Untangling the Government Funding Mess

Happy New Year. The government shuts down in 16 days. By now, that second sentence can’t surprise you. A Congress that has operated on short deadlines and chaos since its inception last January heads into 2024 with more short deadlines and chaos. In fact, our heroes a crucial deadline with the passage of the new year.

The debt limit deal had a condition that, if Congress did not pass all of its full year spending bills by December 31, a “trigger” would kick in that would automatically cut all defense and nondefense discretionary spending programs across the board by 1 percent from fiscal year 2023 levels. We’re operating under a continuing resolution right now, so that trigger has been pulled.

I last May, when the debt limit deal was signed. At the time, it was seen as a point of potential leverage for ; because defense spending was increased in fiscal year 2024, sending it back below FY2023 levels would be a major cut that would spur Republicans to honor the deal. But lately, Democrats like Sen.

Patty Murray (D WA), chair of the Appropriations Committee, have been that the trigger will actually be far more devastating to programs, the government operations that ordinary people rely upon every day. This seemingly flipped the leverage back to Republicans. While media outlets have reported on the , they haven’t really explained what changed, explaining vaguely that “scorekeepers at the Congressional Budget Office readjusted their calculations.” That is technically accurate, but it doesn’t at all explain what the change actually was, or what is now at stake.

The short version is that Republicans still face the same three choices they did when they signed the debt limit deal: actually honor its terms, try in vain to enact massive cuts not contemplated in the negotiations that Democrats don’t support, or shut down the government. The seeming change in how the trigger affects all of this is an artifact of some budget technicalities, which Republicans are attempting to lock in.

But the showdown remains the same, even if it’s obscured by inside baseball reporting. To understand this, I talked to Michael Linden, a senior policy fellow at the Washington Center for Equitable Growth who helped negotiate the debt limit deal, known formally as the Fiscal Responsibility Act, when he worked at the Office of Management and Budget from 2021 to mid 2023.

The first thing he pointed out is that, even though we ended the year without full year appropriations, the 1 percent trigger cuts do not take immediate effect. “The way those caps are enforced is with a sequester that’s assessed on April 30,” Linden explained. So Congress has until then to avoid the across the board cuts.

There are two continuing resolutions currently in place, under the staggered approach House Speaker Mike Johnson (R LA) put forward last year. One expires January 19 and the other February 2. If those CRs were extended past April 30, then indeed there would be severe cuts on the nondefense side. Sen.

Murray as a 9.4 percent cut of more than $70 billion, which would be taken out of each nondefense program. Defense spending would be in for something between $26.5 and $36.5 billion in cuts. How did this change? Because there were some technical mistakes in the continuing resolutions Congress passed last year that inflated the nondefense appropriations number.

“Imagine if last year we spent $100 on nondefense discretionary, and the cap is at $99,” Linden said. “But the CR isn’t at $100, it’s at $105.” But the situation is not that Congress spent more money on nondefense, it just chose not to make certain technical fixes to the CR, which changed the scoring.

For example, veterans medical funding is “advance appropriated,” where current year funding is put into the previous year’s appropriations bill. That funding jumped up in 2023 because of the passage of the PACT Act, which funds veterans’ care for exposure to toxic burn pits. This funding was switched to mandatory spending, under a deal with Republicans.

But in the rushed initial CR, nobody took that mandatory appropriation out of the discretionary pot. Similarly, the Indian Health Service has been moved to an advance appropriation, a win for tribal communities. But the CR never removed that advance appropriation, meaning the entire Indian Health Service is double funded.

Finally, there’s a technical situation with housing receipts for mortgage insurance on FHA loans, which counts as negative budget authority for appropriations, since more payments mean more money for the agency. Conversely, if there are lower housing receipts, appropriations have to increase to make up the gap.

That has played out this year by billions of dollars, which has made the official score higher. In short, a bunch of legislative drafting errors and a random coincidence have made the official score of this resolution appear higher, which means a bigger cut if the April 30 deadline is breached. It would be trivially easy to fix these technical mistakes, which don’t actually translate into new money for the particular agencies.

However, they add up to a higher overall appropriation score. And the way the trigger operates is it rolls back to 1 percent below FY2023 levels, and the sequester would cut anything over that across the board, to every program. So even though these appropriations increases only involve three programs, the deeper budget cuts that ensue would affect everything in the nondefense discretionary bucket.

If you read closely what Murray is saying, she does spell this out. She is saying that Speaker Johnson wants to do a full year continuing resolution by simply changing the date of the current CR. That means not fixing the errors in the current version. “A date change, full year CR as proposed by House Speaker Johnson would be unprecedented and reckless,” Murray said in a statement on December 7.

“The Speaker’s proposal would lock in outdated spending plans and devastating across the board cuts … all of which should be unacceptable to everyone here.” In essence, Johnson is using the fact that the CR had these mistakes to try to spin a major cut to nondefense spending as just a perfunctory extension.

Politico as Republicans are “weaponizing” the debt limit deal, but they’re really weaponizing how political media obscures the details. In reality, “we’re back in a kind of understandable appropriations fight,” Linden said. “Republicans will say, ‘Pass this bill,’ which triggers a huge cut, and Democrats will say, ‘We will not cut.’” It was only not understandable because nobody was really articulating the contours of the fight, and what passing a “date change” CR would actually do.

As a result, there are a few options. Johnson can certainly try to pass a “date change” CR, but Murray is clearly signaling that the Senate won’t accept that. So that path leads to a government shutdown, starting in a couple of weeks. The alternatives are: Either Congress passes a full year CR with the technical mistakes fixed, or they actually do their jobs and pass appropriations at the level of the debt limit deal.

If those are the choices, the dynamics that I identified last year still apply. A full year CR will lead to the 1 percent sequester, and if all those fixes are made, it would hit defense harder, relative to what the debt limit deal laid out. The deal kept nondefense discretionary spending flat but increased defense spending in FY2024 by 3.2 percent from the previous year.

So a 1 percent cut from FY2023 levels would be a more than 4 percent nominal cut to defense relative to what it would otherwise get. (Adjust for inflation and you’re talking about a 7 percent cut or more.) At that point, Republicans have to decide whether they want to sock defense spending, and the bottom lines of their defense contractor friends, that hard, just to get a relatively trivial 1 percent cut to nondefense discretionary spending.

(Progressive Democrats should decide as well whether they’d go all in for defense cuts like this, which they’ve sought for decades, by supporting a full year CR with the nondefense fixes.) There are , including a desire by Senate defense hawks to pad the military budget with an additional $8 billion and something like $6 billion for nondefense, a side deal that involves cutting IRS spending and other accounts and using it to top up nondefense budgets, and a series of non budget policy riders.

And on top of , the White House and the Senate have been negotiating proposed supplemental spending for Ukraine and Israel, in exchange for immigration policy changes, though that seems to be stuck at the moment. (Johnson is asking President Biden to first.) If I had to bet, I’d put money on kicking the can until right around that April 30 sequester date, when the pressure will build to save the blessed Pentagon budget.

What we’ve learned about this Congress is that it’s very good at doing nothing, except maybe building pointless and dangerous budgetary land mines into its own path, sometimes by accident, until the absolute last possible moment..