11.9 million (largely through termination of existing grants),
Homeless Demonstrations – A proposed reduction of $6.68 million, down to $4.42 million for FY 2008,
Youth Suicide Prevention - $26.7 million is requested for grants under the Garrett Lee Smith Act for FY 2008, however other CMHS planning grants on suicide prevention would be cut by $2.64 million
School Violence Prevention – A proposed $17.226 million reduction below the FY 2007 level of $93.2 million, and
Elderly Mental Health – The current $4.9 million program would end under the President’s budget.

Medicaid – Rehabilitation Services Targeted Again

As an entitlement program, Medicaid funding is not part of the discretionary budget that Congress must act on. However, as with Medicare, the budget does provide the President with an opportunity to propose changes to the program that either curb future program growth, or create greater flexibility for states. In most instances, these proposals were rejected by Congress as part of last year’s Deficit Reduction Act. However, some of these proposals could move forward even without congressional authorization through certain rulemaking procedures, while others could be blocked through congressional intervention.

The proposed legislative changes to Medicaid in the President’s budget total $13 billion in reduction over the next 5 years. The savings from proposed administrative changes are $12.7 billion over the next 5 years. Among the Medicaid proposals in the President's FY 2008 budget are:

Match rate for targeted case management -- This would lower the current federal Medicaid match rate for targeted case management (TCM) to a uniform administrative match rate of 50% (saving $200, million in 2008 and $1.16 billion over 5 years).
Clarify rehabilitation services – This proposal is of enormous concern to NAMI in that it would limit the definition of allowable services under the Medicaid Rehab option and could severely limit such critical services as assertive community treatment (savings is projected to be $230 million in 2008 and $2.29 billion over 5 years).
Streamline administrative match rates – Shift the administrative match rate for all states to 50%, as opposed to the match rate for all other Medicaid spending (saving $945 million in 2008 and $5.315 billion over 5 years).
Third party liability -- The budget includes an administrative change that would bar states paying certain pharmacy claims up front and then later seeking payments from third parties (saving $10 million in FY 2008 and $85 million over 5 years).
Provider taxes -- The budget proposes to clamp down on certain taxes assessed by states on providers for the purpose of drawing down additional federal Medicaid matching funds (saving $2.1 billion over 5 years).
Optional managed care formulary – This would allow states additional flexibility to use private sector management techniques to leverage additional discounts on pharmacy costs (projected to save $160 million in 2008 and $870 million over 5 years).
Revise payments to governmental providers – This would revive previous proposals to curb so-called “intergovernmental transfers (saving $530 million in 2008 and $5 billion over 5 years).

It is important to note that some of these proposals have been rejected by Congress in the past and are not likely to move forward this year. However, others, including the proposal to redefine rehabilitation services are part a rulemaking process at the Centers for Medicare and Medicaid Services (CMS) and do not need congressional authorization.

For the State Childrens Health Insurance Program (SCHIP) the President is requesting $5.4 billion for FY 2008, a reduction of $223 million, or 4% below current levels. The Bush Administration is also seeking an additional $5 billion over the next 5 years for SCHIP, an amount that is projected to be less than half of what is needed maintain coverage for children currently enrolled in the program.

Medicare - $75.8 Billion in Reductions Sought

As a mandatory entitlement program, the Medicare budget is not allocated by Congress and is not subject to the limitations on overall discretionary spending. At the same time, the President's budget does contain a series of proposals designed to curb the rate of growth in Medicare, both in 2008 and over the next 5 years. Most of these involve reductions in the rate of growth of reimbursements to hospitals, skilled nursing facilities, and home health agencies. The Bush Administration made similar proposals for Medicare last year, nearly all of which were rejected by Congress. As with Medicaid, the President’s budget also includes a range of administrative changes to Medicare that are projected to yield $10.2 billion in savings over the next 5 years.

Veterans – Increases Sought for VA Medical Care

The President's budget proposes $86.75 billion for the Department of Veterans’ Affairs. Of this total, $36.6 billion would be allocated to the Veterans Health Administration (VHA). According to the Administration's budget, $3 billion would be allocated for mental illness treatment services in the VA. According the budget, this increase would allow the VA to expand comprehensive services for veterans living with PTSD.

The President’s budget request also includes $750 million to continue the recommendations of a 2004 report designed to modernize VA's health care system. This would bring total funding for this effort to $3.7 billion during the last five years. The FY 2008 proposal includes funding for major construction projects in Denver; Las Vegas; Lee County, Fla.; Orlando, Fla.; Pittsburgh; and Syracuse, N.Y.

Finally, under the President’s budget, the VA is proposing an initiative to provide priority in processing claims for disability compensation from veterans of the current conflicts in Iraq and Afghanistan. This includes creation of a special Advisory Committee on OIF/OEF Veterans and Families, that will advise the Secretary on the full spectrum of issues affecting VA and the veterans and families of Operation Iraqi Freedom and Operation Enduring Freedom.

Housing – Deep Cut Proposed for Section 811, Funding for Homeless Programs and Section 8 Vouchers Boosted

Overall, the President is requesting $36.15 billion in funding for the Department of Housing and Urban Development (HUD) for FY 2008, nearly $2 billion below the amount that Congress is soon expected to approve for the agency for the current fiscal year. As with the proposed budgets for both FY 2006 and FY 2007, the President's budget again seeks a deep cut for the Section 811 program, the only program at the Department of Housing Urban Development (HUD) that still produces housing for people with severe disabilities.

The President's budget would cut Section 811 nearly in half, dropping funding down to $125 million from its expected FY 2007 level of $237 million. Nearly all of this proposed reduction would come from the portion of the 811 program that produces new units of permanent supportive housing, the capital advance/project-based side of the program, i.e. capital grants and project-based rental assistance directed to non-profit disability groups that develop supportive housing (specifically, housing targeted to individuals with severe disabilities who need services directly linked to their housing).

The President's FY 2008 budget proposes to direct most of the $125 million in the Section 811 program to the renewal of existing rent subsidies (both tenant-based and project-based), with a small amount left to fund new capital advance/project-based grants and new tenant-based subsidies. The $125 million would be allocated as follows:

$75 million would be directed to tenant-based renewals – to renew the existing 811 tenant-based vouchers now in use,
$20 million for project-based renewals (also known as PRACs) – renewing rent subsidies that are tied to 811 properties,
$15.84 million for new capital advance/project-based grants to non-profit disability groups, and
$15 million for a new demonstration program that would allow funding from the Low-Income Housing Tax Credit (LIHTC) program to be integrated into 811 housing developments.

This is the third consecutive year that the President's budget proposed deep cuts to the capital advance/project-based side of the 811 program. Both the House and Senate rejected these proposals in 2005 and 2006. What makes this budget proposal different is the addition of this new demonstration initiative that marks an important step forward in the effort to reform Section 811 so that additional sources of capital can be brought into to supplement the dwindling availability of funding in the program to develop new supportive housing units.

Homeless Programs Funding

In a rare bright spot for the HUD budget, the President is requesting a $146 million increase for programs under the McKinney-Vento Homeless Assistance Act, boosting funding to $1.586 billion. This increase would continue efforts by the Bush Administration to move toward ending chronic homelessness by 2012. The budget also includes a proposal pushed in previous years to consolidate existing competitive McKinney-Vento programs into a single Continuum of Care grant process for states and localities.

Section 8 Rental Vouchers

The President's budget is seeking $16 billion for the Section 8 tenant-based rental voucher program for FY 2008, an increase of .5% over the current 2007 level. The Section 8 tenant-based rental assistance program funds vouchers that pay the difference between rental costs and a percentage of tenant income (for those able to access a voucher). Most of this increase for Section 8 would go toward a $113.5 million boost in administrative fees (funding for state and local agencies administering the program, as opposed direct funding for rental assistance which would increase by only $8 million in the budget). The budget also requests $5.813 billion in funding for the Section project-based rental assistance program for FY 2008. The Section 8 project-based program ties rental assistance to specific affordable units, opposed to tenant-based vouchers that are assigned to individual tenants and are portable.

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