What a difference a year makes.
At the end of July 2022, the House Appropriations Committee (HAC) had approved all 12 FY23 appropriations bills with the House passing 7—Agriculture, Energy & Water, Financial Services and General Government (FSGG), Interior, MilCon- VA (MCVA), and Transportation-HUD (T-HUD). This year, HAC has approved 10 of the 12 FY24 Appropriations bills (all but Commerce-Justice-Science and Labor-HHS) based on allocations that were $159.8 billion below FY23, and $119 billion below the FY24 non-defense spending cap set in the Fiscal Responsibility Act (FRA). The House has passed one FY24 Appropriations bill – MCVA.
At the end of July 2022, the Senate Appropriations Committee (SAC) had not approved a single FY23 Appropriations bill. This year, SAC Chair Murray (D-WA) and Vice Chair Collins (R-ME) worked on a bipartisan basis to move all 12 FY24 Appropriations bills through committee with broad bipartisan support. SAC members voted unanimously to approve 7—Agriculture, Energy & Water, FSGG, Legislative Branch, MCVA, and T-HUD—FY24 Appropriations bills. The Committee’s most controversial FY24 SAC bill – DHS – was approved on a 24-4 vote. Murray and Collins marked the Committee bills to the FY24 FRA cap, utilized roughly $50 billion in FY24 offsets greenlighted by the FRA negotiators, and added billions in emergency spending to boost both defense and non-defense accounts.
House Republicans had an opportunity to engage in a productive, bipartisan appropriations process, but instead, with just over two months before the end of the fiscal year, are wasting time with partisan bills that cut domestic spending to levels well below the FRA agreement and endanger critical services for the American people.
OMB Statement of Administration Policy,
July 24, 2023
While full Senate votes on these bills are unlikely, the SAC-approved bills are good proxy for year-end FY24 spending totals. By contrast, it is unlikely that the House can pass any of the remaining HAC-approved bills other than Defense. Why? July’s internal GOP impasse over potential amendments prevented the House from bringing the HAC FY24 Agriculture Appropriations bill (H.R. 4638) to the floor. It also triggered a Statement of Administration Policy on H.R. 4638 that concluded, “If the President were presented with H.R. 4368, he would veto it.” With only 5-vote Republican majority, Speaker McCarthy is 65 votes short of the total needed to override a veto.
Chart I and Chart II outline the funding challenge. The FRA passed with wide vote margins in the House (314-177) and Senate (63-36) because adoption of that bill averted a default. With default off the table, vote margins on a final FY24 Appropriations package will shrink significantly. Why? House and Senate progressives oppose the non-defense spending cuts in the FRA. Freedom Caucus members contend those cuts aren’t deep enough.
While we expect year-end FY24 spending totals to meet the FY24 FRA caps and add billions in offsets and spending cap-exempt “emergencies,” getting there remains a challenge.
Chart I. Source: Office of Management and Budget, House Appropriations Committee, Fiscal Responsibility Act of 2023, FBIQ
WHY HAS THE SHUTDOWN RISK INCREASED?
Negotiating a long-term continuing resolution is inherently a bipartisan, bicameral exercise with active participation by the Administration. With only 12 scheduled legislative days remaining before FY24 begins on October 1, there isn’t time for the House and Senate to pass competing bills, a conference to resolve differences between them, and votes to pass a conference report. Avoiding a shutdown means working in advance of the deadline. To date, that hasn’t started.
The House GOP appropriations strategy suggests that they will push for a more restrictive continuing resolution (CR) than we have seen in recent years. The FRA provision that triggers a 1% sequester on January 1 if Congress fails to finalize full-year appropriations is a clear indication of that strategy. When assessing likely FY24 funding outcomes, the irony of that approach is that the two cabinet agencies most detrimentally impacted by a long-term CR at levels below FY23 appropriations are the top funding priorities for House Republicans — the Department of Defense and Veterans Affairs.
Chart II. Source: Office of Management and Budget, House Appropriations Committee, Fiscal Responsibility Act of 2023, FBIQ
The House Republicans divergence from the FRA triggered veto threats from the Biden Administration on those bills. That combination makes compromise more difficult for both parties and doubles the short-term partial government shutdown risk from less than 5% to 10%.
Agency managers should prepare to operate under a more restrictive CR through most of the first quarter of FY24 (Oct-Dec).
For contractors, this situation creates an opportunity for mission-critical programs. How? Accelerating planned FY24 new starts into FY23 Q4 can reduce operational risk for federal agencies.