FY 2020 Coming into View

Update 346 — FY 2020 Coming into View
Backward, Baby Steps So Far; Cliff 2.0 Looms

As Congress departs for a two-week recess, it leaves behind a budget process with miles to go. Where does the FY 2020 budget making process stand, what steps are ahead, what is at stake, and what are the obstacles to completing next year’s federal budget?  And what about the debt limit?

We examine the state of play on the budget process and discuss the most perilous risks and likeliest outcomes below.  


Good weekends, all.

Best,

Dana

———————————————-

The fiscal dysfunction that is the congressional budget process has relegated “regular order” to distant memory. Members increasingly rely on continuing resolutions (CRs) to keep the government funded, but at previous years’ levels. Hyper-partisanship has made achieving consensus close to impossible; the budget process is screaming out for reform.

Under regular order, part statutory, part customary, the president submits a request to Congress in the first week of February, the House and Senate Budget Committees pass budget resolutions by mid-April, and the chambers’ Appropriations subcommittees markup bills under their jurisdiction. The two chambers then vote and reconcile differences, and the President signs the funding bills into law before October 1, the end of the fiscal year.

How much of this will happen? Some of it already has.   

In seven of the eight most recent fiscal years, Congress did not adopt a formal budget resolution at all. Instead of enacting appropriations bills, they adopted CRs, which maintain current funding levels until Congress can agree on funding bills. This is not a bad outcome for Republicans. Is it inevitable to recur?

President’s Budget

White House budget requests have become more about political posturing than actual funding prescriptions. On March 11, the Trump Administration submitted its budget request to Congress and it was dead on arrival. A few GOP Senators even made comments on the record dismissing the proposal. Some of the President’s more egregious requests included:

  • a $241 billion Medicaid cut
  • $200 billion student loan program cuts
  • a 31 percent reduction in the EPA budget
  • $8.6 billion in funding for the wall

The President’s budget, while slashing social programs by billions of dollars, would add more than $33 billion to the Department of Defense budget, with defense spending accounting for 57 percent of the entire federal discretionary budget. To avoid raising the defense caps, Trump used the Overseas Contingency Operations (OCO) fund to raise the Department of Defense spending. OCO is exempt from the budget caps.

In recent years, appropriators have blown through the budget caps set in the House and Senate budget resolutions. This year, the Senate passed a resolution along party lines. Because the House Democratic caucus was split and could not agree to a budget resolution, they resorted to a “deeming resolution,” setting an aggregate spending cap of $1.3 trillion so appropriators could start writing their FY 2020 bills.

While most people will be focused on the negotiations among appropriators, as well as the Appropriations Committee activity, more important are the changes to statutory budget caps put into law in 2013.

The Spending Caps Debate

Spending caps will dominate the FY 2020 budget negotiations. Democrats want to raise the non-

defense spending cap by the same amount that Republicans want to raise the defense spending cap — a non-starter with Republicans. Failure to reach an agreement by this September would result in sequestration (automatic, across-the-board spending cuts) under the Budget Control Act of 2011 (BCA). These cuts would be so large, over $100 billion, that neither party could live with it.

Policymakers scrapped the caps and sequesters for 2013 through 2017. The Bipartisan Budget Act of 2018 raised the defense and nondefense spending caps by around 16 percent relative to prior year levels, however the agreement only covered FY 18 and FY 19. The current FY 20 budget marks the return of sequestration, mandated by the BCA, unless Congress can find a workaround.

On Tuesday, the House adopted their “deeming” resolution, giving appropriators about $1.3 trillion for both defense and non-defense programs. The current baseline for FY 2020 is about $1.2 trillion. Although disagreement among Democratic House members prevented a budget resolution, this will give appropriators in the House the guidance needed to get started.

The hard part will be deciding where the money goes. Progressive Democrats like Rep. Ro Khanna have pledged to fight for cuts to defense spending while increasing non-defense caps. “I don’t understand why we want to concede before waging the battle.” Addressing questions about party unity, Speaker Pelosi emphasized that the deeming resolution is just one part of the process, not necessarily the final outcome.

The decades-long problems related to passing government funding bills cannot be blamed on the House. Appropriations bills usually pass the House, only to die a slow death in the Senate. As a result, they need to be bundled together with other bills (omni- or mini-buses), or else Congress must pass a CR.

Another Fiscal Cliff

In September, Congress will have to tackle a number of budget-related issues. If Congress does not reach a deal to lift or eliminate spending caps, federal agencies will have to cut $70 billion on defense and $55 billion on the non-defense side to adhere to existing statute. With a new House majority, any spending cap deal will flow through House Appropriations Chair Nita Lowey and Ranking Member Kay Granger, along with Sens. Shelby and Leahy. By the end of September, funding bills must advance through Congress and be signed by President Trump.

Under the Sword of the Debt Limit

Hanging over all of these issues is the debt ceiling — the self-imposed limit of money that the US government can borrow.  Most countries either do not have a debt limit or set it so high it is never in danger of being breached, but the U.S. Constitution mandates Congress to authorize borrowing. Increases in the debt ceiling are not new funds being allocated or programs being created — they provide the money to fund existing obligations.

Republicans in recent years have shown their willingness to refuse to raise the debt ceiling; some even doubt that defaulting on US debt would be a bad thing. During his time in office, President Obama had several negotiations over the debt limit with Congressional Republicans and always insisted on a ‘clean’ debt ceiling increase, while Republicans called for cuts to domestic spending programs. With a Republican President and a Democratic House, will politicians continue to make partisan demands and hold the US government hostage?

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