Washington Update

Update on Budget Negotiations in Congress and Fiscal Year 2014 Appropriations

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The first step in adopting an annual budget for the federal government is for the House of Representatives and the Senate to each pass a concurrent resolution on the budget before working out the differences so that there is one set of fiscal targets for the coming fiscal year, 2014. This year, both the House and Senate passed budget resolutions setting very different targets, but the House has shown no interest in sitting down with their colleagues in the Senate to iron out the differences.

The Budget Control Act of 2011 set discretionary spending targets for the next decade. Those targets are enforceable caps on defense and non-defense spending. For FY 2014, the overall discretionary cap is $1.058 trillion ($552 billion for defense and $506 billion for non-defense). The House budget provides a total of $972 billion for all discretionary spending, $86 billion below the budget target set in the Budget Control Act (BCA), and it proposes to balance the federal budget by 2023—with no new revenues. The Senate number is $1.12 trillion, $62 billion above the BCA target. While the Senate budget resolution assumes that Congress will end sequester, the House resolution continues sequester, further cuts non-defense spending, and increases defense spending.

Appropriations:

On June 20, 2013 the Senate Appropriations Committee adopted subcommittee allocations for FY 2014 spending bills. The Senate Labor-HHS subcommittee, which determines funding for health, research and dental education programs of interest, would receive $164.3 billion in fiscal year 2014 under the Senate committee allocations, nearly $43 billion more than the $121.8 billion allocation in the House.

Given the wide spread between the budgetary targets the Appropriations Committees are left to produce bills at each Chamber’s budget level, creating an untenable situation for appropriators trying to reconcile differences in appropriations bills when there is no overall agreement on the larger budget issues (principally spending targets, the size of the deficit, and the necessary level of revenues).

Only the House Appropriations Committee has set its subcommittee targets to date. It has set the Labor-Health and Human Services-Education subcommittee level at $121.8 billion. This compares unfavorably to the FY 2013 pre-sequester comparable amount of $156.9 billion. The Senate has not yet made its subcommittee allocations; it will do so when it considers its first bill expected on June 17. The Senate’s allocation will be closer to last year’s level.

Debt Limit:

The debt limit legislation, which expired May 18, 2013, will not have to be revisited until sometime in the fall. This is due to a couple of fortuitous fiscal events since it was enacted in February. First, revenues are up and spending is down, thus improving the government’s fiscal situation. Second, Fannie Mae and Freddie Mac, two quasi-governmental mortgage companies, repaid multibillion dollar portions of loans made to them during the recession, also improving the government’s fiscal position.

Outlook:

All of these factors mean that the summer will have some activity; the two Labor-HHS bills will be marked up, but the bills will not move until September or possibly October. In order for the appropriations committees to avoid a continuing resolution, it is necessary for the two Budget Committees to meet and come to an agreement on a single spending level for next year, along with other fiscal targets. If that does not happen, we may be forced into a continuing resolution which usually funds the government at the previous year’s level. Under the overall discretionary spending caps contained in the BCA, as amended, the FY 2013 total is larger than the FY 2014 total by $15 billion, which means that a FY 2014 continuing resolution must include cuts of that amount from the FY 2013 level. How those would be applied is an open question.

If it were to follow the precedent set in the BCA, we might expect a $7.5 billion cut from both defense and non-defense programs, but the House budget increased defense at the expense of domestic programs—we could expect the House to strongly resist cutting it below last year’s level. Likewise, the Senate might attempt to treat both categories equally.

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