Trusteeship Podcast Episode 39: What Boards Need to Know about the Federal Budget

Morgan Alexander:
Welcome to the Trusteeship Podcast from AGB, the Association of Governing Boards of Universities and Colleges. We cover everything higher education leaders need to know about the challenges facing our nation’s colleges and universities. More important, we provide the facts and insights you need to solve those challenges and to be the storytellers and advocates higher education needs.

While most of October in Washington focused on House leadership turnover, Congress will also have to contend with the federal budget. Although a last-minute agreement pushed the conversation to November, colleges and universities must understand how the next round of budget talks will affect them. In this episode, we’re talking about the top-line budget issues affecting higher education, where Congress is in its deliberations, and where we go from here.

Our guest today, Alex Nock, is a principal at Penn Hill Group. We’ll explain what you need to know about the federal budget process and what it means for higher education governing boards. I’m Morgan Alexander, your host for this special episode of the Trusteeship Podcast. Let’s get started. Alex, thanks so much for speaking with me today.

Alex Nock:
It’s a pleasure to be with you, Morgan.

Morgan Alexander:
The federal budget is a little mind-boggling, both in its size, $6.2 trillion, and in how Congress ends up determining that number. And I know this gets really complicated, really fast, but could you tell us at a very high level how the budgeting process has worked so far for this year?

Alex Nock:
Sure. Happy to, Morgan. So I would describe the budget process this year as having both positives and negatives. So there’s been good stuff and bad stuff that has happened. While the public reporting has been about, oh my gosh, there’s been cuts to education programs proposed by one of the bodies. Great, but they’ve also moved to bills, which historically has been a challenge for both chambers. So let’s talk about where this kind of started. First, in the beginning part of the year, the president laid out his budget priorities in the budget that they submit to Congress. There were some notable things in there. There was a maximum Pell Grant increase. He again reiterated his call for free community college. There was a pretty sizable increase for a lot of the work that Federal Student Aid has to do with the restart of student loans and their new repayment program.

And he also called for increases in student supports in terms of completion. But also more importantly, this year was the first time they proposed mental health supports for college students in their budget. So pretty interesting budget when it came out. Of course, Morgan, as you know, the president’s budget did not get enacted immediately upon its submission to Congress. The House and Senate, members of Congress have their own ideas. But first, before they could really get to that, if our listeners might remember, they had to pass a debt ceiling deal, right? Because the federal government was about to run out of the ability to borrow and actually finance its operations. Forget a government shutdown, we couldn’t even pay our bills at that point. Well, they did reach that debt ceiling deal, and part of that debt ceiling deal was an agreement to essentially set spending for what we in DC, Morgan, I know you know this, but for our listeners from DC, what we call non-defense discretionary spending, or NDD for short.

And that’s programs like education, healthcare, housing, the environment, a lot of programs that benefit colleges and universities and their students, for the next two years. So there’s spending limits for the next two years that Congress set. And that was useful because Congress needs those limits to know how much it has to spend in any given year. Well, that allowed both chambers to get to work. Now, unfortunately, the House leadership decided to go with lower numbers than was in the debt ceiling deal. Okay, that’s technically allowed. The debt ceiling deal didn’t say it was X level. It was X level was the top of the amount they could spend. However, that did create a pretty partisan environment where Republicans were proposing cuts to programs in the House. Democrats were opposing them. Take the Department of Education’s budget under the Labor Health and Human Services Education Appropriations Bill that the House subcommittee put out.

There was a $12 billion proposed cut for the Department of Education in that bill, as well as the elimination of Federal Work-Study and SEOG. They flat-funded the maximum Pell Grant. So that’s something, it’s a ray of sunshine and kind of those other cuts, but that was a pretty big surprise to I think a lot of folks who watch this, including myself actually, for cuts to those programs. So they haven’t gone to full committee yet. So that’s an important process element here. So the bill could change, and they haven’t gone to the House floor. The Senate committee, though, put out a different bill. They proposed an increase to the maximum Pell Grant. They maintained funding for federal work-study and SEOG and also a lot of the institutional aid programs that are out there. Now, the House and Senate did come together and pass a continuing resolution to fund the government post September 30th of this year to November 17th of this year.

Unfortunately, that literally hours or days later, led to the ousting of Speaker McCarthy. So the House has been in a little bit of a question mark about where it’s going. What are the next steps? So where is appropriations going? Because there hasn’t been a Speaker of the House. Likewise, the Senate has been on a state recess period, but at the same time, the Israeli conflict and war has caused them to focus on how do you do a supplemental appropriations bill to fund some of the needs that the US has and that the Israeli government has in terms of what’s going on over there. So appropriations has kind of hit a little bit of a stall for some really big issues, but I expect it to start getting back online. But boy, that CR is going to expire before we know it, Morgan, on November 17th, and gosh, we certainly could face a shutdown then.

Morgan Alexander:
Yeah, I think that’s kind of the biggest question that we’re running into is where do we go from here? As you mentioned, we avoided a shutdown at the very last minute in September, but that decision forced out the Speaker of the House, Kevin McCarthy. When we’re looking at the end of the CR, the end of the continuing resolution next month, how likely do you think we are to see a government shut down? How does the Speaker’s race affect that budgeting process? And perhaps most importantly, how does a shutdown and that process affect the day-to-day of colleges and universities, both in terms of policy, but in terms of what it does for students, for faculty, for staff?

Alex Nock:
So first, until there’s some resolution both to who the House speaker is and for that new speaker to get going in their work and to get their priorities done and their imprint on how the House is going to operate, a lot of this raises big questions. If I were a college or university or really anyone who is involved in whether or not the government is open in terms of its funding and operations, I would be concerned about a shutdown after November 17th, not that it’s guaranteed to happen. And Morgan, you and I were sitting around that Friday before the government was going to shut down saying it was definitely going to happen. There was definitely going to be a shutdown. And guess what? In 24 hours, there wasn’t a shutdown, right? So things could happen where cooler heads could prevail and get something done.

The demands being put on the Congress around Ukraine funding and Israel funding and Taiwan funding in terms of the emergencies and wars that are taking place that the federal government wants to support our allies on. Those are big questions that are going to cause other things to slow down and other impacts in terms of whether or not the Congress can get their work done. So I think there are real questions to your question about how this impacts colleges and your universities. I mean, for the large part, as AGB has talked about in the past with its members, Federal Student Aid will continue to flow during the period of a short to even medium-sized or medium-length shutdown. That isn’t a concern, and for many traditional colleges, aid has already flowed to students. They’ve paid semester bills and things like that.

I think the real question is going to be where some different departments at universities have to interact with their grant officers or other officials at Department of Ed in terms of getting approval or the ability to draw down funds if things need certain approvals, the submission of reports. That’s where you have a lot of issues with a government shutdown. It’s not necessarily federal student aid flowing or other things like that, but it’s how the university deals with the federal government in terms of grants and contracts that may see a lot of question marks and issues in terms of whether or not the folks at universities can actually interact with and get answers from a lot of the federal people they work with.

Morgan Alexander:
Alex, those are some great questions. I think in that spirit, while colleges and universities are trying to prepare for the rest of the academic year and of course the next, what questions should boards and presidents be considering? What should they be talking about in their board meetings?

Alex Nock:
So, Morgan, that’s a great question. I think there are a couple of things. One, expect uncertainty with this appropriations and budgeting process. I could easily see this stretching into the spring. Unfortunately, the late spring before there is a resolution on the federal government’s final budget for the year, and that means a couple things. The Pell Grant program is not going to disappear. I mean, I can’t say that with 1000% certainty. Of course, Congress could always make a decision on this, but that would be hugely unlikely to happen. Look, the elimination of SEOG and Federal Work Study by the House, why I don’t think that’s going to happen. That was a really surprising thing and may make universities wonder just a little bit about how stable is campus-based aid funding. Maybe not for this cycle, but the next cycle and the next cycle. That was a very surprising cut, which I think will be beat back in the end of the day.

But that is the first time those programs have been questioned in many, many, many years by either body of Congress. So if you’re a campus that gets a fair amount of campus-based aid, and that is a tool you use, okay, it’s probably going to be around. But oh, I should watch that and think about where my aid is coming from, from time to time. Morgan, I think one of the things we’ve seen is there is a great deal of interest, mostly by the House, but also by the Senate, to think about some conditions on appropriations this year. What sort of riders, as we would call them, you and I would call them here in Washington, DC, what sort of conditions or requirements exist on some of these resources? You may see things come in at the last second because of an individual member or group of members saying, “All right, I will fund this program, but I want some conditions on it.” We don’t know what those will be yet, but I think the largest thing I would say is uncertainty around this.

Morgan Alexander:
Alex, that’s really helpful. I mean, I think there’s a lot of questions that college universities are going to still have. I mean, I think most of the United States is going to have these questions, but I really want to thank you for taking the time to talk with me about the budget. I’ve enjoyed working with you and Penn Hill for many years now, and you all are a tremendous source of information and support for me, my team, and all of AGB. I’d like to thank our listeners for joining us today. If you want to learn more about issues in higher education policy and AGB’s positions on them, check out our top policy issues resource in the episode description. Until next time.