Congress Inching Toward Another Budget Stalemate

by King & Spalding

Congress adjourned for its summer recess on Friday, August 2nd leaving behind a number of unresolved issues, the chief of which being government funding for fiscal year 2014. Appropriations bills expire at the end of the government's fiscal year on September 30 and to date, none of the 12 appropriation bills have been enacted in to law. In fact, only 4 have passed the House (Defense, Energy and Water, Homeland Security, and Military Construction-VA) and none have hit the Senate floor. Practically speaking, however, this is really not much of a concern. Increasingly over the years it is rare when more than a handful of the 12 appropriation bills is signed into law prior to the end of fiscal year. Thus there is the ever-present threat of a government shutdown occurring. In the short term, this is typically addressed through the adoption of a continuing resolution-- a relatively simple bill that extends the government's ability to spend for some period of time beyond the end of the fiscal year, typically a few weeks. (Last year, however, the government was kept open by a continuing resolution that extended the prior year's funding for most of FY 2013.)

Congressional leaders use the impending expiration of government funding and resulting "shut down" as leverage for either related budget issues such as deep cuts in spending, or for some other issue, such as this year's effort by Republicans to use a government shutdown as leverage to eliminate Obamacare.

Adding to this year's drama is the impending breaching of the government's debt limit, that is, the ability to borrow to pay existing debts. While that deadline is more open ended than the hard September 30th appropriations deadline, it nevertheless is an issue that must be addressed. Treasury officials indicate that government will be able to continue borrowing until sometime near the end of the calendar year. House and Senate Republicans have said there will be no extension of the debt limit unless there are steep reductions in government spending. The vehicle for reducing government spending would be appropriation bills, thus the two issues would be joined and each will be held hostage to the other. Democrats have said that they will not countenance further cuts. Recall that the much heralded and feared sequestration occurred earlier this year, resulting in a reduction of $76 billion from the original FY 2013 baseline. In drafting its appropriation bills for FY 2014, the House assumed that the post-sequestration baseline would be the place to start, a baseline that is $76 billion lower than what Congress envisioned last winter prior to the sequestration taking effect. The Democratically-controlled Senate has said that it will ignore the sequestration and will assume that FY 2014 spending will be northward of pre-sequestration levels. Thus, when House and Senate negotiators sit down to consider FY 2014 funding and the debt limit extension, a fundamental question will be whether to start at the lower House baseline or the Senate's higher numbers. Compounding this issue is the fact that the legislation which gave birth to the sequestration provides there will be other across-the-board cuts in each of the next 9 years; thus the elephant in the room will be what to do about the sequestration. Basically, Republicans in the House like the discipline and budget cuts that have resulted from the threat of sequestration while the White House and Senate Democrats believe that too much is being cut from the budget, especially in safety net programs like food stamps and health care.

Sooner or later something must be done to "reset" the budget process and establish a path going forward that's built on some predictable basis, rather than budgeting to avoid a government shutdown and default. Some in Washington continue to talk about a "grand bargain" that would provide a long term fix to the debt limit issue as well as eliminating the sequestration process. Some believe that tax reform could be part of that debate, especially Democrats who would like to see tax reform result in additional revenue that could be used to fund further government spending. Republicans are adamantly opposed to that idea and are standing firm on the proposition that tax reform must be revenue neutral. That is, the revenue gained by the elimination of deductions or other tax expenditures can only be used to finance further tax cuts, most likely on the personal taxpayer level.

Some are describing the budget debate as being reminiscent of the movie "Groundhog Day." While the two share a plot focusing on the reoccurrence of the same set of circumstances, unlike the movie, the recurring threat of a government shutdown and default are very real and the consequences all too serious.

By Thomas J. Spulak


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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