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Details of the Bush Administration's FY 2007 Budget Proposal

February 7, 2006

NIMH – First Proposed Reduction in More Than 20 Years

For FY 2007, the President proposed $1.395 billion for scientific and clinical research at the National Institute of Mental Health (NIMH), $9 million below the amount Congress appropriated for NIMH for FY 2006 ($1.404 billion).  While this decrease is relatively small in comparison to the overall NIMH budget, it is important to note that it is the first time in decades that a President has proposed cuts to biomedical research at the National Institutes of Health (NIH) and follows a decade of steady increases since the mid-1990s, including the doubling of NIH funding between 1998 and 2003.

The cut proposed for NIMH mirrors the proposed reductions across all of NIH with two important exceptions:  the Office of the NIH Director and the National Institute on Allergy and Infectious Disease (NIAID) received increases ($140 million and $12 million respectively) for research on flu pandemic and bioterrorism.  The overall budget for the entire NIH to be frozen at $28.587 billion. 

This continued decline in budget increases is expected to have a negative impact on the ability of NIMH (and NIH as a whole) to sustain the ongoing multi-year research grants that have been initiated over the past three to four years.  This is further complicated by the fact that these proposed freezes and reductions do not allow NIMH funding to 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, $6 million Increase Proposed for Youth Suicide Prevention, $35 Million Cut Sought for CMHS Discretionary Programs

Overall, the President is proposing a $72 million cut for the Substance Abuse and Mental Health Services Administration (SAMHSA) – dropping funding down to $3.134 billion in FY 2007.  Within the Center for Mental Health Services (CMHS), funding would be reduced by 3.8% or $25 million, largely through the termination 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,
  • PAIMI Protection & Advocacy - $34 million

In addition, the Administration proposed that at least $153 million of the $428 million requested for the Mental Health Block Grant be allocated by individual states to activities related to "Mental Health Transformation."  If enacted by Congress, states would be required to ensure that a certain percentage of their block grant funds go toward reforming public mental health services based on the recommendations in the July 2003 White House "New Freedom Initiative" Mental Health Commission report. 

These reforms include reducing system fragmentation, increasing access to evidence-based services that promote recovery, ensuring systems are consumer and family driven, and eliminating racial and ethnic disparities in service access.  This effort to redirect Mental Health Block Grant funding is separate from the proposed continuation in FY 2007 for the 7 states that have Mental Health Transformation state incentives grants.  These are state planning grants designed to further system transformation consistent with the White House Mental Health Commission report.  These state incentive grants would continue for an additional year under the President's budget, with no funding for additional states (thereby reducing funding from $25.74 million, down to $19.8 million for FY 2007).

The President's budget calls for a $6 million increase in youth suicide prevention activities.  This includes a $3 million increase for grants authorized under the Garrett Lee Smith Memorial Act, boosting funding to $35 million.  Programs under the Garrett Lee Smith Act include state-wide youth suicide prevention and intervention in schools and juvenile justice systems and grants for initiatives on college campuses.  In addition, $3 million is proposed for a new cooperative program between SAMHSA and the Indian Health Service for suicide prevention activities targeting Native American and Alaska Native adolescents. 

Veterans – Record Increases Sought for VA Medical Care

The President's budget proposes a 12.2% increase in the overall budget for the Department of Veterans' Affairs, boosting funding for FY 2007 to $80.6 billion.  Of this total, $34.3 billion would be allocated to the Veterans Health Administration (VHA), a $3.5 billion increase over current FY 2006 funding (an 11.3% increase).  According to the Administration's budget, $3.2 billion would be allocated for mental illness treatment services in the VA, $339 million above the FY 2006 level.  This increase would allow the VA to expand comprehensive services for veterans living with PTSD. 

The President's budget also includes proposals to require certain middle and upper income veterans to pay deductibles and higher cost sharing for medical services.  Under the proposal, veterans without a service-connected impairment would have to pay a $250 annual premium and higher co-pays for prescription drugs.  Income thresholds for this proposal would vary by region (from $26,000 in poor counties, to $63,000 in wealthy counties).  The VA estimates the changes would save $795 million for FY 2007 and redirect as many as 200,000 veterans to private health plans and Medicare.  It is important to note that the President has made similar proposals for higher cost sharing for non-service connected veterans over the past three years and Congress has rejected these proposals each time.

Housing – 50% Cut Proposed for Section 811, Funding for Homeless Programs and Section 8 Vouchers Boosted

Overall, funding for the Department of Housing and Urban Development (HUD) for FY 2007 would shrink by 1.8%, down to $33.6 billion.  As with the proposed budget for FY 2006, the President's budget 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 in half, dropping funding down to $119 million from its current FY 2006 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).  This "production" side of the program that funds new housing and is funded in the current fiscal year at $155.7 million and would be reduced in the President's budget to just under $16 million, a cut of close to $140 million.    

Instead, the President's FY 2007 budget proposes to direct most of the $118.8 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 $118.8 million would be allocated as follows:

  • $77.745 million would be directed to tenant-based renewals – to renew the existing 811 tenant-based vouchers now in use,
  • $12.375 million for project-based renewals (also known as PRACs) – renewing rent subsidies that are tied to 811 properties,
  • $14.85 million for new 811 tenant-based rental assistance, and
  • $15.84 million for new capital advance/project-based grants to non-profit disability groups.

This is the second 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 this proposal in 2005.  The budget also marks a continued effort to back away from a 30-year commitment from HUD to support the production of new housing targeted to non-elderly people with severe disabilities (including severe mental illnesses).  Reliance solely on tenant-based assistance (portable rent subsidies that rely on voucher recipients being able to find rental housing on their own) also represents a major change in the targeting of 811 away from people with more severe impairments who need housing related supports.  

Section 8 Rental Vouchers

The President's budget does propose a $112 million increase for the Section 8 voucher program for FY 2007, boosting funding to $15.920 billion.  Section 8 is by far the largest program in HUD's overall request (nearly 62% of the entire HUD budget).  While Section 8 continues to grow, the levels recommended in the budget are barely enough to renew the estimated two million vouchers that are currently in use. 

Prior to 2004, funding in the program was driven by costs in the rental housing market and changes in tenant income (the program pays the difference between what a rental unit costs and what the voucher recipient can afford to pay).  By contrast, over the past two years – and again for FY 2007 under the President's budget – each housing agency gets an allocation of funding from HUD based on voucher renewal costs from the previous year.  In other words, prior to 2004, funding was "unit-based" ensuring that local agencies got enough funds to meet the actual renewal costs of their vouchers in use. 

For 2006 and 2007, agencies will receive a fixed allocation of funds tied to prior year costs that may or may not keep pace with the costs that actually determine how much is needed to renew a voucher (i.e., actual rents and tenant income).  Given such uncertainty, many housing agencies are reluctant to make vouchers available.  More worrisome are proposals in the budget that would allow hosing agencies greater flexibility to increase required tenant rent contributions or target vouchers to higher income families.  NAMI remains concerned that these changes would make it ever more difficult for local housing agencies to target assistance to individuals with mental illnesses living on SSI.  

Homeless Programs Funding

In a rare bright spot for the HUD budget, the President is requesting a $209 million increase for programs under the McKinney-Vento Homeless Assistance Act, boosting funding to $1.536 billion.  This includes $285 million to renew rent subsidies for permanent supportive housing developed under the Shelter Plus Care program.  In addition, $200 million is being sought for the President's Samaritan Initiative to end chronic homelessness – including new grants for permanent housing paired with case management targeted to individuals and families experiencing long-term chronic homelessness.  Finally, $25 million is being requested as part of an interagency initiative on reintegration of criminal offenders returning from prison. 

Medicare -- $36 Billion in Reductions Proposed

The overall Medicare program is projected to exceed $457 billion in FY 2007, more than a $60 billion increase over FY 2006.  As a mandatory entitlement program, its 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 2007 and over the next 5 years.  The Bush Administration made similar proposals for the Medicaid program last year, many of which were included in budget legislation that cleared Congress last week.  As with last year's proposals, they must be endorsed by Congress in order to go into effect.

Specifically, the Administration is proposing reductions in Medicare reimbursements to hospitals, skilled nursing facilities and inpatient rehabilitation programs totaling $2.5 billion in FY 2007 and $35.9 billion over the next 5 years.  These reductions would result largely from curbing inflation adjustment payments.

Finally, the President's budget contains a series of tax proposals designed to spur the use of Health Savings Accounts (HSAs) as an alternative to traditional comprehensive health insurance.  These include tax credits for purchasing HSAs, increasing the amount of tax deductible contributions to HSAs, and making HSA premiums tax deductible.  

Medicaid

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 last year's budget, the Administration originally sought $60 billion in cuts to Medicaid over 5 years.  Eventually, Congress pared this total down to $11.5 billion and included it in legislation that passed last week.

Among the Medicaid proposals in the President's FY 2007 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 $208, million in 2007 and $1.2 billion over 5 years).
  • Managed care formularies -- This would allow states greater us of managed care formularies for their drug benefit (saving $15 million in 2007 and $177 million 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.
  • 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).
  • DSH payments -- The budget proposes additional measures to clamp down on state Medicaid payments Disproportionate Share Hospitals (DSH), restrict services that can be claimed as rehabilitation, and bar federal reimbursement for school-based services and transportation (saving $840 million in 2007 and $5.9 million over 5 years).
  • Amendments to the Medicaid drug rebate formula -- This budget neutral proposal would simplify drug rebate calculations and allow private plans to negotiate lower prices with manufacturers.

It is important to note that some of these proposals have been rejected by Congress in the past, while others can be implemented administratively, without the consent of Congress.

Read additional details on the President's FY 2007 budget plan.


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