Congress passes a budget: "God knows what's in it.".

After a year characterized by deadlock and inaction, Congress finally approved a 3,825-page, 16-inch-thick omnibus bill (HR 4328), including more than $500 billion in appropriations, numerous changes in tax policy and myriad substantive legislative measures, large and small. Thirteen days before the Nov. 3 election, members were asked to vote on the massive omnibus bill though few if any had a chance to read it. According to West Virginia Senator Robert C. Byrd, "Nobody but God knows what's in it." The 105th Congress adjourned sine die on Oct. 21, 1998.

NCSL's analysis of the FY 1999 appropriations measures in HR 4328 shows a significant increase, generally, in spending for state and local programs. Mandatory spending for Medicaid increased nearly $2 billion, and states beat back an attempt to reduce the matching rate for Medicaid administration from 50 percent to 47 percent. Discretionary spending for transportation programs went up $4.69 billion. And new appropriations were made, to the tune of $1.2 billion, to reduce class size for public education. At the same time, Title XX, the social services block grant for states, was cut by 17 percent, or $390 million below the FY 1998 level. (Congress earlier this year reduced the outyear authorization level of the block grant by $2.4 billion, beginning in FY 2001, in order to accommodate more transportation spending.)

On the tax front, HR 4328 included the Internet Tax Freedom Act, a three-year moratorium on certain federal, state and local taxes on the Internet, as well as additional authority for states to issue bonds for economic development projects. The Internet tax bill was, all things considered, relatively favorable to states. Existing state taxes on Internet access service are grandfathered, for example.

The omnibus bill also imposes a one-year moratorium on implementation of a particularly onerous unfunded mandate, included in the 1996 Immigration Reform Act, requiring states to place Social Security numbers on driver's licenses and to follow a federal process for issuing the licenses. On the other hand, states are required by HR 4328 to provide Viagra, the anti-impotence drug, to Medicaid beneficiaries.

Despite intense lobbying by NCSL, the omnibus bill did not include a provision to bar the federal government from seizing state money awarded in settlements of tobacco lawsuits. The U.S. Department of Health and Human Services still asserts that current federal law gives it the right to "recoup" a percentage of any state's tobacco settlement award equivalent to the Medicaid match rate for that state. Congress, of course, failed earlier in the year to agree on comprehensive tobacco settlement legislation.

State lobbyists were successful in stopping last-minute attempts in the 105th Congress to preempt state authority in such areas as juvenile justice and "anti-slamming" regulation of telecommunications firms. Attempts to preempt state auto salvage laws and state insurance laws also failed.

Generally, states were successful in the 105th Congress in stopping a number of preemptive measures, including earlier this year a bill that would have federalized product liability law and one that would have moved land use litigation into federal court. On the other hand, states had almost as much difficulty as others in moving major substantive legislation, exceptions being reauthorization of transportation and work force programs. In the end, however, Congress decided to tap the budget surplus, and states will benefit at least in the areas of transportation and education.

Final Status of Major Legislation, 105th Congress

Enacted Into Law

* Internet Tax Freedom Act

* Transportation program reauthorization

* Work force reauthorization

* Higher education reauthorization

* An increase on cap for state private activity bonds

* One-year moratorium on federalization of driver's license issuance and Social Security identification

* Cuts in social services block grant appropriation and authorization levels

* 3.9 percent increase in mandatory spending for state and local programs

* 8.9 percent increase in discretionary spending for state and local programs

* Prohibition on implementing presidential Executive Order 13083 on federalism (which would have weakened state protections)

* Requirement that states provide Viagra to Medicaid beneficiaries

* Six-month moratorium on new Indian gaming operations that are unauthorized by states

* Reduction of funds for state administration of food stamps by $1.7 billion over five years beginning in FY 2001

* Targeted regulatory reform 

No Final Action

* Preemption of state "slamming" regulation

* Product liability preemption

* Preemption of state jurisdiction of property rights litigation

* Federalization of juvenile justice programs

* Financial services modernization

* Salvage auto deregulation 

* Bankruptcy law revision

* Fast track trade authority

* Tobacco settlement recoupment

* Preemption of state jurisdiction over class action law suits

* Managed care regulation

* Superfund reauthorization

* Comprehensive tobacco settlement

* Unfunded Mandate Reform Act improvements

* Comprehensive regulatory reform

FEDERAL BUDGET AND TAX REPORT

The omnibus bill included eight of the 13 original appropriations bills considered in this session of Congress. The bill provides $487.7 billion in regular FY 1999 appropriations, plus $20.8 billion in so-called emergency appropriations. The emergency spending is exempt from caps on spending under the balanced-budget law passed last year (PL 105-33). The extra spending, particularly on transportation programs, was possible because of this year's unexpected federal "budget surplus" (arrived at by using Social Security funds) and because of the failure of Congress to move any major across-the-board tax cuts for individuals. Tax credit extensions and new tax provisions largely for businesses and shareholders will result in an expected loss of $9.7 billion in federal revenue over nine years, which is offset largely by other tax provisions of HR 4328 raising an expected $9.2 billion over the same period. Not offset under the balanced budget law anti classified as an "emergency" was $606 million in tax relief for farmers.

Republican congressional leaders had hoped to pass a major tax cut in 1998, but failed. The House of Representatives did pass HR 4579 that would have cut taxes by $80 billion, but a similar proposal lacked support in the Senate. The omnibus bill extends a number of tax credits, including the research tax credit, the work opportunity tax credit, the welfare-to-work tax credit, and the tax exemption for U.S. shareholders of foreign corporations. The law permanently extends the deduction for the contribution of certain kinds of stock to private foundations. It also increases the deduction for health insurance for the self-employed and allows, in 1999 only, for nonrefundable personal tax credits to offset an individual's tax liability. A most important provision for state and local governments would allow the issuance of more tax-exempt bonds for private activities Such as economic development projects. New revenue raisers include changes in the tax code related to regulated investment companies and real estate investment trusts.

On the spending side, the omnibus bill included a number of President Clinton's education priorities, including $1.2 billion for hiring more teachers to reduce class sizes, $120 million to help poor children attend college, an extra $160 million for after-school programs, and $87 million for new education technology programs. The president failed, however, to win support for his school construction program. Republican congressional leaders also pushed for increased spending on education, in particular a $523 million increase for educating disabled children.

Both President Clinton and Congress supported major increases in health research. HR 4328 provides for a $2 billion (or 15 percent) increase in appropriations for the National Institutes of Health to research cancer, AIDS and other serious diseases.

The administration's environmental priorities were reflected in a $1.7 billion appropriation for President Clinton's Clean Water Action Plan and in $1 billion for research into global climate change.

Alaska, the home state of Senate Appropriations Chairman Ted Stevens, one of the principal authors of the omnibus bill, did particularly well, receiving a large number of special projects, including $28 million in grants to the Alaska Railroad, $750,000 for grasshopper research and a $54,000 per resident medical care subsidy for King Cove, Alaska. Mississippi, Georgia and New Mexico were also major beneficiaries of special projects.

Critics of the 1999 spending bill argue that, in some respects, it represents a breakdown of the congressional budget process and not simply because of the free use of the "emergency" appropriations loophole to avoid spending caps. Since the passage of the 1974 Budget Act, congressional appropriations have been limited by an annual budget resolution. For the first time since 1974, Congress this year failed to pass a budget resolution. House Budget Committee Chairman John Kasich and Senate Chairman Pete Domenici did not even come close to agreeing on the form of an FY 1999 budget resolution. The successful push for increased transportation spending led by Representative Bud Shuster also stressed the system, or represented a long-overdue investment in transportation infrastructure, depending on one's point of view.

Arguably, this Congress will be remembered for Shuster's success in increasing spending on highways, mass transit and airports; for the Republican leadership's failure to pass a major tax cut; and for Bill Clinton's success in winning at least marginal increases in spending on education, health care and the environment. Easily overlooked will be the wreckage of the congressional budget process and major cuts in social services.

PREEMPTION WATCH

NCSL scored a victory when Congress failed to act on preemptive telephone "slamming" legislation. A number of states have enacted laws restricting the practice by telecommunications companies of changing a consumer's long-distance telephone provider without permission, commonly called "slamming." In the last days of the 105th Congress, the House passed HR 3888 that would have preempted stronger state anti-slamming laws and allowed telephone companies to abide by a voluntary federal code restricting slamming (a code that does not yet exist).

Senators Susan Collins and John Kerry alerted the Senate to NCSL's concerns and won wide support for an amendment to preserve state authority. With time running out in the 105th Congress and with members of the Interexchange Carriers Association, i.e, the long-distance companies, not supportive of compromise on the preemption issue, the bill was at last set aside. As with many preemption issues, Congress is expected to revisit the question next year.

NCSL also was successful in the last days of the 105th Congress in helping to block juvenile justice legislation, S 2073, that would have federalized juvenile offenses and attempted to micromanage state juvenile justice systems. The bill included a very expensive record-keeping mandate on states and effectively would have required almost every state to revise its juvenile justice code to meet federal criteria. This is despite the fact that most states have revised their laws in recent years to better ensure that juveniles are held accountable for their crimes. A last-minute attempt to thoroughly rewrite the bill to meet state concerns broke down in reported partisan acrimony over unrelated issues. Again, juvenile justice will be on the congressional agenda in 1999.

CONSTITUTIONAL FEDERALISM

An important provision, supported by NCSL, in the omnibus bill is a prohibition on presidential enforcement of Executive Order 13083 on federalism. NCSL strongly opposed the new order and in response, President Clinton has indefinitely suspended its implementation. Language in HR 4328 now makes that suspension binding.

Executive Order 13083 would have weakened procedural protections in the federal agency rulemaking process intended to protect states from mandates, preemption, lack of consultation and administrative inflexibility. The Clinton administration has promised to negotiate with NCSL and with other state and local groups to find mutually acceptable language for an executive order regulating federal agency dealings with states.

In a related provision, H.R. 4328 includes some targeted reforms of the federal agency regulatory process. For calendar year 2000, the director of the Office of Management and Budget is required to submit to Congress a report estimating the total annual cost and benefits of agency rules. The report must include an analysis of the impact of federal regulation on states as well as small businesses and local governments.