The Congressional Budget Office informally notified the House and Senate Appropriations Committees last week of their final estimate of major offsetting fee collections that will be used in scoring the fiscal 2024 appropriations bills, and it’s very bad news for the Transportation-HUD bill.

A drastic drop in projected receipts from federal mortgage insurance programs, caused by the collapse of the mortgage market (which was caused by higher interest rates, which were caused by the return of inflation), is the largest of four problems that add up to a $16 billion hole in the Transportation-HUD (THUD) Subcommittee’s 2024 bill.

That $16 billion number is how much more a “policy freeze” of the fiscal 2023 THUD law will cost if reiterated in 2024. In other words, if there are no new net hires, and no new policies, and no funding increases except those needed to pay for the people and programs that were in place in 2023, the 2024 bill will cost nearly $16 billion more.

And this comes at a time when the new House Republican majority is looking to shrink the overall size of the discretionary spending pie by over $100 billion, which will necessarily shrink the size of the THUD bill’s slice of the pie.

Here are the four problems that cause the cost of a policy freeze to rise by almost $16 billion.

• Plummeting HUD receipts. Each year, a substantial portion of the Housing and Urban Development departmental budget is offset by the receipts of two accounts: FHA Mutual Mortgage Insurance Capital Reserve Account, and GNMA Guarantees of Mortgage-Backed Securities Capital Reserve Account. The Appropriations Committees are required to use the Congressional Budget Office baseline estimate of those receipts for the upcoming year. In fiscal 2022, this offset estimate masked $12.0 billion of HUD discretionary funding. In fiscal 2023, the CBO estimate dropped to $10.4 billion. Two months ago, the CBO preliminary baseline for 2024 cut that number down to $2.7 billion. And last week, CBO told Appropriations that the final number, to be released to the public on May 12, will be around $2.0 billion. So the same exact HUD appropriations made in 2023 would be scored as costing $8.4 billion more in 2024 because of the reduced offsetting fees.
• Housing renewals. Each year, rents go up. Your rent, my rent, and the rent charged to people living in federally subsidized housing. Even if the scope of federal housing programs is not increased at all – freezing the number of people living in such housing at last year’s number – the cost still goes up because we are dealing with market-based rent increases. The Wall Street Journal reported this week that rents in 16 of the 20 largest metropolitan areas have been increasing faster than inflation. The cost of keeping the exact same number of people housed by HUD programs in 2024 that were housed in 2023 will increase by an estimated $3.0 billion.
• No more cheating. The Appropriations Committees faced a less tight budget situation last year, and they decided that the way to pay for the housing renewal costs was to cheat. They did not fund the housing renewals in the final Transportation-HUD Act (Division L of Public Law 117-328). Instead, they funded $2.654 billion in HUD tenant-based voucher renewals and $969 million in HUD project-based tenant renewals in the “Disaster Relief Supplemental Appropriations Act” (Division N of P.L. 117-328) and declared it, along with money for real disaster relief, to be an off-budget emergency and not scored against the overall total for the THUD bill. (At the end of the day, an off-budget emergency is whatever a majority of the House, 60 Senators, and the President say it is.) This year, the House leadership will not allow such an emergency designation (at least in the original House bill), and it is an open question if the Senate will, either. The cost of maintaining the same overall level of HUD funding that was provided in 2023 will increase by an additional $3.6 billion in 2024 because the emergency designation used in 2023 will now be disallowed.
• FAA salary and benefit increases. The detailed Federal Aviation Administration budget request for fiscal 2024 says, under the FAA “Operations” account, that “The FAA estimates $617.3 million in uncontrollable cost increases in FY 2024. This includes uncontrollable employee compensation costs, such as annualization of hiring in FY 2023 as well as government-wide pay raises and retirement contributions for FAA’s Operations-funded workforce in FY 2024.” (Of course, most budget accounts pay someone’s salary and are subject to pay increases, but the FAA Operations account funds 63 percent of all of the FTEs funded by the Transportation-HUD bill, so this is the only account that needs to be singled out.) Congress has shown bipartisan unwillingness to reduce the number of air traffic controllers or aviation safety inspectors currently on the job, and this extra $0.6 billion has to be spent to keep the same number on the job in 2024 as there were in 2023.

Add it all together, and it looks like this (in billions of dollars):

This kind of financial pressure gives the Appropriations Committees a massive incentive to use scorekeeping gimmicks (like the emergency designation used last year). In years past, the appropriators used to balance their books with large rescissions of highway contract authority balances held by state DOTs. This violated House and Senate rules (legislation on an appropriations bill), but getting permission to violate the rules was easier than cutting programs by billions of dollars.

But even if they were so inclined, it would be difficult for the appropriators to rescind highway contract authority this year. Not only would it hobble parts of the President’s signature bipartisan infrastructure law, but the amount of unobligated contract authority that is out there subject to rescission has dropped (and may drop by another $3.5 billion in FHWA can’t reconcile their two different computer systems).

Other funding from the bipartisan infrastructure law (the advance appropriations from the general fund) may be saved on a technicality – Congress can’t rescind appropriations that were designated an emergency (like the IIJA advances) and use the savings to pay for new non-emergency appropriations. (They could, however, decide to keep funding $3.6 billion of HUD money in 2024 as an emergency and pay for that with a rescission of $3.6 billion in IIJA advance appropriations.)

And there aren’t a whole lot of places to find massive amounts of savings in the discretionary DOT budget. Here is how the FY 2023 discretionary funding for USDOT was allocated in the final bill:

Once you rule out cutting FAA Operations and decide not to cut earmarks, that’s fully half of the DOT discretionary budget that cannot be cut. Taking a few billion dollars out of the other half will not be pleasant for anyone involved.