September 18, 2023
Preparing for Fiscal Year-End Collision
In May, FBIQ commented: “While the details of the Fiscal Responsibility Act (FRA) P.L. 118-5 were in line with FBIQ’s forecast, the deal occurred months earlier than we originally expected because of an action-forcing event—lower revenues and increased spending accelerated the debt limit timetable from fall to June 5. Rather than pursue the two-step process that precedent suggested, negotiators for President Biden and Speaker McCarthy (R-CA) opted to take worst-case-scenario—a federal default that would rattle financial markets and likely trigger a recession—off the table.”
The FRA averted a default and the risk of a financial crisis with sweeping global market implications. Because that deal set FY24 and FY25 discretionary spending caps before either the House or the Senate cast a single floor vote on an FY24 appropriations bill, factions of both political parties felt undercut by the process.
In May, post-FRA tensions within the House Republican Caucus spilled onto the House floor creating political problems for Speaker McCarthy (R-CA) and House Appropriations Chair Granger (R-TX). While the FY24 FRA caps are less than the FY23 enacted levels, some factions within the House Republican Caucus want to roll funding levels back to FY22 levels. Under pressure from McCarthy, Granger set allocations for non-defense appropriations $119 billion lower than permitted under FRA. That partisan decision has had consequences including expected veto threats on each of the House Appropriations Committee (HAC) approved FY24 appropriations bills.
The Statement of Administration Policy issued on H.R. 4365 includes:
“In May, the Administration negotiated in good faith with the Speaker on bipartisan legislation to avoid a first-ever default…. This negotiation resulted in the Fiscal Responsibility Act (FRA) of 2023, which passed with overwhelming bipartisan support and set spending levels for FYs 2024 and 2025.
House Republicans… 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.
…The Administration stands ready to engage with… Congress in a bipartisan appropriations process to enact responsible spending bills that fully fund Federal agencies in a timely manner.”
The partisan, political House Appropriations strategy now risks a manufactured crisis—a partial government shutdown. Failure to begin serious negotiations over the August recess on a continuing resolution (CR) beginning October 1 increased that shutdown risk from less than 10% to 20%. With eight legislative days remaining on the House Calendar before the September 30 deadline for a deal, a breakthrough is needed next week to give Congress time to implement a CR agreement.
Senate bills are marked up consistent with the caps and with bipartisan support, in sharp contrast to the House. As a practical matter, the current political stalemate and McCarthy’s limited ability to control key members of his caucus, make the most likely short-term outcome a “kick the can” CR agreement intended to buy negotiators more time (1-2 weeks) to reach a deal.
House GOP members are considering provisions to insert in the short-term CR that we expect the Senate to oppose. The smart move would be to reduce CR spending in line with the FRA.
In the interim, agency managers are busy preparing shutdown plans for Office of Management and Budget (OMB) review and approval pursuant to OMB Circular A-11, Section 124.