Appropriations Endgame

​The federal government is funded through December 8 under a continuing resolution (CR). Congress will need to complete fiscal year (FY) 2018 appropriations by then to avoid either a CR extension or a government shutdown.
 
There is never an easy path to compromise on final appropriations, with lengthy, high-stakes negotiations being the norm. There will be an unusual number of big-ticket items involved in FY 2018 appropriations negotiations:
 
Sequestration – Automatic spending cuts (i.e., sequestration) that were triggered in 2013 return in full force in FY 2018. Spending subject to annual appropriations is controlled by caps. Two budget deals – one for 2014 and 2015 and another for 2016 and 2017 – partially reversed cap reductions caused by sequestration and allowed Congress to negotiate final budgets. With the latest deal expiring, the FY 2018 cap on defense spending is reduced $2 billion, and the cap on nondefense spending goes down nearly $3 billion, as compared to the amounts approved for FY 2017.
 

• Sequestration creates an incentive for both Republicans and Democrats to negotiate another spending deal.

 
Defense spending – Lower FY 2018 defense caps did not stop the House from approving $72 billion more than the caps allow. And that doesn’t include another $74 billion in war funding that is exempt from the caps. In the Senate, its budget resolution assumes that defense remains at the cap (with war funding added on), but the Senate defense authorization bill includes increases on par with the House. Unless the law governing the caps is changed, any enacted defense increase would disappear due to another sequestration.
 

• The prospect for higher defense spending, and the threat to higher defense spending caused by sequestration, will incentivize congressional defense hawks to push for a budget deal.

 
Nondefense spending – Unlike defense spending, House and Senate action to date would leave nondefense spending at, or slightly below, the caps. Democrats insist, however, that any increase to the defense caps be paired with an equal increase to the nondefense caps. This complicates matters for Republicans, where intra-party factions differ on the relative importance of defense spending, nondefense spending, and deficit reduction.
 

• The prospect for higher funding levels for nondefense programs will encourage Democrats and moderate Republicans to compromise on a budget deal.

 
Disaster spending – Three category 4 hurricanes and severe western wildfires will have a consequential effect on a final appropriations bill. Congress already approved $15.25 billion in emergency disaster funds, and the House recently approved an additional $36.5 billion. But this takes care of only a portion of the massive cost of recovery and rebuilding. There will likely be a large disaster appropriation in December, and it could very well be part of a year-end appropriations bill.
 

• The urgent need for more disaster aid will motivate representatives from affected states and districts to support a budget deal if a disaster package and a final appropriations package are combined.

 
Wall funding – President Trump reiterated his demand for border wall money, and Democrats reiterated their strong opposition. The border wall is among several immigration priorities the President sent to congressional leaders as prerequisites for an agreement to protect immigrants under the Deferred Action for Childhood Arrivals (DACA) program (“Dreamers”). Democrats thought they had struck a deal with the President in September that deferred wall funding and would lead to DACA protections. House Minority Leader Pelosi (D-CA) and Senate Minority Leader Schumer (D-NY) characterize wall funding as “explicitly ruled out of the negotiations.” This will be a particularly difficult issue to negotiate, but –
 

• The desire for border security funding will motivate the President and his allies, and the desire to help Dreamers will motivate Democrats, to compromise.

 
Health insurance payments – On October 12, the President announced the end of “cost-sharing reduction payments,” which subsidize deductibles and copayments for lower-income participants in certain Affordable Care Act (ACA) marketplaces. Democrats accused the President of sabotaging the ACA, but Schumer expressed confidence in reaching an agreement: “I think we're going to have a very good opportunity in the omnibus [appropriations bill] to get this done in a bipartisan way, if we can't get it done sooner.” Sooner may be possible since a deal to restore payments for two years was announced by Senate Health, Education, Labor, and Pensions Committee Chairman Alexander (R-TN) and Ranking Member Murray (D-WA) on October 17. However, the deal still needs to pass the Senate and House and could still factor into a year-end appropriations bill if it is slowed by ACA opponents.
 

• Higher premiums and reduced options for constituents’ health insurance will incentivize most Members of Congress to compromise on a deal that restores payments.

 
Tax reform – This normally would not be included in a list of issues important to finishing a year-end spending bill. But, tax reform is the one issue that matters above all others to Republican congressional leadership. Odds are good that a negotiation on spending levels will be intertwined with negotiations on tax reform. Congressional Republicans desperately need a win on taxes.
 

• The political imperative of completing tax reform may give Republican leaders incentive to compromise on spending issues. However…

 
If congressional Republicans believe they can secure the votes for tax reform without any, or little, help from Democrats, the incentive to compromise on spending in exchange for tax cuts will dissipate. And, since a tax package is the highest priority for Republican leaders, getting a tax package passed could consume valuable time during the next few months the leaders might otherwise use to negotiate a spending deal, leaving appropriation bills high and dry.
 
The bottom line – there are plenty of incentives for Congress to complete a spending deal by the December 8 deadline, but tax reform looms over everything.