By Christopher Haight
November 2010

It has been two years of high price-tag legislation, including the Troubled Asset Relief Program (TARP), American Recovery and Reinvestment Act (ARRA), Patient Protection and Affordable Care Act (ACA), and the upcoming debate over the extension of the 2001 and 2003 tax cuts. Given these kinds of historic legislation, Americans are experiencing something of a national sticker shock and demands for deficit reduction continue to grow. All of this is hardly auspicious news from the vantage point of grantseekers. However, a closer look at some of the key fiscal reforms likely to occur reveals a grant landscape still intact and largely off the radar for severe cuts:

1. Entitlement Reform. Few, if any, conversations on addressing the national debt can avoid the topics of the Big 3 in American Entitlements: Medicare, Medicaid, and Social Security. The rapid rise in healthcare costs is the predominant factor contributing to the malaise in public expenditures, making reform of the first two programs especially vital. Reform of these programs will involve systems of direct payments and incentives to providers and individuals, not grants. Popular grant programs related to healthcare, such as those for implementation of Electronic Health Records or other health information technology fall outside this purview. In fact, laws like the ARRA or ACA actually authorized and funded new grant programs such as comparative effectiveness research or school-based health centers.

2. Tax Expenditures. Tax expenditures are how the government effectively spends money by forsaking its claim to tax revenue. Instead of collecting what is owed, a variety of tax provisions allow individuals, organizations, and businesses to avoid paying necessary dues. One of the biggest tax expenditures is the current exemption of employer-sponsored health insurance, which makes it less costly for businesses to provide more in health benefits relative to monetary compensation because they can avoid payroll tax. The ACA levies a new tax on high-value plans beginning in 2018. Future tax reform will likely replicate this strategy, focusing on the revenue side of the equation rather than purely cutting programs (grants included).

3. Defense Spending. At over $700 billion each year, defense spending is the largest single discretionary spending item in the Federal Budget. Even U.S. Secretary of Defense Robert Gates has advocated a series of cuts that would leave the country better off financially while still supporting a ready and able military. Most of these cuts, however, would involve weapons systems or artillery/equipment with defense contractors, which differ from the kinds of grant opportunities most in the grant field seek.

4. New Legislation. After the midterm elections, the Obama administration will certainly face less friendly territory as Republicans gain control of one or both chambers of Congress. One place where Republicans and the Democratic administration could find common ground is education or possibly a pared-back energy bill. Either one of these policies is rich with opportunities for new or reformed grant programs. The Obama administration's Blueprint for Education Reform reveals the President's preferences in a host of new or continued grant programs. Recently, scholars from the Bookings Institution of Heritage Foundation published a bipartisan plan for national energy policy including a call for doubling of research and development dollars afforded to alternative energy.

In some instances, deficit-reducing strategies may actually lead to an expansion of grant programs. For example, the Obama administration is seeking to transform the way Head Start dollars are awarded. Obama has proposed forcing the lowest-performing Head Start recipients to compete with others for federal grant dollars each year. New York gubernatorial candidate Andrew Cuomo (D) has also expressed interest in shifting towards greater use of competitive grant competitions as overall funding is restricted.

In December, the bipartisan National Commission on Fiscal Responsibility and Reform established by President Obama will release its official recommendations for achieving a balanced budget by 2015. These recommendations will set the foundation for how legislators and policymakers address deficits in the coming years - likely by addressing the key drivers of deficit-growth, and not the federal grant programs that sustain critical infrastructure, research, and services.