New Year, New Budget?

January is off to a cold start in most of the country, but, in Washington, battles over the federal budget will heat up this month.
 
Congress left several items on its budget to-do list for the new year. Most of the government remains funded at last year’s levels under a continuing resolution (CR) that expires on January 19. One must-do item is a CR extension that will avoid a partial government shutdown on January 20 and give Appropriations Committee negotiators time to complete work on fiscal year 2018 discretionary funding.
 
Discretionary funding covers the basic operations of the government (i.e., the operating budgets of agencies such as the Department of Defense, the Treasury Department, and the National Park Service) and is determined annually in appropriations bills. This is separate from “mandatory spending,” which includes entitlement programs and other activities that are authorized and funded apart from appropriations bills.
 
The hope is that an agreement on discretionary budget caps for both FY 2018 and FY 2019 can be reached among congressional leaders and the White House early this month. Early is preferred since the Appropriations Committees can’t begin serious negotiations until they know the overall budget caps for defense and nondefense spending. Decisions can’t be made on specific programs without knowing the total amount of funding available.
 
The budget cap negotiations have several moving parts. Democrats insist on parity for nondefense spending – in other words, an increase to the nondefense caps that is equal to any increase to the defense caps. Congressional defense hawks are looking for a large increase to defense spending (House-approved FY 2018 defense spending for base programs is $621.5 billion; the FY 2018 budget cap is $549 billion). It is unlikely that either side will get everything they want. But it is likely that any agreement will include substantial cap increases and will give deficit hawks heartburn, unless negotiators also come up with budget savings to pay for the increases.
 
Other issues also factor into budget negotiations. A high priority for Democrats is an extension of the Deferred Action for Childhood Arrivals (DACA) program, which allows persons who entered the United States illegally as minors to remain in the country temporarily. Republicans may not support a DACA extension without funding for enhanced border security, including the President’s proposed wall. Changes to other immigration policies such as chain migration and the Diversity Visa Lottery Program are likely to be put on the table as well.
 
Discussions over an increase to the federal debt limit may also get wrapped into budget talks. The Congressional Budget Office estimates that Treasury can manage cash without the threat of default until late March or early April, although Treasury stated in November that “extraordinary measures will allow the government to continue to meet its obligations through January 2018.” Negotiators will likely want to take care of the debt limit in a budget cap deal so they don’t have to endure a second major budget battle in just a few weeks.
 
A disaster supplemental appropriations bill also remains undone, to the frustration of states and territories hit in 2017 by severe hurricanes (Texas, Florida, Puerto Rico, and the Virgin Islands) and wildfires (California). The Administration sent a $44 billion disaster funding proposal to Congress in November, and the House passed an $81 billion version just before it left town for the holidays. Look for the Senate to act quickly on this bill – and possibly add to its price tag – in January.
 
Other pending business for Congress includes: extension of the Children’s Health Insurance Program, help for pension funds that are likely to become insolvent, extension of the National Flood Insurance Program, legislation to help stabilize health insurance markets, reauthorization of section 702 of the Foreign Intelligence Surveillance Act (relating to surveillance of communications of non-U.S. citizens located outside the country), and the possibility of an infrastructure spending proposal from the Administration.
 
While Republicans control the White House and both houses of Congress, Democrats have had plenty of leverage on the budget and other issues. The Senate needs 60 votes to move forward on most legislation, and, in 2017, Republicans held a slim 52-48 majority in the Senate. In 2018, Democrats’ leverage will improve slightly with the swearing in of Senator-elect Doug Jones (D-AL). Republicans’ new 51-49 margin in the Senate may also be affected by potential absences of Senators John McCain (R-AZ) and Thad Cochran (R-MS), who both had health concerns that kept them away from the Senate for periods in 2017. Republicans will need to make compromises with Democrats to get legislation through the Senate.
 
The first signal regarding what can be accomplished in January may come on Wednesday, January 3, when congressional leaders are set to meet with top Administration officials to discuss the budget and immigration issues.
 
Looking ahead to the rest of the year, the President’s budget for FY 2019 is due to be released on February 5, but since FY 2018 remains unfinished, don’t be surprised if the budget is delayed. Expect a budget plan with deep spending cuts in most discretionary programs, even if there is a budget cap agreement that includes FY 2019. For Congress, the mid-term elections will loom over every budget decision. Count on a CR to start FY 2019, and a lame duck congressional session when they will decide whether to finish the budget or punt to the 116th Congress.
 
So stay tuned to see if Washington’s budget climate continues in a winter deep freeze or if the atmosphere warms up for a budget agreement.