U.S. Federal Government Shutdown: Daily Update #8

by Manatt, Phelps & Phillips, LLP

The Elevator Speech Overview
Thursday is day ten of the government shutdown. Seven days until the Treasury says the U.S. will hit its debt ceiling. House Republicans announced a plan that would essentially provide for a six-week extension of the nation’s debt ceiling in exchange for negotiations over the continuing resolution (CR) while Senate Republicans look toward a plan that would offer short term fixes for both the debt ceiling and CR. Both proposals would require policy concessions, which Democrats have repeatedly said they will not negotiate on until after an agreement to reopen the government is made. House Republicans met with President Obama Thursday afternoon and conversations with White House staff will continue into the evening. Senate Republicans are scheduled to meet with the President Friday morning.

U.S. House of Representatives
Republican House leadership announced a proposal on Thursday for a six-week debt ceiling increase, until November 22, in exchange for President Obama’s promise that he will enter into negotiations over budgetary issues and Obamacare. Drafted with the help of Budget Committee Chairman Paul Ryan (R-WI), the measure will NOT include a CR to provide funding and reopen the government. Speaker John Boehner (R-OH) hopes to separate the two issues in order to fight one battle at a time. Chairman Ryan did state that he would be willing to go to a House-Senate conference on the budget, a move Republicans have resisted to date, and cited Minority Leader Nancy Pelosi’s (D-CA) offer October 5 to remove the motion to instruct as a sign of good faith. (Although it is non-binding, the motion to instruct would essentially tell conferees which positions to take in the negotiations and generally works in favor of the minority party.) An additional caveat in the debt ceiling proposal, the measure would permanently ban Treasury practices, used for decades under both Democrat and Republican administrations, that effectively extended the time that the Treasury was able to continue borrowing and paying the nation’s bills without an increase in the borrowing limit. These workaround procedures, such as limiting investments in pensions and other funds when the government was approaching the debt ceiling, are often referred to as “extraordinary measures.” The proposal may come up for a vote as early as Friday.

President Obama has indicated that he is willing to consider a short-term increase in the debt ceiling but will not consider such a measure if it fails to provide the necessary authority to reopen the government. It also remains to be seen if the President would accept the proposed limitations placed on the Treasury’s ability to maneuver in the event of another debt ceiling crisis. Speaker Boehner and a majority of House Republicans continue to refuse to pass a clean CR without some concessions. Senate Majority Leader Harry Reid (D-NV) continues to reiterate that budget negotiations will not happen until a clean CR is passed that reopens the government.

Continuing its targeted CR strategy, the House passed a measure on Thursday that would authorize funding for components of the Department of Homeland Security for fiscal year 2014. With the Senate still opposing the Republican piecemeal funding strategy, the measure is unlikely to be considered and will join the collection of other mini House CRs that have gone nowhere. The House will be in session on Saturday and has cancelled the Columbus Day week long district work period. Members have been advised that the House may also be in session the following weekend of October 19-20.

U.S. Senate
Senate Minority Leader Mitch McConnell (R-KY) appears to have stepped up his efforts to find a resolution to the current stalemate. A key negotiator in both the fiscal cliff deal of 2012 and the last debt ceiling battle in 2011, the Minority Leader is now quietly exploring the level of support in his conference for a short-term debt ceiling increase and continuing resolution. His proposal builds off the proposal Senator Susan Collins (R-ME) offered on Wednesday, which has been gaining traction with fellow Republican senators. Minority Leader McConnell is considering a plan that would extend the debt ceiling for two months and include a six week CR that would fund the government at the level of $986 billion, an amount to which both parties had previously agreed. The plan would include a repeal of the medical device tax imposed by the Affordable Care Act (ACA), institute an income level verification requirement for those seeking subsidies under the ACA, and offer federal agencies more flexibility in implementing the budget cuts known as sequestration. To date, Senate Democrats have steadfastly refused to negotiate and promised to reject anything other than a clean CR or debt increase. Although the idea of repealing the ACA’s medical device tax has had bipartisan support in the past, Democrats have made clear that a repeal of the device tax would be no different than other changes to the Affordable Care Act that the GOP desires and will reject such linkages to reopening the government, even though many democrats support that particular change.

With significant differences between the potential Senate Republican proposal and the proposal announced Thursday in the House, Republican leadership will have a tough time achieving consensus from the whole conference on a reconciliation of the two plans. Many Senate Republicans have already rejected the idea of raising the debt ceiling without a CR to reopen the government. Republican Senators are scheduled to meet with President Obama at the White House Friday morning.

The Senate unanimously cleared the bill to ensure the Pentagon’s ability to pay military death and funeral benefits. The resolution will now be sent to President Obama who is expected to sign it.

Majority Leader Reid’s bill suspending the debt limit until the end of 2014 is scheduled for its first procedural vote on Saturday.

The White House
President Obama met with a group of House Republicans that included leadership and key committee chairmen on Thursday evening. The group failed to reach a compromise but House Majority Leader Eric Cantor (R-VA) described the discussion as “constructive.” White House and Republican House staff planned to continue talking into the evening.

Senate Democrats also met with the President at the White House earlier on Thursday. After their meeting, they confirmed their stance again that the government must be reopened before budget negotiations can take place.

Agency Spotlight: Department of Veterans Affairs
The U.S. Department of Veterans Affairs (VA) offers a range of services to veterans (a population of more than 22 million in 2012) including health care benefits, life insurance coverage, disability compensation, home loans, survivors’ benefits, education assistance, Veterans’ pensions, vocational rehabilitation, and burial and memorial benefits. Due to the shutdown, the VA has suspended: the processing of new or pending Education and Vocational Rehabilitation benefit claims; processing of applications for Presidential Memorial Certificates; hearings and decisions by the Board of Veterans Appeals; program analysis and evaluation; and Transition Assistance/Predischarge Activities, among other activities. Programs that will continue include: ongoing payments and processing of compensation and pension; Home Loan Guaranty Program; Insurance Program; medical services; medical support and compliance; medical and prosthetic research; medical facilities; burials; and processing of headstones, markets, and medallions.

Funded in large part by multiyear or advance appropriations, the impact on the VA (which has only had to furlough roughly 4% of its workforce) is more minimal than at many other federal agencies. The length of the government shutdown will determine the ultimate impact, however, as the VA goes through carryover appropriations balances. Secretary of the VA Eric Shinseki says that if the government is not open by the end of October, over 5 million Veteran beneficiaries will not receive their checks. Moreover, he fears an extended shutdown will undermine the VA’s recent efforts to reduce the backlog of disability claims. The VA has also been found to contract with a large proportion of small businesses, which will feel the impact of the shutdown more acutely than large contractors with more revenue streams.

For more information on specific activities, please see the VA Contingency Plan.

Public Opinion
According to a Gallup poll conducted October 3-6 and released Wednesday:

  • Favorability Ratings
    • Republican Party
      • 38% - September
      • 28%** - October
      • NET CHANGE = -10%
    • Democratic Party
      • 47% - September
      • 43% - October
  • Republicans who view their own party unfavorably: 27% (+8% from September).
  • Democrats who view their own party unfavorably: 13% (+1% from September).

**This (28%) is the lowest favorable rating measured for either party since Gallup began tracking it in 1992.

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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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