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Wonkbook: Crisis averted, but by FEMA, not by Congress

By Ezra Klein,

It's not exactly right to say that congressional leaders cut a deal last night. Rather, they learned that they didn't have to cut a deal. The Federal Emergency Management Agency (FEMA) realized it could stretch its resources through the end of the week, which happens to be the end of the fiscal year (yeah, fiscal years end in September). Since Republicans and Democrats have already agreed to a baseline level of funding for the agency in the next fiscal year, there was no need to reach a deal on the funds this week. But let's be clear about what happened here: It's not that our legislators averted a crisis. It's that the crisis averted itself.

Alex Wong

GETTY IMAGES

(L-R) Sen. Charles Schumer (D-N.Y.), Sen. Debbie Stabenow (D-Mich.), and Senate Majority Leader Sen. Harry Reid (D-Nev.) attend a news conference Sept. 26.

We're going to have a bigger funding showdown, and soon. The real work on 2012's budget needs to be completed by November 18th or -- and stop me if you've heard this one before -- the federal government shuts down. As my colleague Suzy Khimm reports, this negotiation is vastly bigger and vastly more complicated than anything the two parties were considering this week. And the events of this week shouldn't leave anyone feeling confident about that fight.

I don't know a single observer who doesn't believe that funding fight will lead us very close to a shutdown, and, of course, when you get close to a shutdown, there's always some chance of tipping over the edge entirely. Either way, that will make it our fourth shutdown threat in 2011 alone. And I don't say that to make you roll your eyes at Washington dysfunction. As I argue in my column today, the continuous brinksmanship in Washington is doing real, measurable harm to economic confidence, and thus to the economy. Perhaps this is why Peter Orszag, ex-director of the Congressional Budget Office, is arguing that to save American policymaking, we need to do everything we can to wrench it out of the hands of Congress.

Top stories

1) A government shutdown has been delayed, report Paul Kane and Rosalind Helderman: "Senate leaders agreed to a deal Monday evening that is almost certain to avert a federal government shutdown, a prospect that had unexpectedly arisen when congressional leaders deadlocked over disaster relief funding. After days of brinkmanship reminiscent of the budget battles that have consumed Washington this year, key senators clinched a compromise that would provide less money for disaster relief than Democrats sought but would also strip away spending cuts that Republicans demanded. The pact, which the Senate approved 79 to 12 and the House is expected to ratify next week, is expected to keep federal agencies open until Nov. 18...Aides to House Speaker John A. Boehner (R-Ohio) said he will support the compromise."

2) But it kicks the can down the road to Nov. 18th, and that budget fight will be harder to resolve, writes Suzy Khimm: "Even if Congress manages to resolve its differences over the current budget extension, the continuing resolution funds the government only until Nov. 18. And the next round of budget negotiations will feature much larger stakes...The rapid escalation of the current shutdown fight is over a small sliver of emergency disaster aid money. That has obscured the broad bipartisan consensus over the vast majority of government spending -- at least until Nov. 18. Both parties have agreed to abide by the debt-ceiling agreement’s overall budget target of $1.043 trillion, and they have decided to meet that number by freezing funding for all non-defense spending at last year’s levels minus a 1.5 percent, across-the-board reduction. That’s not going to happen the next time around, when the funding for all of FY2012 is at stake."

3) The White House opted to fast-track Supreme Court consideration of health reform, reports Robert Barnes: "The constitutionality of the 2010 health-care law will likely be determined by the Supreme Court this term, meaning the decision could come next summer in the thick of the 2012 presidential campaign. The Justice Department said Monday evening that it had decided not to ask the full U.S. Court of Appeals for the 11th Circuit in Atlanta to take up the case. A three-member panel of the court last month decided 2-1 that Congress overstepped its authority in passing the Affordable Care Act, which requires virtually all Americans to obtain health insurance. Although the department declined further comment, the logical next step for the Obama administration is to ask the justices to make what would be the final determination on the law’s fate."

4) Conservatives are questioning the jobs package's ban on discrimination against the jobless, reports Robert Pear: "Mr. Obama’s jobs bill would prohibit employers from discriminating against job applicants because they are unemployed. Under the proposal, it would be 'an unlawful employment practice' if a business with 15 or more employees refused to hire a person 'because of the individual’s status as unemployed.'...Republicans and some employers criticized the White House proposal. They said that discrimination was not common and that the proposed remedy could expose employers to a barrage of lawsuits. 'We do not see a need for it,' said Michael J. Eastman, executive director of labor law policy at the U.S. Chamber of Commerce...Representative Louie Gohmert, Republican of Texas, said the president’s proposal would, in effect, establish the unemployed as a new 'protected class.'"

5) Liberals actually like Rick Perry's Medicaid plan, reports Christopher Weaver: "Texas Gov. Rick Perry publicly floated dropping out of Medicaid less than a year ago to cut spending -- but now the state is quietly revamping the health care safety net for the poor in a way even some Democrats can get behind...The state gained tentative federal approval to begin rolling out the proposal that, in its own words, would prepare the health system 'to serve newly insured individuals...in 2014,' when the 2010 federal health law that Perry forcefully opposes expands health coverage...The idea is to reroute federal funds the state would otherwise lose -- an undesired consequence of expanding managed care -- to subsidize hospitals’ uncompensated care costs. The plan would also finance projects to help the uninsured, such as new clinics. Final approval could come as soon as Sept. 30."

Top op-eds

1) Only large-scale institutional reform can save us, writes David Brooks: "Look at the recent Obama stimulus proposal. You may like it or not, but it’s trivial. It’s simply not significant enough to make a difference, given the size of the global mess...Try to reform whole institutions and hope that by getting the long-term fundamentals right you’ll set off a positive cascade to reverse the negative ones. Simplify the tax code. End corporate taxes and create a consumption tax. Reshape the European Union to make it either more unified or less, but not halfway as it is now. Reduce the barriers to business formation. Reform Medicare so it is fiscally sustainable. Break up the banks and increase capital requirements. Lighten debt burdens even if it means hitting the institutional creditors. There are six or seven big institutions that are fundamentally diseased, from government to banking to housing to entitlements and the tax code."

2) If you're fed up with gridlock, blame the Founding Fathers, writes Harold Meyerson: "Presidents and congresses are elected not merely independently but at different times and by different electorates. After a midterm election in the United States, no members of the House and only one-third of the senators hold their seats by virtue of having won them in the same election that brought the president to power. The president and the Congress each have separate but equal claims to power and legitimacy. Thus a government divided between a president of one party and a Congress of another, political scientist Juan Linz observes, can reach an impasse for which 'there is no democratic principle on the basis of which it can be resolved.' That’s why nations with presidential systems, not parliamentary ones, Linz continues, have been more prone to military takeovers."

3) A good government isn't big or small, but smart, writes Edward Glaeser: "The 2012 election is shaping up to be an ugly battle fought along familiar, uninspiring lines: Democratic believers in big government against Republicans determined to cut taxes. This is the wrong fight. The important challenge today is to make government smarter and more effective, not slightly bigger or smaller...We should start by pooling our anti-poverty programs under a single agency chief with a mandate to provide the most effective aid given a fixed budget...When it comes to infrastructure spending, we should move away from the traditional model of congressional earmarking and move toward a system like the one adopted by Chile, where the government facilitates private investment funded by user fees...Just like any well-run private-sector organization, the federal government should rely on constant analysis of costs and benefits."

4) A shutdown would have cost more than the amount of money being argued over, writes Ezra Klein: "In most budget battles, the two parties are separated by many billions of dollars. Earlier this year, for instance, the compromise budget that averted a shutdown cut $78.5 billion from the president’s budget request. In this debate, however, the parties were separated by a mere $1.6 billion. The fact is that the preparations for -- and certainly the reality of -- a shutdown probably would have dwarfed the difference between the two bills...In 1996, the Office of Management and Budget tallied the two major shutdowns of the decade at about $1.4 billion. Adjusting for inflation would bring that total to more than $2 billion in today’s dollars. But as an analysis by Roy Meyers, a political scientist at the University of Maryland, found, that estimate left out a lot."

Music video interlude: Dum Dum Girls' "Bedroom Eyes."

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Still to come: Few infrastructure projects are truly shovel-ready; HHS is winding down its health reform waivers; lobbyists aren't very fond of the administration's proposed anti-lobbying rules; some clean energy firms don't want the government's help; and an automatic knitting machine.

Economy

Few infrastructure projects are truly shovel-ready, reports Kendra Marr: "Obama’s plan calls for $50 billion in immediate investments for improved highways, transit systems, railways and aviation -- an idea he proposed a year ago that failed to gain traction. The goal is to put Americans back to work, upgrading 150,000 miles of road, 4,000 miles of train tracks, 150 miles of airport runways and the nation’s air traffic control system...But experts are skeptical that projects would come fast enough. A tremendous amount of money and time is needed to get a project through a detailed design process, permitting, environmental hurdles, public hearings and land acquisition. 'As a rule of thumb, you’re looking at three years for a project, really going from the time the federal government says we have the money and want to spend it,' Ibbs said. But that’s for the easiest, simplest projects, such as building a road through an uninhabited piece of land."

A hasty settlement with Bank of America may have cost taxpayers billions, reports Brady Dennis: "Government regulators may have cost taxpayers billions of dollars by settling mortgage-related claims with Bank of America before addressing questions about the methods used to evaluate the loans involved, according to a government report due out Tuesday. Senior managers at the Federal Housing Finance Agency, the independent agency that oversees government-sponsored mortgage giants Fannie Mae and Freddie Mac, failed to act in a timely way to 'significant concerns' about the process Freddie Mac employed to determine which faulty loans it wanted Bank of America to buy back, the agency’s inspector general found. By not expanding its inquiry to include loans that ran into problems three to five years after they were originated, 'Freddie Mac did not review over 300,000 loans for possible repurchase claims,' the report states."

The SEC may hit S&P with sanctions for a faulty rating, report Joshua Gallu and Zeke Faux: "Standard & Poor’s, the world’s largest provider of credit ratings, may face U.S. regulatory sanctions in connection with its rating of a $1.6 billion collateralized debt obligation in 2007. The Securities and Exchange Commission’s Wells notice may lead to the agency’s first action against a ratings firm for giving top grades to mortgage-backed securities before they plummeted in value. McGraw-Hill, S&P’s parent company, said in a regulatory filing Monday that it received the notice Thursday that the SEC may seek penalties including disgorgement of fees related to a collateralized debt obligation known as Delphinus CDO 2007-1. Delphinus was highlighted in a U.S. Senate panel’s report as a 'striking example' of how banks and ratings firms branded ­mortgage-linked products safe even as the housing market worsened in 2007."

Trade adjustment costs are worse than commonly thought, reports Justin Lahart: "For years, economists have told Americans worried that cheap Chinese imports will kill jobs that the benefits of trade with China far outweigh its costs. New research suggests the damage to the U.S. has been deeper than these economists have supposed. The study, conducted by a team of three economists, doesn't challenge the traditional view that trade is ultimately good for the economy. Workers who lose jobs do eventually find new work or retire, while the benefits from trade, such as lower prices, remain. The problem is the speed at which China has surged as an exporter, overwhelming the normal process of adaptation. The study rated every U.S. county for its manufacturers' exposure to competition from China, and found that regions most exposed to China tended not only to lose more manufacturing jobs, but also to see overall employment decline."

There's no way austerity measures will hurt the economy, writes Keith Hennessey: "Some on the Left argue that policies to address America’s expanding government and exploding budget deficits will cause a short-term fiscal contraction. They make a traditional Keynesian argument: the economy needs more fiscal stimulus now, and if we cut spending too much we’ll hurt the recovery. If you buy the traditional Keynesian fiscal stimulus argument, then this is indeed a theoretical concern. This will never, ever happen, for both a policy and a political reason. Deficit-reducing policy changes are always phased in over time, and the scored deficit reduction from both spending cuts and tax increases grows (linearly) with time. The spending cuts and/or tax increases in the first couple years of a typical deficit reduction package are trivially small, a rounding error compared to a $15 trillion annual GDP."

Adorable animals being persistent interlude: A dog climbs a tree to get his stick back.

Health Care

HHS is winding down health reform waivers, report Jason Millman and Brett Norman: "Nearly 1,500 waivers later, the Obama administration’s controversial effort to free some companies from the burdens of the new health care law is coming to an end...The waivers were supposed to help people who have 'mini-med' health plans -- bare-bones insurance plans that don’t come anywhere close to providing the amount of coverage the health care reform law requires. The script seemed to be pretty much written: Those plans would end in 2014, and in the meantime, companies would get waivers so people wouldn’t lose their coverage...the Department of Health and Human Services is winding down the waivers, which help the plans keep lower benefit limits than they’re supposed to have under the law. The deadline for applying to the waiver program expired last week, but the waivers themselves can last another two years."

Deficit reduction should focus on Medicare, writes Ramesh Ponnuru: "Entitlements are the major reason spending is predicted to rise sharply -- and that’s something the committee can and should address. Senators Tom Coburn, an Oklahoma Republican, and Joe Lieberman, an independent from Connecticut, have suggested some reforms to Medicare that would generate about $600 billion in savings within the next 10 years. They would gradually raise the eligibility age for Medicare to 67 by 2025 while increasing premiums and co-pays in a progressive manner, with higher-income seniors paying more for their coverage. They would also limit the ability of 'Medigap' plans to drive Medicare spending higher by covering the federal program’s deductibles...The plan isn’t perfect...But it’s a more sensible way to reduce the deficit than across-the- board cuts in defense and domestic discretionary programs."

To cut health costs, we need to crack down on fraud, writes Kathleen Sharp: "Last week, the Obama administration announced a plan to cut $320 billion over 10 years from the projected growth of Medicare and Medicaid. The plan would raise premiums and deductibles, lower payments to hospitals and require elderly people who receive care at home to make co-payments. But before charging consumers more and eliminating valuable services, we should be much more aggressive in recovering money stolen from these taxpayer-supported programs. According to some estimates, health care fraud is a $250 billion-a-year industry, and about $100 billion of that is stolen from Medicare, the health care program for the elderly, and Medicaid, the insurance program for the poor and disabled...Last year, the Justice Department recovered $3 billion in false claims, $2.5 billion of that from health care cases. But that’s just a drop in the bucket."

Domestic Policy

Lobbyists are none too pleased with a proposed anti-lobbying rule, reports T.W. Farnham: "Lobbyists are arguing against an Obama administration proposal that would tighten rules governing what executive branch employees may accept from companies and trade associations that try to influence government policy. The rules would ban executive branch employees from accepting gifts of any value from a lobbyist or an organization that employs lobbyists. The rules also would end a policy that allows lawmakers and government workers to accept free admission to 'widely attended gatherings' held by lobbyists or companies and trade associations that are registered to lobby. Under the new rules, government employees would still be able to register for training courses using a government discount, but they could not accept free registration at conferences unless they had a speaking role."

There's a better way to fix No Child Left Behind than handing out waivers, writes Lamar Alexander: "Our legislation would scuttle entirely the Washington-imposed adequate-yearly-progress requirements set by No Child Left Behind, and would instead require states to set their own high standards to promote college- and career-readiness for all students. We agree that all states should aim to make their graduates capable of entering higher education or the workforce. But we also believe there are many ways to get there, and states should have the flexibility to find the ones that works best for them. Our bill would change not only the way students are evaluated, but the way teachers are as well. The 'highly qualified' requirement is usually met through graduate or professional training...We would encourage states to develop teacher- and principal-evaluation systems related to student achievement.

Invention interlude: A machine that knits digital images.

Energy

Some clean energy firms have opted to forgo federal loan guarantees, report Steven Mufson and Carol Leonnig: "Uwe T. Schmidt, chief executive of Solar Trust, says he is a fan of the Energy Department’s loan-guarantee program. He met with Energy Secretary Steven Chu and the program’s director, Jonathan Silver, when his company was seeking support for a 1,000-megawatt solar thermal plant it wanted to build in the California desert in Riverside County. But when the department offered him a $2.1 billion loan guarantee, Schmidt turned it down. It would have been one of the largest stimulus-funded clean-tech­nol­ogy projects, and Solar Trust had been negotiating the deal for roughly a year. But Schmidt decided it was too risky...The Obama administration’s vaunted initiative to catalyze the U.S. clean-energy industry...has become a case study of what can go wrong when a rigid government bureaucracy tries to play venture capitalist."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.

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