If your mortgage was underwater in 2017, Congress may have just provided help: a Q&A on the big budget bill

February 9, 2018 GMT

If your mortgage was underwater in 2017, Congress may have just provided help: a Q&A on the big budget bill

WASHINGTON -- Nancy Pelosi spoke for hours. Debt hawks like Jim Renacci and Jim Jordan complained about debt. The government sort of shut down for a few hours, but it didn’t really.

And the United States awoke to news that despite concerns like Pelosi’s about immigration, and those of debt hawks about deficit spending, Congress passed a big bill to fund the government for two years, provide money to fight the opioid scourge, help hurricane- and fire-ravaged areas like Puerto Rico and California and do more.

The bill is confusing because government works in confusing ways. This may answer some of your questions.

What did this bill do, exactly?

It authorized additional spending, assuring not only the ability to keep the government functioning but also to expand spending in some areas. The $320 billion bill included $131 billion above current caps for non-defense discretionary spending for fiscal 2018 and 2019, plus a boost of $165 billion for defense spending.

Of the total, $20 billion is for infrastructure projects in transportation, water, energy and rural broadband.

The funding includes $89.3 billion to help California, Florida, Texas, Puerto Rico and the U.S. Virgin Islands recover from hurricane and fire damage.

How much will Ohio get?

That’s a trick question but it’s necessary. While some of the money in this bill was directed to specific agencies such as the National institutes of Health, most of it cannot be spent yet. Nor is it known in which states it will be spent.

The lessons of Civics 101 got lost in the rhetoric and many news stories, so the confusion is understandable. But most of this bill merely authorized the government to spend the above-mentioned levels. Congress still must pass appropriations bills to direct that the money be divided in the ways it wants and sent to this agency or that agency. Those bills now must pass by March 23, a date resulting from the congressional agreement.

Can you explain that more simply?

Take as an example money for the Army Corps of Engineers to dredge waterways so water flows or harbors stay navigable and free of debris or sediment. The budget bill passed in the early hours Friday specifically directed $608 million to the Army Corps for dredging.

Ohio sees some dredging every year, too, to keep the Cleveland Harbor unimpeded. The bill on Friday did not specify how much money the Corps will get for that function in Cleveland, however. The $608 million earmarked for dredging is specifically related to repairs needed because of natural disasters.

What about the money for fighting opioids?

Same thing. The Senate and House early Friday approved spending $6 billion over the net two years on opioid abuse prevention and mental health. Now it will have to agree on how and where to distribute the money, because there are a number of drug-prevention and treatment programs it could possibly flow to. Look to Sens. Sherrod Brown and Rob Portman to push for Ohio to get a big share because of the state’s particularly large addiction and overdose numbers.

Critics have already said the sums Congress agreed to are not enough. Lawmakers tend to agree but say it’s the best they could do given competing demands for so many government programs.

Is nothing known for certain about benefits to Ohio?

Some things are known, in fact. While much of the bill pertains to future spending, it also included some other provisions. One will let homeowners avoid a tax whammy if they got relief from so-called underwater mortgages in 2017.

“Underwater” means someone owes more on a house than the house is worth. When that happens, it becomes impossible to sell a house and can raise the temptation to walk away and let the bank foreclose. This was a real problem in Northeast Ohio as a result of the mortgage crisis of several years ago.

But banks always have the option of eating some of their losses and forgiving a portion of the debt, which can help the homeowner and also help the bank avoid foreclosing.

From an accounting and tax standpoint, this is practically a gift to the homeowner. Let’s say he owes $100,000 but his house is only worth $80,000. If the bank agrees to forgive the $20,000 portion that’s underwater, the homeowner gets something of real value, worth $20,000.

And for tax purposes, that is typically treated as income. So now the homeowner -- let’s say his family income is $50,000 -- suddenly has $20,000 more in taxable income for the year. He didn’t actually see a single dollar of it, but it will make his income taxes for the year rise by thousands.

What did this budget bill do about that?

Since 2007, Congress exempted this kind of financial help from income taxes. Already with several extensions, that exemption ended at the end of 2016. The budget bill passed early Friday added another year to the exemption, so it covers 2017. Income taxes for 2017 aren’t due until this April 15.

Is there anything else to know about?

There is a lot, but another big thing Congress did with this legislation is extend the Children’s Health Insurance Program, or CHIP, by four more years, on top of the extension it got not long ago. That means CHIP, until recently the subject of intense lobbying to keep it going, now has 10 years of authorization. CHIP’s future was never in serious doubt, but the program’s reauthorization was used as a bargaining chip in congressional negotiations.

The bill also renews a $4,000 tax deduction for college tuition for a year and similarly treats car and horse race tracks whose tax breaks expired last year. In all, 48 tax credits will be extended by a year.

The bill also establishes a special bipartisan commission of 12 Congress members to try to solve a coming crisis for union pension plans, whose 1.5 million members face deep retirement cuts otherwise.

So this is all good, right?

That’s not what critics of race track tax breaks would say.

And ask the budget hawks and you’ll hear “no” for additional reasons.

Some Democrats say these debt hawks are hypocrites because they recently passed a massive tax-cut bill projected to further reduce government revenue. The conservatives say they voted for it because they don’t believe the official projections of debt from tax cuts. They say tax cuts will spur enough economic growth to pay for themselves.

Democrats like Pelosi meantime wanted the budget bill to include protections for about 700,000 people who came into the United States illegally as children and now risk deportation. But President Trump wouldn’t accept those protections unless Congress passed broader reforms that changed the nation’s immigration system and provided for a wall on the U.S.-Mexican border.

Congress will address both sets of demands over the coming weeks. The Obama-era program protecting those who came with their parents as children expires March 5.

What about the president’s own budget? Where does that fit in?

Trump is scheduled to unveil his fiscal 2019 budget on Monday. A president’s budget is usually little more than a blueprint for carrying out his wishes, and this will be no different, but with one big exception. Congress on Friday approved spending levels for the next two years that Trump’s budget, being drafted for months, likely did not anticipate, particularly the hike to non-defense spending.

The White House is expected to issue additional guidance Monday that could help reconcile any differences. Regardless, Congress has the power of the purse.