Federal budget, debt crises re-emerge

With Congress back from its summer recess, it once again confronts the issue of the national debt ceiling, which the U.S. is expected to hit this fall, and the need to produce a budget for the new federal fiscal year, which begins on Oct. 1.

Earlier this year, House leadership linked an increase of the debt ceiling to a decrease in spending in the next budget and the enactment of a 10-year plan for deficit reduction. President Barack Obama, however, has indicated that he is unwilling to allow an increase in the debt ceiling to be subject to budget negotiations.

The House has produced a draft federal budget totaling $967 billion, while the Senate’s draft totals $1.06 trillion. These numbers must be reconciled in a final spending plan.

If Congress does not produce a budget by Oct. 1, it could fund government operations by passing a short-term continuing resolution at the fiscal 2013 spending levels. Doing so would make federal spending subject to the across-the-board sequestration cuts the government is facing now.

The impact of the federal budget and sequestration on Massachusetts is significant. According to a report from the Washington, D.C.-based group Federal Funds Information for States, federal grants accounted for 21.5 percent of the fiscal 2012 budget in Massachusetts. About three-quarters of this funding is subject to federal sequestration mandated by the 2011 Budget Control Act.

Programs subject to further sequestration cuts include Title 1 and Head Start, Community Development Block Grants, competitive public safety grants, and water safety funding, among others.

While the next round of sequestration cuts will be smaller than the first, the cuts would further cut programs already operating with reduced budgets.

President Obama has warned that he will not agree to any spending plan that spares only defense from sequestration cuts. He has argued that economic stimulus should take precedence over deficit reduction while unemployment rates remain high.