Update 746 — FY24 Top-Line Agreement:
Speaker’s Fraught Sell to Freedom Caucus
Congressional leaders announced an agreement Sunday on top-line domestic and defense budget target levels of $704 and $886 billion respectively for fiscal year 2024. The figures ratify targets set in the Fiscal Responsibility Act, passed last June by wide margins to avert a debt limit crisis. One might expect a similar outcome in a vote before the January 19 spending tranche deadline. But the June vote presaged the House GOP conference rebellion that ultimately resulted in Speaker McCarthy’s ouster in September.
Opposition to Sunday’s agreement within the conference evidenced by a procedural rules vote this afternoon presents a challenge for the agreement, the deadline, and Speaker Johnson, McCarthy’s successor. Yesterday, Senate Minority Leader Mitch McConnell warned a short-term extension of the January 19 deadline — ruled out by Johnson when the deadline was set — was “obviously” necessary. Implications for Johnson and the first FY24 spending tranche — including a partial shutdown — are detailed below.
Best,
Dana
Johnson, Schumer Set Top-line FY24 Funding
Congressional leaders agreed on a top-line FY24 discretionary funding number of $1.59 trillion on Sunday. The deal, struck between Speaker Mike Johnson (R-LA) and Senate Majority Leader Chuck Schumer (D-NY), marks initial progress in the FY24 appropriations process, stalled since the passage of a two-step continuing resolution (CR) almost two months ago providing short-term funding for four appropriations bills until January 19 and the remaining eight until February 2.
The agreement sets targets of $886 billion for defense and $704 billion for non-defense discretionary (NDD) funding, totals that align with the base agreement made in the Fiscal Responsibility Act (FRA) last June. The top-line deal also includes an additional $69 billion in NDD “side-deal” funding that was negotiated as a part of the FRA, bringing total NDD funding to $772 billion.
Speaker Johnson’s acceptance of the FRA top-line and side-deal funding has angered some leading House Republicans, culminating in a procedural vote on Wednesday in which 13 Republicans joined Democrats in casting a no vote. Among the most outspoken opponents is House Freedom Caucus (HFC) Chairman Representative Bob Good (R-VA), who noted that the deal is a backtrack from the contentious FRA agreement, “with no significant policy wins.” Good’s remarks were echoed by the HFC this week, which called the agreement a “total failure.”
Speaker Johnson has argued that the top-line deal is the best that the Republicans have negotiated in the budget process in recent years. Although it marks an acceptance of the FRA that ultimately cost former Speaker Kevin McCarthy his job, Johnson claims that he was able to advocate for funding levels $30 billion lower than the Senate budget proposals. According to Johnson, the deal adjusts the original terms of the FRA by including a:
- $20 billion funding rescission from the IRS during FY24 to be spent on other NDD priorities. Lawmakers agreed to a $10 billion rescission in FY24 and FY25 through the FRA, but the new deal would accelerate the rescission.
- Rejection of an additional $14 billion in emergency funding proposed by Senators Murray and Collins (split between defense and NDD programs).
- Rescission of $6.1 billion in COVID funding leftover from the pandemic.
In a letter to House colleagues detailing the terms of the top-line deal, Speaker Johnson also vowed that Republicans will continue to push policy riders on issues like abortion and immigration, noting that agreement on a top-line number will allow negotiations to pick up. But Ranking Member of the House Appropriations Committee Rosa DeLauro (D-CT) recently stated that “Democrats will not accept any Republican poison pill policy changes,” a sentiment reiterated by House Minority Leader Hakeem Jeffries (D-NY) and Senate Majority Leader Schumer.
Next in the budget-making process, House and Senate Appropriations subcommittee chairs will work to iron out specific funding details meeting these targets for each spending bill, otherwise known as 302(b)’s. The fight over side deal money for NDD spending that brings the total top-line to $1.66 trillion is likely to continue. But Speaker Johnson may have trouble passing the appropriations bills if he fails to secure wins for HFC and Republican priorities.
Johnson may have to look to Democrats for help to pass final FY24 bills, since he may not be able to rely on the narrow three-vote Republican majority in the House. The agreement has secured support from Democrats and President Biden. The Speaker could attempt to pass appropriations legislation under suspension of the House rules to circumvent objections within the House Rules Committee, but that would require a two-thirds vote threshold — attainable only with Democratic support. However, Johnson will need to tread lightly as Representative Chip Roy (R-TX) has suggested a motion to remove Representative Johnson from his post as Speaker remains a possibility.
Paths Forward to Avoid Partial Shutdown on January 19
The CR for the first four spending bills (Transportation-HUD, Agriculture, Military Construction and Veterans Affairs, and Energy and Water) expires on January 19. Yesterday, Senate Minority Leader Senator Mitch McConnell, joined by members of both parties, noted that it is extremely unlikely Congress will be able to negotiate the first funding tranche before its impending deadline. Further complicating any hope for smooth negotiations, House Republicans have already splintered in reaction to the top-line deal, increasing fear of a partial or full shutdown. A partial shutdown leaves essential services, military, and law enforcement in place, but will shut down a lot of programs and will remove many staff who administer other government programs.
But multiple paths to avoid a partial shutdown on January 19 remain (in order of likelihood):
Short-term CR extending January 19 funding deadline
A short-term CR would allow Congress more time to negotiate bills under the new top-line agreement. Speaker Johnson has previously denounced the use of another short-term stop-gap funding bill, but one may be necessary to provide ample time to negotiate FY24 bills and iron out the text. Senate Minority Whip John Thune (R-SD) has suggested a CR that puts off the January 19 deadline until the beginning of March. Still, it is currently unclear whether this idea would include all 12 appropriations bills or be able to pass the House.
Full FY24 appropriations bills
Congress aimed to agree on top-line funding levels by the beginning of this week and was able to meet this goal. However, there is still much work remaining to negotiate and finalize the text for the first four funding bills. This will remain the main priority, especially given that 2024 is an election year. However, opposition from House Republicans may make the timetable for appropriations legislation difficult.
Full-year CR
A full-year CR is another potential solution being explored by legislators. This would likely lead to significant cuts in NDD spending, triggering steadfast opposition from Democrats. It is unclear whether a full-year CR would lead to a sequester and associated cuts to defense and NDD funding. Legislators still have the power to pass legislation nullifying the enforcement mechanism included in the FRA. The CBO issued a report outlining the terms of the FRA as they relate to sequestration if programs are funded under a CR come April 30.
Legislative Priorities that Could Be Attached to FY24 Bills
The appropriations process is also an opportunity for progress on other legislative priorities such as the contentious border negotiations, a bipartisan tax package, SSI reform, and a fiscal commission.
Border Security
Senator James Lankford (R-OK) expressed optimism over the weekend that the text for the long-awaited border deal could be released as early as Tuesday. However, negotiations halted on Monday evening after disagreements arose over parole authority.
Initially, a border deal was meant to unlock critical funding for Ukraine, Israel and the Indo-Pacific. After a recent trip to the Texas border at Eagle Pass, House Republicans began to shift their stance on that contingency. The HFC threatened to force a partial government shutdown unless H.R. 2 level policy changes are included, such as further limiting migrants’ abilities to claim asylum, expanding the border wall and restricting the President’s power to grant humanitarian assistance to migrants. Now, both vital funding for American allies and the government could become contingent on these already fragile negotiations.
On Wednesday, the House Homeland Security Committee will hold its first impeachment hearing for Secretary Alejandro Mayorkas, a key negotiator in the process. The bipartisan compromise required to move this deal through both chambers of Congress and past President Biden’s desk appears increasingly elusive.
Bipartisan Tax Package
A tax package including an expansion for the Child Tax Credit and business tax provisions (bonus depreciation, R&D amortization, and the Section 13(J) interest limitation) is unlikely to move before February, leaving much uncertainty about whether or not the IRS would be able to apply changes for the 2023 tax year. Senator Ron Wyden (D-OR) and Representative Jason Smith (R-MO) are currently pushing for this package to be passed before the filing season begins on January 29, and it shares relative bipartisan support. There are signs that lawmakers may be looking to halve the overall size of the package from its original cost of around $100 billion, but it remains unclear whether these efforts will be crowded out in the next few weeks.
SSI Reform
Reform of SSI income thresholds also shares bipartisan support, but faces the same risk as the tax package of being crowded out by other priorities. Although work has continued behind the scenes, lawmakers have not signaled their intention to group this legislation under a vehicle provided by FY24 appropriations legislation.
Fiscal Commission
The push for legislation establishing a fiscal commission is likely to be put on the back burner. What was once a priority for Speaker Johnson has lost steam, and is no longer expected to pass at the beginning of this year. We may see this idea come up in a potential budget resolution for FY25, but progressive lawmakers should continue to be skeptical about the motives of the Republican-led push for a commission.
Work Ahead on FY24 Appropriations
Speaker Johnson’s ability to avert a partial government shutdown by January 19 will require a careful balancing act with far-right colleagues; he will likely need to walk back his promise to avoid another short-term CR. Threats to oust the Speaker have materialized as Representative Roy expressed his disappointment in Johnson’s bipartisan top-line negotiations, and Republicans plan to continue advocating for policy riders that are non-starters with Democrats. A partial shutdown has become a further risk with far-right pressure for harsh border policies to be implemented. Fears of a shutdown are shared by OMB Director Shalanda Young, who recently voiced her skepticism that Congress will be able to resolve differences and come to an agreement within the next 10 days. Congress will surely be working until the last minute to avoid the harmful consequences that will result from even a partial government shutdown at the end of next week.