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Alliance Discussion with Erik Fatemi: Demystifying the Complex Appropriations Landscape

Erik Fatemi, Principal at Cornerstone Government Affairs, joined us for an appropriations 101. As the deadline to sign an FY24 funding bill looms, Fatemi reviews key terms, critical decisions, and the consequences should Congress and the President fail to achieve a spending deal. Here are some highlights from his remarks:  

On the distinction between mandatory and discretionary funds in the annual federal budget: 

“A basic rule of thumb is that if Congress sets the funding level every year in an appropriations bill, it’s discretionary. If the funding level is set outside of the appropriations process, it’s mandatory. A critical difference is that discretionary spending is subjected to the annual discretionary budget caps, and mandatory spending is not. Entitlements, like Social Security, are good examples of mandatory programs that people qualify for; appropriations bills don’t have any control over [the amount of] federal spending associated with these programs. Let’s look at discretionary spending overall. It’s divided into 12 appropriations bills. We pay the most attention to Labor HHS (Labor H) because it includes NIH (National Institutes of Health), CDC (Centers for Disease Control and Prevention), HRSA (Health Resources and Services Administration), and so forth. More than half of all discretionary spending goes to Defense and Labor H. And the allocations are important, but they don’t tell the whole story. Many of the bills, especially Labor H, include funding from other sources on top of the allocation, and it can be a lot of funding.” 

On how NIH funding will change in FY24:  

“NIH funding is almost entirely discretionary, except for a relatively tiny portion. This discretionary total of approximately $49 billion includes funding from the 21st Century Cures Act. I’m going to dig into that law a little bit because it’s especially relevant this year. Congress passed the Cures Act in late 2016, and among other things, the law allocated almost $5 billion to NIH over 10 years for four specific things: precision medicine, Cancer Moonshot, BRAIN Initiative, and regenerative medicine. The goal was to supplement the money that NIH got every year in the Labor H bill. The main point is this: NIH funding comes from two sources, regular base money that you get into the Labor H bill, and then some Cures Act funding. The base funding for NIH, the non-Cures money, that’s like your annual salary from your full-time job. Cures money, that’s your side hustle. It’s what you get from driving Uber on the weekends. You put them together and that’s your total income, or in this case, the total discretionary funding for NIH. But here’s the thing about the Cures funding, it goes up and down from year to year. In FY24, it’s a real problem for NIH. Imagine the money from your side hustle will drop next year by more than half. That’s what’s happening in FY24. NIH just got more than a billion dollars from Cures in FY23, but the amount will drop by $678 million in FY24. The Cancer Moonshot funding will dry up entirely – it’ll go from $260 million to zero.” 

On the four Labor H funding extras: 

“Whenever the [funding] allocations are released, I use them to get a general sense of which subcommittee allocations go up from the previous year, which ones go down. But I don’t look at the allocations and say, “Now I know exactly how much the bills will get this year.” You don’t know that until you see the bills, and you look at all the extras. And the Labor H bill – those extras come in four categories: emergency funding, cap adjustments, rescissions, and everyone’s favorite acronym, CHIMPs. Let’s walk through an example of each category in the Senate Labor HHS bill. First is emergency funding. Appropriators love emergency funding because it’s not subject to the budget caps. Remember how I said that the Cancer Moonshot funding will drop from $260 million in FY23 to zero in FY24? The Senate bill replaces that Moonshot funding with $216 million in emergency funding. In fact, the bill replaces all $678 million of the Cures shortfall with emergency funding. This is not an emergency like the floods in Vermont or fires in Maui, but this is a good example of what appropriators do. They look for money wherever they can find it. Next are rescissions. Rescissions repeal funding that was enacted in previous years but hasn’t been spent yet. The third is cap adjustments. Sometimes Congress will allow appropriations bills to exceed the budget caps if they use that money for a designated purpose that everyone agrees is a good cause, like rooting out health care, fraud, and abuse. Now, we come to the famous CHIMPs. The Children’s Health Insurance Program, CHIP, is a mandatory program. Under certain conditions [states] can use that money for providing children’s health insurance. If money is leftover [more was projected to be spent than is spent], and there’s always money left over, Congress can rescind that money and apply it to discretionary appropriations. You get what’s called a change in mandatory program or a CHIMP. The takeaway is that appropriators are looking for every dollar they can, using every possible legal means, there are rescissions, emergencies, CHIMPs, you name it. It’s their job to be creative and these are some of those ways.” 

On the importance of the debt ceiling and Congress’s deadline:  

“In addition to setting the budget caps, the debt ceiling deal… gives Congress a deadline of April 30, 2024, to pass all 12 appropriations bills. If Congress misses that deadline, if it chooses instead to do [a] year-long CR…, every discretionary account in every bill, defense and non-defense will face a 1% across the board cut. That’s why I am a bit bullish. [I believe] Congress will, despite all odds, pass all 12 bills, as opposed to a year-long CR. Now, there’s been some confusion about the deadline. Some reports have said it’s January 1. I’ve read quotes from members of the appropriations committees, who said the deadline is January 1, the real deadline is April 30.” 

On the potential government shutdown and long-term NIH funding: 

“I think you can count on a government shutdown, and it might last a while. But I am optimistic about the long term. I believe that Congress will pass all 12 appropriations bills and I think that the Labor H bill will include at least a modest increase for NIH. Now, I should hasten to add, that’s not going to happen on its own. It’s going to take a strong advocacy effort from everyone on this call, and all your friends who care about NIH and other important federal programs. But I’m optimistic that Congress will ultimately pass all 12 bills.” 

View his slides here and watch the full discussion here