Impact 8/11 "Debt Limit Agreement"

August 1, 2011

Debt Limit Agreement...

This week a major economic catastrophe was averted through the agreement put together by President Obama and congressional leaders to increase the current debt limit and bring about significant deficit reduction over the coming decade.  As is being widely reported in the press, the agreement will increase the debt ceiling by $2.1 trillion and allow the government to continue meeting all current obligations.  The agreement also includes a 10-year cap on discretionary spending and formation of a new bipartisan congressionalcommittee charged with identifying an additional $1.5 trillion in deficit reduction through changes in entitlement programs and reforms to the tax code.

Debt Limit Increase Removes Threat to Current Entitlement Payments

In terms of assessing the impact of this agreement on people with mental illness, it is important to note that the increase in the government’s borrowing authority will ensure NO interruption critical safety net benefits such as monthly cash assistance under the SSI and SSDI disability benefits.  While media coverage was largely focused on a government default and protecting AAA bond ratings, failure to raise the debt limit would likely have placed these cash benefit programs at risk.  In addition, the higher debt limit will ensure that quarterly matching payments to state Medicaid agencies and payments to housing agencies for rental assistance programs (tenant-based and project-based Section 8) will continue uninterrupted.  Even a short-term disruption to these programs would have had a dramatic impact on people living with mental illness who depend on these programs (SSI, SSDI, Section 8, etc.) for basic supports.

Medicaid Shielded From Future Cuts

The most important part of the agreement is a "firewall" protection in the future deficit reduction process that will ensure that Medicaidcannot be targeted for budget reductions.  As noted above, the agreement creates a new 12-member bipartisan joint House-Senate Committee that will be charged with identifying $1.5 trillion in additional deficit reduction over the next decade.  This panel will be on a fast track and must produce recommendations by November 23, 2011, with a required "up or down" votes in the House and Senate by December 23. 

This $1.5 trillion in savings will come from changes in entitlement programs and reforms to the tax code.  However, the committee is notallowed to recommend cuts or savings from Medicaid or Social Security (including SSI and SSDI).  In addition, any proposed savings from Medicare must come from payments to health plans and hospitals, not benefits (including increased cost sharing imposed on beneficiaries).

Moreover, if Congress fails to approve the committee’s recommendations (or if the recommendations fall short of the $1.5 trillion goal), the agreement contains an "enforcement mechanism" designed to impose automatic cuts, known as a "sequester."  This "trigger" mechanism for spending reductions would begin in 2013 and would split reductions evenly between defense and non-defense programs.  If this automatic "trigger" mechanism is imposed, it would EXEMPT from reductions Medicaid and Social Security (including SSI and SSDI).  As with the new special congressional committee, the "trigger" mechanism can limit payments to Medicare providers (health plans and hospitals), but not Medicare benefits or cost sharing.  In addition, any reductions in payments to Medicare providers are limited to 2% of total Medicare spending.

Bottom line: The agreement prevents deep cuts to Medicaid, the largest source of funding for treatment and supportive services for people living with serious mental illness.  This is a tremendous victory for children and adults living with serious mental illness.  At one point during the difficult negotiations over the past month, as much as $1.2 trillion in cuts to Medicaid over the next decade were under discussion. Exempting Medicaid from cuts--either by the new special congressional committee, or the "sequestration trigger"--ensures that this agreement meets the test of protecting the most vulnerable.  

New Limits on Discretionary Spending

The agreement does impose new constraints on the growth of federal discretionary programs that Congress funds through annual spending bills.  Imposition of a 10-year limit on federal discretionary spending will generate as much as $900 billion in savings over the next decade – that is, $917 billion below the baseline established by the Congressional Budget Office (CBO).  This will reduce discretionary spending to its lowest level since the Eisenhower Administration.  While President Obama had proposed freezing discretionary spending for 2012 and 2013, this new agreement puts these limits in statute and extends them through 2021.

The agreement does impose "firewall" protections between defense and domestic discretionary programs.  It also walls off "homeland security" spending that will not be subject to the discretionary spending limit.  This means that Congress will not be able to raid domestic discretionary programs to fund critical defense, homeland security and veterans medical care needs.  For FY 2012 and FY 2013, the agreement puts into place discretionary limits of $1.043 trillion and $1.047 trillion respectively. 

For NAMI’s priority discretionary programs, this could have far reaching implications.  Keeping current funding levels in place for a decade will mean that mental illness research, services and housing programs are almost certain to stay in place.  In order for Congress to increase funding for a domestic discretionary priority, a corresponding equal reduction must be made in another program(s) in order to avoid breaching the cap.  Fortunately, homeland security (including veterans medical care) are exempt from the cap.   

At the same time, keeping a tight enforceable limit on discretionary spending will have significant consequences for NAMI priorities:

Mental Illness [Special Needs]  Research  

The current (FY 2011) budget for the NIMH is $1.477 billion (.9% below FY 2010 level).  Keeping this level in place for the coming decade would seriously erode the capacity of the NIMH to invest in "new and competing" grants, while still maintaining "out year" commitments to large scale clinical trials and longitudinal studies that take years to design, recruit and complete.  Each year that the NIMH budget is frozen in place, the capacity of the agency to undertake new studies and clinical trials will be eroded as "biomedical research inflation" (the annual increase in the cost of research) means fewer and fewer new grants.  This year, the NIMH "pay line" (the percentage of accepted and validated grant proposals the agency can fund) is at risk of dipping below 15%.  In other words, 85% of the proposals and applications NIMH will receive in 2011 that meet standards for sound and valid scientific discovery will not be funded.  Level funding NIMH over the coming decade will inevitably send that "pay line" even lower.

Mental Illness [Special Needs] Services

As noted above, the vast majority of publicly funded mental health services are financed by the Medicaid program, a joint state-federal entitlement program that operates outside of the new 10-year cap on discretionary spending.  There are now a range of smaller discretionary services programs operated by SAMSHA (the Substance Abuse and Mental Health Services Administration) that will be subject to the discretionary cap.  These include:

  • Mental Health Block Grant - $421 million,
  • PATH (outreach and engagement services to homeless people with mental illness) - $65 million,
  • Childrens Mental Health - $121 million, and
  • Projects of Regional and National Significance (various discretionary grants and demonstration programs) - $361 million.


A 10-year cap on overall discretionary spending will likely have a dramatic impact on HUD’s rental assistance programs.  These programs, including Section 8, Section 811 and permanent housing programs under the McKinney-Vento Homeless Assistance Act depend on the discretionary budget for ongoing renewal of existing rental and operating assistance.  The out year costs of these programs are driven by a complex set of factors such as tenant income and rental markets.  Any increase in these costs is certain to erode the capacity of HUD to invest in development of new supportive housing units that serve people with disabilities (including serious mental illness).  This is especially the case with McKinney-Vento and Section 811.


The agreement follows the Obama Administration’s definition of "homeland security" funding that is exempt from the 10-year discretionary funding cap.  This means that veterans medical care will not be subject to the discretionary spending limit.  However, other functions of the VA, including medical research will be subject to the cap.

Attribution for report to NAMI
NAMI is America's largest grassroots organization dedicated to improving the lives of persons living 
with serious mental illness, and an important resource for special needs planning involving mental illness.