Democrats agree on budget reconciliation

Democrats yesterday agreed on a budget with reconciliation protections for student-loan subsidy cuts, dealing a new blow to private lenders already plagued by congressional probes and criticism from 2008 White House hopefuls.  

The budget conference report, slated for final passage today, exceeds President Bush’s preferred discretionary spending cap by $21 billion and effectively dares the president to make good on the spending-bill vetoes threatened last week by White House budget director Rob Portman. The pact also suggests a win for House Democrats on two sticking points.

{mosads}House fiscal conservatives pushed for — and won — a “trigger” mechanism in their chamber to ensure that extending Bush’s middle-class tax cuts would consume only 80 percent of the projected budget surplus in 2012. House members also pressed for reconciliation this year, while Senate Budget Committee Chairman Kent Conrad (D-N.D.) argued against using
a filibuster shield for any reason but deficit reduction.

Yet Conrad succeeded in bumping up the savings produced by higher-education legislation by a factor of 10, from $75 million in the original House blueprint to $750 million.

“It’s a compromise,” Conrad told reporters. “The important thing is, we have a budget here.”

Republicans in both chambers blast reconciliation as a way to expand the government-run direct loan program at the expense of private lenders that enjoy a hefty government subsidy. Democrats point to data showing that direct lending could save taxpayers billions of dollars, while Sen. Barack Obama (D-Ill.) and former Sen. John Edwards (D-N.C.) have called for the outright elimination of subsidies as part of their 2008 platforms.

The conference deal could wreak particular havoc on Sallie Mae, the student-loan giant chartered by Congress but later privatized. The $25 billion private-equity buyout deal Sallie Mae announced last month included a clause allowing the deal to be voided if Congress pursues subsidy cuts significantly higher than the Bush budget.

Kevin Bruns, executive director of the lender trade group America’s Student Loan Providers, called the budget deal a “Trojan horse.”

“If past statements are any guide, hidden from view are the most radical budget cuts in the history of the federal student loan program,” Bruns said in a statement. “On this issue, Congress is misleading the American people.”

House Education and Labor Committee Chairman George Miller (D-Calif.) hailed the start of reconciliation in a statement.
“Each year, [federal student loan] programs waste billions of taxpayer dollars on excessive subsidies to lenders,” Miller said. “That money should be used as intended — to help parents and students pay for college, not to pad the profits of big banks and lenders.”

Under reconciliation, the Higher Education Act reauthorization drafted by the education chairmen, Miller and Sen. Edward Kennedy (D-Mass.), will need 51 Senate votes to pass. Democrats had criticized the GOP-controlled 109th Congress for using reconciliation to push through new tax cuts, but Conrad contended this year’s process would be different.

“On a net basis, this will decrease the deficit,” he said. “Republicans used reconciliation to pass tax cuts without offsets.”

Sen. Judd Gregg (N.H.), ranking Republican on the Budget panel, harkened back to GOP rule in his own way. Gregg charged Democrats with excluding minority members from key conference negotiations, an accusation often made against Republicans when they held the majority.

“As one of two Republican conferees to the budget conference committee, I would have liked the opportunity to address the serious problems included in this budget,” said Gregg, who declined to sign the conference report. “Unfortunately, we were excluded from all substantive meetings of the conference committee.”

The budget deal also includes a one-year patch for the alternative minimum tax and removes $30 billion in offset funding the Senate added for children’s health insurance.

Sallie Mae’s spokesman ddeclined to comment on the budget. The company’s stock fell slightly following the midday budget news but closed higher than yesterday’s price.