WASHINGTON — The Senate Appropriations Committee's fiscal 2016 financial services bill would significantly underfund the Securities and Exchange Commission and undermine the Internal Revenue Service's ability to carry out basic functions, Office of Management and Budget director Shaun Donovan warned committee leaders in a letter this week.
Donovan also objected to the bill's attempt to lock in sequestration funding levels for fiscal 2016, telling committee chair Thad Cochran, R-Miss., and ranking Democrat Barbara Mikulski, D-Md., that sequestration "was never intended to take effect" and was only meant to force lawmakers "to come to the table and reduce the deficit through smart, balanced reforms."
He warned that if the Senate passes the bill as it is currently written President Obama's advisors will recommend that he veto it.
Under the bill approved by the committee on July 23, the SEC would receive $1.5 billion in fiscal year 2016, the same allocation as fiscal 2015 and $222 million less than what President Barack Obama requested in his budget for fiscal 2016.
The "cut" from Obama's proposed budget would limit the SEC's "ability to respond to the high volume of securities-related misconduct, as the agency strives to keep pace with the use of new and increasingly technologically-complex financial products and services," Donovan said in his letter. He added that the "SEC would not be able to execute on its expanded responsibilities over private fund advisers, derivatives market participants, and clearing agencies, among others." These new responsibilities were mandated by the Dodd-Frank Act, which Republicans have tried to roll back.
The OMB director also called the committee's proposal to rescind $25 million from the agency's mandatory reserve fund "a budget gimmick" that will hurt technology spending on agency initiatives, including: data analysis tools; enforcement and examinations improvements; and enhancements to the tips, complaints and referral systems. The reserve fund can currently hold up to $100 million from filing fee collections and is meant to fund agency operations.
Because the SEC operates under a deficit-neutral funding system that requires the agency to directly offset its funding allocation with collected fees, Donovan said the committee's decision to "underfund key SEC activities" would not reduce the deficit or open up more funding for other agencies.
The committee bill also "slashes funding" for the IRS and undermines "the fairness and integrity of the tax system in ways that would increase burdens on taxpayers, including by increasing the deficit," Donovan said.
The approximately $10.5 billion in IRS funding under the bill is more than $2.5 billion less than Obama's request and approximately $470 million less than the fiscal 2015 enacted level.
The funding decrease would hurt the IRS in three specific areas, Donovan said. It would continue deteriorating the already "diminished" enforcement capabilities of the agency by forcing staff layoffs and lead to billions of dollars in lost collections. It would also cause "unacceptable levels" of taxpayer services and the "further deferral of cybersecurity and infrastructure upgrades, jeopardizing the strong defenses" the IRS needs to protect taxpayer information and fight identity theft.
