The Elevator Speech Overview
Tuesday is day fifteen of the government shutdown with two days remaining until the Treasury says the U.S. will hit its debt ceiling. After optimism Monday evening that a Senate brokered deal would soon bring an end to the shutdown and debt ceiling crisis, Tuesday appeared to be yet another lost day. Attention shifted to the House where House Republicans were worried that the Senate deal would give away too much. After a nearly two hour GOP Conference meeting, leaders began crafting a new proposal that again sought policy concessions in exchange for reopening the government. Both Senate Democrats and the White House have already expressed opposition to the proposal. Late Tuesday evening, the GOP was set to take the proposal to the floor but had to pull it from consideration when Republican leadership realized it did not have enough votes to even pass the House. The Senate negotiators, who were expected to finalize their talks on Tuesday, had put their talks on hold to watch how events in the House develop. Focus now again turns to the Senate.
U.S. House of Representatives
Republican leadership in the House essentially removed themselves from discussions over the weekend after the White House rejected their first proposal Friday evening. Unenthusiastic about the plan being brokered by Senate leaders on Monday, however, House Republicans reinserted themselves into negotiations and began developing a new proposal on Tuesday. GOP leaders were weighing the inclusion of a variety of policy riders for most of the day, trying to identify the provisions necessary to satisfy enough House Republicans to pass. Both Senate Majority Leader Harry Reid (D-NV) and the White House renounced the nascent proposal as again demanding policy concessions in order to reopen the government and pay its current obligations.
House Minority Leader Nancy Pelosi (D-CA) also announced that House Democrats would be united against the House Republican proposal. Assuming (as is likely) that none of the House Democrats broke with leadership, the Republican proposal would need the votes of at least 217 of the 232 House Republicans to pass.
Accordingly, Speaker John Boehner (R-OH) and his team spent all day adjusting the proposal, trying to craft a bill that would garner enough Republican support to pass in the House. The new proposal kept some components of Sen. Susan Collins’ (R-ME) Senate proposal but added more policy riders. The result that took shape would fund the government at sequester levels until December 15, suspend the debt ceiling until February 7, but also removes the Treasury’s ability to use “extraordinary measures” until April 15, 2014, ensure retroactive pay for furloughed federal employees and eliminate the employer match for health care under the Affordable Care Act (Obamacare) for Members of Congress, congressional staff, White House staff, the President, Vice President, Cabinet, and political appointees within the Administration.
As compared with the Senate proposal, the debt ceiling date remains February 7 but it gets rid of the Treasury’s flexibility to prolong the true deadline through workaround tactics such as limiting investment in pensions and other funds. It shortens the continuing resolution (CR) by a month to December 15 to allow Congress time to revisit the Affordable Care Act (ACA) and maintains sequester level funding. The House proposal also eliminates both health care provisions in the Senate proposal: the Democrat-desired provision for a delay in the reinsurance tax (an additional cost added to every insurance plan to spread the risk for insurers that enroll the sickest patients) and the Republican-desired income-level verification for individuals receiving health care subsidies under the ACA. Instead, the House proposal would include just one health care provision, eliminating the subsidy for Members of Congress, the Administration, and their staff, and consequently making their healthcare more expensive. It was originally hoped that the measure would be able to go to the floor for a vote Tuesday night but was delayed because there was not enough Republican votes to pass the bill.
U.S. Senate
After a promising start on Monday, Senate negotiations on a deal were halted as House Republicans began crafting a new proposal on Tuesday. Senate leadership paused the talks to see how the action in the House developed throughout the day. Majority Leader Reid expressed anger and frustration on the Senate floor, saying he felt “blindsided” and commenting that House action could negatively impact the Senate talks.
With Tuesday’s events, both Republican and Democratic Senators grew increasingly anxious about the possibility of default. The failure of the House proposal attempt means that the negotiations shift back to the Senate; the debt ceiling is predicted to hit on Thursday, however, leaving little time for a deal to be finalized and brought to the floor for a vote. Additionally, procedural rules could enable a single senator to delay a vote by objecting to efforts to quickly schedule the vote; the objection would trigger a series of procedural votes that would slow down the process and could push the Senate past the October 17 deadline. Senator John Thune (R-SD), the third ranking Republican Senator in leadership, has spoken out against such tactics and hopes that a quick vote will be possible. Negotiations were again underway in the Senate Tuesday night, with the final Senate deal expected soon.
**Correction: Yesterday’s update mistakenly said the Reid-McConnell deal would suspend the debt ceiling until February 15. Their proposal would actually extend it until February 7.
The White House
The White House expressed opposition to the House Republican action on Tuesday, particularly opposing changes to the ACA. White House Spokesman Jay Carney commented that the President is “encouraged by the progress we’ve seen in the Senate, but we’re far from a deal at this point… we hope that progress continues.” President Obama met with House Democratic leadership at the White House Tuesday afternoon.
Markets
Fitch Ratings, one of the three major rating agencies, announced Tuesday evening it was putting the United States triple A credit rating on “negative watch.” The action signifies that market watchers are growing anxious about the United States’ ability to pay its obligations. The U.S. federal government has $6 billion in interest payments due October 31. Stock markets also fell Tuesday with the Dow Jones Industrial Average falling 133.25 points.
Agency Spotlight: Small Business Administration
The Small Business Administration (SBA) offers loans, loan guarantees, contracts, counseling sessions and other forms of assistance to help Americans start, build and grow small businesses. With approximately 62% of its workforce furloughed, the SBA is almost entirely closed down. Of the non-furloughed employees, 92% are being retained because they work on or support disaster-related activities, which will continue during the government shutdown. In addition to the activities of the Office of Disaster Assistance (ODA), disaster funded and investigatory activities of the Inspector General will continue as well. Loan guarantees are a large part of the SBA’s work; the SBA normally approves 250 loans a day, totaling more than $90 million. Existing loan guarantees will remain in effect during the lapse in funding, but the SBA will not be able to process or approve new applications until the government reopens.
Nearly all other functions of the SBA will cease. Suspended programs include: 7(a) Loan Guarantees; 504 Certified Development Loans; Microloans; Surety Bond Guarantees; Procurement Assistance Program; HUBZone; Women-Owned Business Federal Contracting; Service-Disabled Veteran-Owned Small Business Procurement; SCORE; Small Business Investment Companies (SBIC); Small Business Innovation Research (SBIR); PRIME Program; Regional Innovation Clusters; BusinessUSA; and Secondary Market Guarantee.
For more information on specific activities, please see the SBA Contingency Plan.
Public Opinion
According to a survey by Pew Research Center conducted October 9-13:
-
Raising debt limit by Oct. 17 deadline…
-
51% - Absolutely essential to avoid economic crisis
- NET CHANGE from survey Oct. 3-6 = +4%
-
36% - Country can go past deadline without major economic problems
- NET CHANGE from survey Oct. 3-6 = -3%
Gallup’s Economic Confidence Index is based on two components: Americans’ assessments of current economic conditions in the United States and the perception of whether the economy is getting better or worse. With Washington’s current stalemate, Americans are growing increasing pessimistic about the economic outlook.
* The -12 drop is the largest weekly decline since the Lehman Brothers collapsed on Sept. 15, 2008, triggering a global economic crisis.
**The -39 score is the lowest Gallup has measured since late November/early December 2011.
Recommended Reading
