Our Take on the Federal Budget Mess

This newsletter was originally published on Substack.

LAYING OUT THE CURRENT FEDERAL BUDGET SITUATION

Something as important as the federal budget needs to not be judged as a political process, even though it surely is one, or a drama about feuding individuals akin to reality television personalities–even though it is one. Because the federal budget is an incredibly important document that governs so much of how the executive branch of the US government interacts with the world, and it is no less the product of specific laws and norms than it is the product of ephemeral politics or messy politicians.

And that’s why getting into the weeds matters–and why we include a glossary at the bottom (linked here) to help get you up to the speed on anything that might serve to confound your understanding of this critical process.

The federal budget process was formalized in 1974 with the passage of the Congressional Budget and Impoundment Control Act (CBA). The CBA established several deadlines to meet to avoid a government shutdown and ensure the budget process takes place over approximately nine months. Per the CBA, Congress was supposed to have 12 separate appropriations bills for various parts of the federal government ready by September 30th, right before the start of the next fiscal year. In 2023, that deadline was missed. Again. Congress has met funding deadlines set in the CBA only six times, the last time being in 2003, so it’s not terribly surprising. Instead, two continuing resolutions were passed. 

Funding for the following appropriations areas expires in just nine days, on January 19th 2024: Agriculture, Rural Development, and the Food and Drug Administration (FDA); Energy and Water Development; Military Construction and Veterans Affairs; and Transportation, Housing and Urban Development. The second continuing resolution, funding the rest of the government, expires on February 2nd. If spending is not finalized by these dates, we face a government shutdown with undesirable consequences on federal employees and the American public. 

When negotiating federal funding levels, setting topline levels is usually the first step in a process that could take weeks. Once topline figures are set, negotiators divvy up topline funds and distribute them to various agencies and programs. 

On Sunday, Congressional leaders finally announced they have settled on topline numbers for defense and nondefense spending. The deal set overall funding levels to $1.66 trillion, with $886.3 billion for defense spending and $772.7 billion for non-defense spending. According to Roll Call, non-defense numbers were set via a side deal or handshake agreement as they were agreed upon but not written into the legislative text of the debt limit law. The side deal added $69 billion to the $703.7 billion in base funding level for non defense spending in the law. The topline deal did away with $10.5 billion in spending designated as an “emergency” to get around the regular limits, and another $10 billion offset by caps on “mandatory” funds that were not going to be spent in the first place (known as zero-outlay changes in mandatory programs, or CHIMPs.) Additionally, House Speaker Mike Johnson managed to include a $16 billion cut in non-defense spending, including cutting $6.1 billion in COVID funds and $10 billion in Internal Revenue Service (IRS) funds under the Inflation Reduction Act. Sunday’s deal needed to happen because time was running out to avoid a shutdown. However, it is clear that this deal favored Republican negotiators looking to slash federal funding to the bone. 

Sunday’s topline deal can be seen as a continuation of a long standing Republican tradition: weaponizing budget processes to make political gains. Republicans have been trying to eliminate key government agencies like the Department of Energy and Education since the 1980s. In the 1990s, Gingrich and his associates perfected the act of manipulating funding processes to pressure Democrats into making policy concessions. What Speaker Johnson and House Republicans are doing is no different. 

The topline deal gives Republicans the upper hand for several reasons. Although the 2024 topline spending figures go slightly above last year’s topline, it still represents an overall spending cut for the federal government. This matters because the federal government has been coping with chronic underfunding and understaffing for decades now, with ripple effects on everyday people’s lives. Furthermore, Republicans managed to implement several non-defense cuts which take away from already inadequate funding levels. Moreover, as Johnson put it, the deal will allow Republicans to “fight for important policy riders included in our House fiscal 2024 bills,” probably in the form of poison pills. 

The use of side deals to negotiate federal funding leaves Democrats particularly vulnerable to Republican reneging on agreements since the conditions were not described in the Fiscal Responsibility Act or other laws. Some of the non-defense side deals involving IRS funding for example, will be particularly harmful. Given that the IRS acts as a source of revenue for the federal government, cuts to this agency will directly reinforce the vicious cycle of government underfunding. Office of Management and Budget Director Shalanda Young claimed that the White House would not accept IRS cuts beyond the $20.2 billion in the topline deal. However, the Republican Party has made it clear that more cuts are possible and “there is no agreement that additional IRS clawbacks are off the table in future negotiations.”

With a topline deal secured, there are four different options Congressional leaders and the White House can take regarding federal funding:

OUR OPTIONS GOING FORWARD 

Option 1: Go along with Speaker Johnson’s suggestion to extend current continuing resolutions until the end of fiscal year. 

Johnson suggested passing a date-change, full-year continuing resolution. This option is incredibly problematic for several reasons. First, it could lead to a 9.4 percent cut to non-defense spending, representing over $70 billion cuts to vital domestic programs. For example, a full-year continuing resolution would cut access to primary health care services for millions of Americans and cut federal housing assistance for nearly 700,000 households. It would also deny food baskets to 175,000 participants in the Commodity Supplemental Food Program’s monthly supplemental food program for low-income elderly adults, jeopardizing anyone who depends on these services. 

A full-year continuing resolution could also impact the environment. We would lose support for clean energy, including funding for the Office of Science, which could endanger implementation of the bipartisan CHIPS and Science Act. Johnson’s plan could result in delays, or even cancel, construction of NOAA’s next-generation weather satellites, which are critical to accurately predict weather to protect life and property.

Secondly, due to a provision in the Fiscal Responsibility Act, a full-year continuing resolution could lead to nearly 10% across the board cuts to all domestic programs, with disastrous impacts on federal employees. According to the Fiscal Responsibility Act, if Congress did not pass all of its full-year spending bills by December 31 2023 (which it did not), a sequester 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. Due to several drafting errors and a random coincidence, the official score was inflated, meaning sequester will result in a disproportionately bigger cut to non-defense spending if the current continuing resolutions run past April 30 2024. Thus, Johnson’s suggestion would lock in and implement deep and outsized non-defense cuts – namely a $70 billion (9.4 percent) cut to nondefense funds, as compared to a $26.5 to $36.5 billion cut in defense funds.

The sequester will significantly impact government workers. Continuing resolutions slow hiring initiatives and create funding uncertainty for employees. Several agencies warned that the cut could lead to workforce layoffs, furloughs, hiring freezes and other methods to slash workforce costs. All of which have negative financial or psychological consequences on employees. The Justice Department said the Federal Bureau of Investigations (FBI) would lose 11,000 agents, further securing the interests of corporate criminals whose crimes are the most complicated and resource intensive to untangle. The Food and Drug Administration, the Federal Aviation Administration (FAA), and the Federal Emergency Management Agency could lose 2,300, 9,400 and 3,200 employees respectively.

With the FAA already far too small to protect us from rapacious financialization and mismanagement at Boeing and Spirit, a prospect of further cuts should frighten us all. 

Indeed, Johnson’s year-long continuing resolution would greatly impact the American public by hindering the government’s ability to crack down on corporate wrongdoers. In December 2023, Congresspeople Scanlon, Durbin, and Blumenthal introduced the Corporate Crime Database Act. The Corporate Crime Database Act is bicameral legislation that would require the Justice Department (DOJ) to collect, aggregate, analyze, and publish comprehensive data on federal corporate criminal enforcement actions. All consumers would benefit from corporate oversight. Though white collar crime is seldom discussed compared to “street crime,” corporate misconduct has the potential to cause widespread, long-lasting damage to the public. The opioid crisis involving Purdue Pharma and the Sackler family is an example of white collar crime going unpunished that was repeatedly mentioned at a recent Senate Judiciary Committee hearing. However the DOJ is woefully unprepared to take on these fights. According to FBI data cited by Senate Judiciary Committee Chairman Dick Durbin (D-Ill.), corporate crime costs society over $300 billion a year , whereas the impact of “street crime” is a comparatively meager  $16 billion. Senator Durbin rightfully called the DOJ’s lack of resources a “bipartisan failing.” Due to insufficient funding, the DOJ habitually leans towards better-behavior agreements with company bosses instead of corporate, criminal prosecutions. The notion that certain companies and executives are “too big to jail” harms the public and erodes public trust in government institutions. 

We desperately need more investment in capacity, especially for those who enforce limits on corporate rapacity.

Option 2: As suggested by David Dayen of The American Prospect, the government could pass a new and improved continuing resolution that addresses technical issues with the Fiscal Responsibility Act (FRA). 

As mentioned, the FRA includes a sequester cutting domestic spending if the current continuing resolution extends past April 30th 2024. If this aspect of the deal is tweaked and the 1 percent sequester from the FRA still applies, it could hit defense spending harder than non-defense spending, reversing one of the advantages Republicans have over Democrats during this negotiation period. 

This option may not be ideal because it still involves passing yet another continuing resolution, which can cause various problems. However, it seems less destructive than Speaker Johnson’s idea of extending the current continuing resolution. 

Option 3: As suggested by POLITICO, with a topline deal already in place, Congress could try to pass an omnibus bill or several minibus bills before the January 19th and February 2nd deadlines.

Some members of Congress seem partial to passing minibus bills because many have lost patience with the hundreds of pages to sort through in omnibus bills. While minibus bills could present information in a more digestible, piecemeal way, it could also take up more time we don’t have. 

This option seems fairly unlikely given that the first deadline is fast approaching. 

As POLITICO cautions, there was a record-breaking partial government shutdown under Trump the last time lawmakers didn’t use the omnibus approach. 

Option 4: We could actually work to appropriate funds on time, in accordance with the timeline set by the CBA. 

This is the most ideal yet least likely option, given that continuing resolutions and omnibus bills have been used to keep the government functioning for the past quarter-century.

Option 5: The final and deeply disastrous option is to pass nothing before January 19th and go into a (partial) government shutdown. 

There have been fourteen government shutdowns since 1980. During a government shutdown, essential services and mandatory spending programs remain operational, however, agencies and programs that rely on discretionary funding do not. 

When a government shutdown occurs, people suffer. The October 2013 shutdown, held up over 800 FDA food inspections designed to address unsanitary conditions and practices, home loan decisions for 8,000 rural families were delayed, and more.  

Government shutdowns also severely affect federal workers. Shutdowns lead to pay delays. Furloughed employees lose finances, supportive work relationships, feelings of success, and a sense of control. All of these outcomes reduce job security, which threatens federal employee retention during a capacity crisis. 

We must do everything we can to avoid another shutdown. 

GLOSSARY OF USEFUL FEDERAL BUDGET TERMS 

• The Congressional Budget and Impoundment Control Act of 1974: The Congressional Budget Act (CBA) formalized Congress’s process for writing America’s federal budget and established how the government reconciles spending and revenue legislation with overall budgetary goals, processes Congress lacked prior to the law’s passage. The CBA’s goal’s were to institute a more effective and timely way to set national priorities, and to rein in presidential power over the budget process; executive impoundment—the failure by a President to spend legislatively allocated funds—peaked under Richard Nixon. The legislation was designed to create a steady rhythm for the annual congressional budget process. Under the CBA, that process is meant to take place over nine months, starting on the first Monday in February, when the President submits a budget to Congress, and ending on October 1, which marks the start of the fiscal year.

• Side Deals or Handshake Agreements: Side deals or handshake agreements refer to deals made between members of congress and/or the executive branch that have been agreed upon, but are not written in law. These deals, which are technically non-enforceable, have an outsized impact on our funding process and subsequently on the public. When funding levels are tied to side deals, it leaves that funding vulnerable to change, adding to the insecurities faced by government agencies and the Americans that depend on them. 

• Debt limit: The debt limit, which far predates the CBA, refers to a ceiling imposed by Congress on the amount of debt the Department of Treasury can issue to meet the government’s ongoing financial needs. Once the debt limit is reached, it is believed that Treasury cannot borrow more money, which means it won’t have enough revenue to meet all the funding obligations set by previous legislation. Though members of both parties regularly advance bills that push spending past the debt limit, then complain that Congress is spending beyond its means. If the debt limit is not addressed on time and the government defaults on its debt, it could send the United States into a recession, shock global financial markets, freeze credit markets, and send stock markets plummeting worldwide. My colleague Hannah Story Brown explained our take on default in May of 2023.

• The Fiscal Responsibility Act of 2023: The Fiscal Responsibility Act of 2023 (FRA) passed in the House on May 31st, passed in the Senate on June 1st, and was signed into law by President Biden on June 3rd. The FRA: 

• Suspended the debt ceiling until January 2025
• Capped non-defense spending at $704 billion for fiscal year 2024 (Veterans Affairs healthcare spending was excluded from this cap)
• Capped defense spending at $886 billion in fiscal year 2024
• Rescinded approx. $30 billion of unspent coronavirus relief funding
• Rescinded $1.4 billion of Internal Revenue Service (IRS) funding
• Moved $20 billion of the $80 billion allocated to the agency in the Inflation Reduction Act of 2022 to non-defense funds
• Modified work requirements for the Supplemental Nutrition Assistance Program (SNAP) and the Temporary Assistance to Needy Families program (TANF)
• Simplified environmental reviews for energy projects
• Ended the student loan debt repayment pause in August 2023
  
  One of the conditions in the FRA was that if Congress did not pass all of its full-year spending bills by December 31 2023 (which it did not), 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. Given that we are currently operating under two continuing resolutions, this condition has not yet gone into effect. Due to several drafting errors, if the current continuing resolutions run past April 30 2024, there will be a $70 billion (9.4 percent) to nondefense funds and a $26.5- $36.5 billion cut in defense funds.

• Sequester: A sequester refers to the automatic cancellation of previously enacted spending, making largely across-the-board reductions to nonexempt programs, activities, and accounts. Sequesters are implemented through a sequestration order issued by the President as required by law. Sequesters enforce certain statutory budget requirements, such as enforcing statutory limits on discretionary spending or ensuring that new revenue and mandatory spending laws do not increase the deficit. According to the Congressional Research Service, sequesters have been used as an enforcement mechanism that can either discourage Congress from enacting legislation violating a specific budgetary goal or encourage Congress to enact legislation that would fulfill a specific budgetary goal.

• “Emergency” cash: “Emergency” cash refers to a routine maneuver designed to get around funding caps in debt law and increase agency and programmatic funding. Recently, a deal establishing topline figures for 2024 scrapped $10.5 billion in “emergency” cash put forward by Democrats. 

• Poison pill: A poison pill (AKA killer amendment or wrecking amendment) refers to a legislative strategy of adding amendment to severely change a bill’s intent to kill a bill that would otherwise pass. Poison pills are typically used by legislators that oppose a bill but do not have enough votes to defeat it. If the poison pill is adopted, the bill’s original backers may withdraw their support, thus killing the bill. If the poison pill is not adopted, opponents can leverage the proposed changes to criticize the bill, suggesting that its failure to incorporate the amendment represents a flaw. For example, in the United States, poison pills often take the form of adding amendments related to social issues in order to take down an unrelated and principally economics focused bill. 

• Continuing resolutions: Continuing resolutions (CRs) refer to pieces of legislation that extend funding for federal agencies (usually at the same level as the previous fiscal year) for a certain time frame. CRs are usually passed on or before the start of the next fiscal year (October 1) if Congress and the President fail to finalize all appropriations bills by then. They avoid a shutdown and keep the federal government operational until the appropriations bills for the next fiscal year become law. 

• Omnibus bills: Omnibus spending bills are huge, typically rushed pieces of legislation that Congress uses to pass a budget after failing to pass 12 separate appropriations bills on time (by June 30). It is the sum of all appropriations bills that had yet to be passed before the next fiscal year.

• Minibus: Minibuses refer to annual spending bills in two or more smaller funding bundles, as opposed to one large bundle with all 12 appropriations bills known as an omnibus bill. Some may opt for a minibus instead of an omnibus to present funding levels in a more piecemeal, digestible format as many Congressmembers have lost patience with the hundreds of pages included in omnibus bills. While minibuses are smaller funding bundles, passing all of these smaller bills could leave Congress with very little time to fund the government before a government shutdown occurs. And they still do not constitute proper process under the Congressional Budget Act.

• Government shutdown: A government shutdown occurs when Congress fails to enact all or some of the 12 appropriation bills by the start of the new fiscal year on October 1. During a government shutdown, essential services and mandatory spending programs remain operational. However, agencies and programs that rely on discretionary funding (congressionally appropriated funds) shut down until Congress acts. Government shutdowns can be averted by passing all 12 appropriations bills on time, continuous resolutions or omnibus bills.

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