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Federal Discretionary Appropriations and Cancer Research Program Baseline Projection

Part I: Budget-related Research and Discretionary Funding Analysis

You just got a job working as a budget-research analyst for an online news outfit and your boss wants to highlight a federal program that is funded with annual discretionary appropriations. She identified several items for you to track down and analyze, as well as to write a 1-page memo for the following items, including the relevant information that you learned.

The Congress enacted a large health care bill in 2016 known as the 21st Century Cures Act. The law is complicated and contains numerous provisions, but for this exercise, we are going to keep things simple and focus ONLY on a key discretionary authorization in the legislation. You can find the final “enrolled” version of the legislation that started out as bill number H.R. 34, but was eventually enacted as Public Law 114-255 in December 2016, available at:

The legislation shown there is a 312-page pdf, and as noted above, includes a long list of widely varying provisions. The largest dollar items in the legislation for authorizations of new appropriations relate to the National Institutes of Health (NIH) that are contained in Section 2001, under Division A, Title II, of the bill.

A.How much funding did the Congress authorize for new appropriations to the NIH in Section 2001? There are stated authorizations for fiscal years 2018, 2019, and 2020. Identify the amounts of those funding authorizations for each year and in total over the three-year period. (Ignore the OTHER authorizations for the NIH in Title I; they entail “innovation projects” and “responses to opioid abuse” using some mandatory funds generated elsewhere in the bill.) Report your answers in ROUNDED billions & tenths of dollars. (For example, if a given-year authorization was “$12,345,678,000”, then you would note that is simply: “$12.3 billion.” <=not real numbers)

B.How much in annual funding in discretionary budget authority was provided to the NIH in 2016, 2017, and 2018? To find the 2016 information, you need to look at the Budget Appendix for the FY 2018 President’s Budget, and to find the 2017 figure, you need to look at the Budget Appendix for the FY 2019 President’s Budget. Similarly, to find the 2018 figure for actual appropriations, you can look at the Budget Appendix for the FY 2020 President’s Budget. All 3 such volumes are available through; but they are sometimes difficult to locate! You will find it easiest to use the direct links embedded above.  Search for the “National Institutes of Health” account within the Department of Health and Human Services within each Appendix pdf.

A. Funding Authorizations for the National Institutes of Health

The Appendix pdf is a roughly 1,300-page file. You can use “Ctrl” + “F” keys to pull up a “find” box and search for “National Institutes of Health.” You will have found the right place when you locate the Program and Financing Statement table for the account with Treasury Identification code 075–9915–0–1–552. The “P&F” statement stretches over 2 columns and is quite complicated … but you need to find the lines that identify “Appropriation, Discretionary (Total)” to answer the question above. The same figure is also shown in a line labeled “Budget authority, net (discretionary).” How do the 2016, 2017, and 2018 appropriation levels compare to the amounts that were authorized to be appropriated for 2018 through 2020 by the “Cures” act? How would you characterize actual funding vs. the authorizations?

C.For some context on NIH funding versus health research spending in total, your boss would also like you to provide a few big-picture numbers for 2016: How much did the government spend in each of fiscal years 2016 through 2018 in the broad category of “health research and training”? Spending is broken down by “function” and “subfunction.” Health is budget function 550 and “health research and training” is subfunction 552, which includes NIH. Using OMB’s Historical Tables, identify the outlays in those three fiscal years of 2016 through 2018 from Table 3.2.

D.Your boss also asked you to compare the amount spent on “health research and training” to total health spending. That means identifying the total outlay figure for all of budget function 550 (health) in 2016 through 2018. You know that the health function includes spending for Medicaid, which dwarfs spending for NIH, so you expect to see a much bigger number for that total of the health function. [By the way, Medicare has its own budget function (570), separate from all other Health spending (in function 550)]. 

Write a 1-page memo – From you To your News Director that includes all requested figures WITH appropriate units, for NIH and health spending in general, as indicated above. How does the recent NIH discretionary funding compare to the program authorizations in law? And how do those amounts compare to subfunction 552 spending and to function 550 spending in total (keeping in mind that Medicaid dominates the total of budget function 550) and that the even-larger Medicare spending is contained in a different budget function.

Suppose that the Congress is considering creation of a new research program aimed at finding cures for a variety of types of cancer under the overall goals of the 21st Century Cures Act mentioned above and might provide an appropriation for fiscal year 2020 of $20 billion to begin work on such a new program. 

B. Annual Discretionary Budget Authority for the National Institutes of Health

The budget committees and the appropriation committees would like you to prepare a baseline projection for the next 10 years so that they have a good idea about how much money may be necessary to continue work on this new program over the full 10-year period of fiscal years 2020 through 2029. 

You will project the budget authority, or prospective baseline funding levels, using a flat annual inflation rate of 2 percent per year (starting in 2021, relative to the initial base-year funding of $20 billion for 2020). And you need to apply some appropriate spendout rates to determine outlay projections. You realize that this new research program will operate similarly to the medical research grants provided by the National Institutes of Health (NIH), and a CBO analyst tells you that she uses spendout rates for NIH as follows:

25% for the first year, 50% for year 2, 15% for year 3, 5% for year 4, and 3% for year 5, 

with 2% of budget authority expected to “lapse” (remain unspent) from each year’s total appropriation.

In addition to the funding that will be provided by Congress, billionaires Bill Gates and Warren Buffet have each promised to make an annual gift of $1 billion per year over the 2020-2029 period. Such gifts are recorded in the federal budget as offsetting collections; that is, they are shown as a credit against federal expenditures. But since the amounts provided will be spent for the new program, the total (or gross) funding for that program will be $2 billion higher than the appropriation level. Gross funding will therefore be $22 billion in fiscal year 2020 ($20 billion from Congressional appropriations plus $2 billion in gifts). As a result, you need to spend out $22 billion as a total program level for 2020. The two billionaires are keeping their donations simple: no inflation, meaning that their gifts will each stay at exactly $1 billion per year over the 2020-2029 period.

Create a waterfall table that shows outlays from the projection of Congressional funding at $20 billion plus inflation adjustments through 2029, as well as outlays from the expected donation of an additional $2 billion each year through 2029. 

Then, at the bottom of your waterfall table, show the effect of the offsetting collection of a flat $2 billion each year to compute the NET outlays for the program in each year. For example, if GROSS outlays sum to something around $18.5 billion in a given year, then NET outlays for that year would be $16.5 billion.

C. Health Research Spending Comparison

After completing your waterfall table in Excel for the new cancer research program, answer these questions in the Word file for the exam:

A.What will GROSS outlays be for the new program over the 10-year period of 2020 through 2029? (Be careful NOT to confuse gross funding with gross outlays; and be sure to include all 10 years in your sum.)

B.What will NET outlays be for the new program over that same 10-year period?

Under the baseline projection, how much money would the Congress need to appropriate over the 10 years (including $20 billion for 2020 and additional inflation-adjusted amounts for 2021 through 2029)?

In the Daycare budget project, you completed a breakeven analysis by figuring out what monthly fee to charge parents so that the daycare center could eliminate its baseline deficit in year 1: namely, determining what fee would yield a roughly zero net cost for the full year, given all the other inputs about fixed and variable costs and various sorts of income for the center. 

Doing breakeven analysis more generally in many governmental planning situations is an important and useful tool in budgeting. We can structure a breakeven analysis mathematically with just a handful of variables and a few simple equations:

The “breakeven point” is determined by equating total revenues (TR) and total cost (TC) as follows: 

TR = TC          <= (Equation 1)

We can express total revenues and total costs in terms of their key factors of price, quantity, and different types of costs:

TR = P x Q          <= (Equation 2)

where P is unit price and Q is the quantity or volume of a given unit (or service); and:

TC = FC + (Q x UVC) <= (Equation 3)

where FC is the fixed cost and UVC is the unit variable cost.

Inserting equations 2 and 3 into equation 1 gives us:

P x Q = FC + (Q x UVC) <= (Equation 4)

To solve for the price necessary to get to “breakeven,” we can isolate P:

P= [FC + (Q x UVC)]/Q         <= (Equation 5)

On the next page, there is a local government example that you need to solve for breakeven using the above model.

The small municipality of Franklin is facing a rising population of homeless individuals and would like to provide meals in a central location. A private nonprofit organization is willing to manage and staff the proposed soup kitchen with volunteers on a month-to-month basis as long as the city pays for the fixed costs of rent and equipment in an available commercial building and for the incremental, or variable, costs of raw ingredients for each meal provided. 

D. Comparison of Health Research Spending to Total Health Spending

Given the data below, you need to determine what “price” (P) the city would have to pay to the nonprofit organization to make this work on a “breakeven” basis.

1.Suppose the fixed costs for the chosen facility are $45,000 per month. 

2.Assume that the facility and volunteer staff capacity is 1,000 meals per day for 30 days a month. (<=We’ll use that average # days for simplicity.)

3.Further assume that the unit cost of raw food ingredients is $2.25 per meal.

A.Using equation 5 from the previous page, determine FC, Q, and UVC from the above information and solve for P. That value of P will be the amount that the city has to pay the nonprofit group per meal served for breakeven. 

[Be careful to note that Q for this example is a compound term that involves the number of meals per day and the number of days in a month. Since this problem is stated in terms of a given month’s costs, you need Q for a full 30-day month!]

B.In total, how much will the city of Franklin have to spend each month? Show how you can get that result in TWO ways:

TC = FC + (Q x UVC) and TR = P x Q

In other words, check your solution from equation 5 (where you solved for P) to demonstrate how Total Costs (TC) to the city will equal Total Revenues (TR) to the nonprofit that will manage the soup kitchen. (The nonprofit will use the revenues to pay for rent and for equipment and food supplies.)

NOTE: You do not need to create an Excel worksheet for the simple computations called for here. Once you plug in figures to solve the above equations, you should show your work and explain your results in a few sentences in the Word file you are preparing for the Exam submission.

Spring Valley Township has a broad mixture of residential homes that provide about 80 percent of the local property tax base, along with some commercial real estate that yields revenues for the other roughly 20 percent of that property tax base. To keep it simple, let’s assume all those property taxes are represented by these five properties (which we can scale up to get to the full 100% of taxes):

Now, let’s assume that those five properties represent 1 percent of the total market valuation for Spring Valley. Thus, the TOTAL valuation of property for the township is 100 times $2,045,500 (or 100 times $2.045 million), meaning that the total tax base for Spring Valley is $204.55 million … or in rounded terms, about $205 million for the most recent year of 2018.

Part II: Discretionary Spending Baseline Analysis

Assume that the tax rate (applicable to BOTH residential and commercial property) was 1.05% for 2018. Complete the table in Part IV-A of the Excel template to determine taxes paid per property and in total FOR THE ENTIRE town using the 1% factoid mentioned above as a scaling factor of 100.

For Part IV-B: suppose Spring Valley is facing a bit of a tax revolt because the property valuations have been increasing slowly while the town’s costs for education and other services have also been rising steadily. To make matters worse, it appears that property valuations have somewhat flattened out in recent months so that property assessments are likely to go up by only 2% in 2019, while the town’s budgetary costs are expected to rise by 4%. That implies a tax rate increase in 2019.

Figure out the new tax rate for 2019 required for budget balance and fill out the Part IV-B table in the Excel template to show taxes and effective tax rates for all five properties and for the town as a whole. 

Because the residents of Spring Valley are very resistant to a further increase in their property tax rate, the township’s elected leadership agreed to and enacted legislation limiting an annual tax rate increase to one-hundreth of one percent: that is, the tax rate can only rise from 1.05% to 1.06% in 2019, leading to:

For Part IV-C, first figure out what the tax collection shortfall will be if the tax rate goes up to only 1. 06% instead of the rate you calculated for Part IV-B above. (You should have gotten a result somewhat higher than 1.06% in Part IV-B.)

The town’s leadership is exploring options to broaden the tax base by adding more commercial businesses on undeveloped (and currently un-taxed) property near the edge of town. 

Figure out how much in additional property value (from that that undeveloped land) is required to balance the town’s budget. That is, how much property value has to be added through commercial expansions on the edge of town to fill the shortfall you calculated above, using the new maximum tax rate of 1.06%? 

Hint: you should find that the needed expansion is small compared to the town’s current total property valuation of roughly $205 million. 

Show all your calculations in the Excel Template for Part IV (no need for any text in the Word file).

In a manner, very similar to your work on the federal income tax homework (assignment #7), calculate, in Excel, the tax liability for the Steins, a hypothetical family of 3 with income and deduction characteristics as follows:

Baseline Projection for a New Cancer Research Program Funding

Gross wages of $137,500 and unearned income (capital gains and dividends) of $7,250 in 2018.

The Steins made contributions to a qualified 401(k) pension plan of $10,000.

Under the tax law enacted in late 2017, tax rates for families (couples filing jointly) changed in 2018 to these new marginal rates:

10% for net taxable (earned) income between 0 and $19,050;

12% for such income between $19,050 and $77,400;

22% for income between $77,400 and $165,000;

24% for income between $165,000 and $315,000;

32% for income between $315,000 and $400,000;

35% for income between $400,000 and $600,000; and

37% for income above $600,000

Under the new tax law, the standard deduction for a couple filing jointly rose to $24,000. To keep things relatively simple, we’ll assume that the Steins will be better off with the standard deduction instead of itemizing deductions under this new tax regime. So, you don’t have to worry about potential deductions for mortgage interest or state and local taxes, etc. You just need to reduce adjusted gross income by that standard deduction.

Most unearned income (from capital gains and dividends) is still taxed at a 15% rate (similar to prior law). However, the new tax law increased the child tax credit and raised the income level for phaseout of that credit. As a result, assume that the Steins will get a tax credit of $1,500 for 2018. 

Using that information, compute the Steins’ adjusted gross income, their tax liability and (highest) marginal rate, average tax rate, and effective tax rate.

[There are no required text answers for Part V but be sure to clearly label the adjusted gross income, total tax liability, and the three types of tax rates in your Excel file.]

You are working in the budget office of the Governor for a state that has an ambitious plan to make available an additional $60 billion over five years, starting with the upcoming state fiscal year 2020 that will start in July, for much-needed transportation projects (highways and transit systems). Your Governor wants the spending from those new projects be paid for through incremental increases in the state’s excise tax on gasoline, but she would like the gas-tax increases to be as low and gradual as possible, while hitting two spending targets: 

1.A funding (budget authority) increase of $60 billion over five years, and 

2.Expected outlays (cash expenditures) from that funding of at least $50 billion over those same five years (recognizing that some projects will take considerable time so that the rate of spending will lag behind the amounts of new annual funding. That is, you won’t spend all $60 billion during those five years; funding provided in the later years will be partly spent after 2024.)

Waterfall Table for Cancer Research Program Funding

In this exercise, you will need to specify:

(1)An allocation of the $60 billion total in new transportation funding over five years: from 2020 through 2024. 

(2)How much should gas taxes change, relative to the CURRENT-law level, in each of the five years through 2024, all incremental to current taxes. (You don’t need to know what current taxes are.)

Your results should show new state outlays of at least $50 billion over the 2020-2024 period, along with incremental gas-tax revenues of at least $50 billion over that same period. Note: there are no effects on federal funding or revenues here – we are just looking at the state’s finances in this problem.

In theory, all the funding could be made available in 2020, but that would require a very large, immediate increase in the gas tax, which is deemed politically infeasible. Therefore, in designing your allocation of the $60 billion in funding, you should think about what might be a “reasonable” plan for distributing the funding so that tax increases can be phased in over multiple years. Also, you may choose to raise the tax to a certain level in one year as a temporary measure and then allow it to be reduced to a lower level in a later year of the five-year period. (In fact, since this is a temporary surge in funding, you almost certainly will want to have some of the incremental tax increase as temporary as well.)

Keep in mind that funding = budget authority while cash expenditures = outlays. In this problem, you have $60 billion of funding over five years and you are aiming for $50 billion of outlays over that time. The incremental tax collections need not cover all the funding during the five years, but they do need to cover all the expected outlays during that five-year period of 2020 through 2024.

Here are the key parameters and constraints you have to work with:

1.The average “spendout” of highway and transit projects for your state is: 30% in the first year of funding, 50% in the second year, 15% in the third year, and 5% in the fourth year (with 100% spent over 4 years). 

2.The Governor has asked you to spread the $60 billion funding total across all five years, with no more than $20 billion in any year and at least $5 billion of funding in every year through 2024. Given the spendout rates identified above, amounts allocated to the last few years will not be completely spent by the end of 2024, but that is OK, as long as you hit the Governor’s target of at least $50 billion in incremental state outlays over the five years. (You may be able to get close to $55 billion!)

Calculation of Net Outlays for the Cancer Research Program

3.Each 1-cent increase in the gas tax for your state will bring in an estimated NET revenue total of $0.6 billion per year. (That estimate takes into effect all behavioral changes reflecting the relatively low elasticity of demand for gas.) For example, if you raise taxes by 5 cents in 2020, that would yield $3 billion in new gas revenues that year; and if you raised the tax by 10 cents, it would yield $6 billion.

4.The Governor asks that you keep any tax increase in each year to no more than 10 cents per gallon. For example, if you start with an increase of 10 cents per gallon in 2020, you can raise it to no more than 20 cents per gallon in 2021. Moreover, she wants to have the cumulative gas tax increase NEVER go above 25 cents per gallon any time during the five years. Remember that you can REDUCE the tax later in the five-year period.

5.Finally, the state maintains a “contingency fund” of $2.5 billion to cover a short-term, temporary shortfall between revenues and spending for a given year. You can “borrow” from that fund if your increased tax revenues are below your anticipated outlays for a given year, as long as you raise enough in new taxes over the five-year period to cover ALL of the expected outlays over that period. For example, if you spend $54.0 billion of the $60 billion total in five years, you need at least $54.0 billion in new tax collected over that same five-year period.

Create an Excel worksheet that shows the distribution of $60 billion in funding over the 2020-2024 period, the annual outlays from your funding distribution, and the new gas tax collections for each year, as well as the five-year totals of outlays and new tax collections such that you meet all the above constraints. 

You can and should reduce taxes if you have outlays starting to decline in the later years: You should aim for results where the five-year total of revenue collections is at least as great as the five-year sum of outlays, but as close as possible to that spending total since you don’t want to make consumers in the state pay a lot more in new taxes than what is required to cover the cost of the new outlays. [You’ll get a higher grade if you can keep the five-year tax total very close to the five-year outlay total.]

As you know, we are facing a particularly difficult budget challenge as a nation. Even though the federal government has been running deficits for 45 of the past 50 years and already has accumulated a federal debt held by the public totaling more than $16 trillion, or nearly 80 percent of U.S. Gross Domestic Product, the future looks even worse than the current situation and that relatively dismal recent past. If the Congress and future Presidents fail to find compromise on addressing the underlying forces of our growing debt burden, we could see debt balloon past 100 percent of GDP in a little over a decade. Our current-law paths for federal spending and revenues, and the resulting increases in debt they would produce, are simply not sustainable for the long term. 

The collection of slides that the Peterson Foundation put together regarding key aspects of the long-term budget challenge has some thought-provoking pictures of what those long-term paths would look like UNDER CURRENT LAWS. There are multiple interesting stories spread across many of the Peterson charts in the “chart pack” titled Selected Charts on the Long-Term Fiscal Challenges of the United States:

Write a 1-full-page essay about the lessons, interconnections, and implications of the following 5 charts:

Slides #2, #3, #8, #10, and #14

Your essay should explain what you think are the key “take-away” points from these 5 charts as well as how those charts are inter-related. For example, how do the effects of the aging population figure into the projects of Social Security and medical spending, and how does the expected growth in such spending lead to higher deficits and resulting debt under the current-law projections. In other words, explain the trends and key factors contributing to those trends. 

In addition, you should identify what sorts of things you believe will be necessary for politicians to consider over the coming decade in trying to address the long-term budget challenge. You may consider policies related to both spending and revenues as you ponder the unsustainable fiscal imbalance that we face. Be as specific as possible in your description, conclusions, and recommendations

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