Breaking down the president's budget: a local government perspective.(Federal Focus)

President Bush unveiled his fiscal 2005 budget in early February, outlining the administration's priorities, namely, homeland security and the war on terror, economic growth, job creation, and education. Aside from defense and homeland security spending, discretionary programs will see an increase of only .5 percent in 2005. This limited increase will help achieve the president's goal of cutting the nation's deficit in half over the next five years. According to the Congressional Budget Office, the deficit will reach approximately $478 billion this year before falling to $258 billion over the next five years. However, the CBO numbers do not include expenditures for the wars in Iraq and Afghanistan past 2005, and they do not take into account the fiscal impact of making permanent the 2001 tax cuts, a proposal pending in Congress.

According to the Office of Management and Budget, the federal government will deliver nearly $400 billion to local and state governments in fiscal 2005, a record amount as a percentage of all federal spending (18 percent) and as a share of GDP (4 percent). However, OMB also reports that funding for capital investment has mostly remained flat since 1990, with only 2.8 percent of all federal funds going to state and local infrastructure needs. Most of the monies allocated to local and state governments are for essential services like welfare and Medicaid. Approximately half of this spending is allocated for Medicaid, which has seen a dramatic rise in costs over the past few years. Unlike many of the other spending programs that are directed to local and state governments, Medicaid is a non-discretionary budget item that can only be changed by law.

The president's budget proposal outlines what the administration would like to see move forward in the congressional appropriations process. The House and the Senate are now sorting through the 13 appropriation bills, and there is still substantial disagreement between the two chambers. While it is still early in the session, many have predicted that the shortened congressional work schedule (a product of the national election and the dynamic political scene) will make it difficult for Congress to move all bills before the June 30 deadline. As such, the fiscal 2005 budget is likely to be passed as one large bill--the omnibus bill--rather than the norm of 13 separate appropriations bills.

The following is a list of some of the proposals in the president's budget that affect local and state governments:

* Additional funding for public health and bioterrorism initiatives

* A decrease in funding for homeland security first responder programs (the formula for distributing funds has been changed from a state formula grant program to an urban area security initiative grant program)

* A $250 million decrease in firefighter grant programs