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FY 2018 budget proposal impact on public power

President Donald Trump sent Congress a budget for Fiscal Year 2018 that proposes cutting federal spending by $24 billion in 2018 and by $3.6 trillion over the next decade, while boosting federal revenues by $2.7 trillion over the same period, to bring the federal budget into balance by 2027.

Overall, non-defense Department of Energy programs would be cut by $3 billion (17.5 percent) in 2018. That average, though, masks massive cuts to specific DOE offices. For example, the budget proposes cutting the Office of Energy Efficiency and Renewable Energy by $1.4 billion, a 69 percent reduction from Fiscal Year 2016 funding levels. Likewise, the Office of Electricity Delivery and Energy Reliability would be cut by $389 million (42 percent) including the assumed elimination of $5 million in funding for “cyber and cyber-physical solutions for advanced control concepts for distribution and municipal utility companies,” a program used to fund cybersecurity cooperative agreements between DOE and APPA and NRECA.

The budget would also eliminate funding for the Low Income Home Energy Assistance Program. The budget cites as one reason for eliminating the program a 2010 Government Accountability Office report which found the program needed greater controls to prevent fraud. The budget also notes that 15 states prohibit utility companies from cutting of power and/or electricity to customers in extreme weather.

(A table comparing Fiscal Year 2016 to Fiscal Year 2018 spending levels for certain energy-related programs is below.)

The budget would also extend for an additional two years the sequestration of mandatory spending programs, including payments to issuers of Build America Bonds. As a result, the budget provides no specific rationale for this proposal, which would extend payments cuts to BABs issuers through 2027.

The budget is largely silent on the issue of tax reform, simply restating general principles announced by the Administration earlier. However, the budget assume that tax cuts provided by tax reform will boost real GDP growth to 3 percent per year (up from consensus projections of real GDP growth of 2 percent), generating an extra $2 trillion in new revenue for the federal government.

Overall, the scope of changes proposed in the budget would be historic if enacted. For example, non-defense discretionary spending would be cut by 42 percent by 2027, putting non-defense spending at its lowest level (as a percentage of GDP) since before World War II. The budget also proposes raising $700 billion in new revenues for the federal government (in addition to the $2 trillion spurred by economic growth), some from new fees some from the sale of federal assets such as parts of the Strategic Petroleum Reserve and transmission assets of the Power Marketing Administrations. Again, revenue increases of this magnitude would be well outside historic norms.

On the one hand, the scope of these budget proposals make them unlikely to be enacted. Congress has simply been unwilling to make such sweeping changes in the past and will be unlikely to do so now.

On the other hand, the scope of the cuts also makes it clear that these provisions were not included because of budgetary concerns, but for philosophical ones. For example, the $5.5 billion that would be raised by selling PMA transmission assets is not even a rounding error to the $3.6 trillion in spending cuts proposed elsewhere in the budget. The scope of the cuts will also make it more difficult to defend specific programs. There are only 535 members of the House and Senate, while there are hundreds of programs the Administration is proposing cutting or eliminating. As a result, while it is true that the budget proposal itself stands very little chance of being enacted into law, we are taking quite seriously the specific proposals it contains.

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