Forget the debt ceiling for now, and get ready for the next big fiscal bash: negotiating a second round of the dreaded budget sequester.
After months of teeth gnashing and howls by lawmakers, President Obama and special interest groups about the $85 billion of automatic across the board spending cuts that almost brought the U.S. airline system to its knees, just about everyone now assumes those cuts are baked into the budget cake through the end of the fiscal year on Sept. 30.
The challenge now for House and Senate budget writers and appropriators is to figure out how to absorb the next big round of cuts in domestic and defense discretionary funds that were mandated by the Budget Control Act of 2011 without weakening national security or undercutting the nascent economic recovery.
For now, the GOP-controlled House and Democratic-controlled Senate are light years apart on how to achieve that next round of savings. Both chambers have passed sharply contrasting budgets and have yet to reconcile their differences. House Republicans are reluctant to engage in a formal round of budget talks that might lead to another tax hike like the one adopted as part of the fiscal cliff deal in January.
Yet even without a bipartisan budget blue print as a guide, the House Appropriations Committee on Tuesday approved a plan cobbled together by chairman Harold Rogers (R-Ky.) that would essentially implement the second year of the sequester. When the system is working properly, the budget committees agree to an overall spending target for the coming fiscal year and the Appropriations Committees determine how that money is allocated and spent.
Under Roger’s plan, domestic and military discretionary spending would total $967 billion in fiscal 2014, or $17 billion less than this year’s level after the sequester cuts. The Senate-passed budget, meanwhile calls for $1.058 trillion in domestic and defense spending next year – or $91 billion more than House appropriators approved this week.
How to bridge that $91 billion spending gap has both parties flummoxed. It also underscores the political dysfunction in Washington where Rogers, Senate Appropriations Committee Chairwoman Barbara Mikulski, D-Md., and other lawmakers responsible for divvying up the annual pie of discretionary funds are simply feeling their way without a bipartisan budget to guide them.
“It’s absolutely unforgiveable that the President and the House and Senate have not sat down and figured out a number,” a frustrated Rogers told The Fiscal Times Wednesday. “Then we could solve all these problems.”
“We’re wearing a straightjacket and are trying to struggle along,” he added. “We’ll pass some of these [spending] bills and then pause and take a breath and see where things stand later. We can always adjust the [allocations] if you’ve got the authority to do it – which we don’t right now.”
Senate Democrats say House Republicans are showing bad faith by seeking to slash spending for the coming fiscal year below the cap set by the fiscal cliff agreement in January Mikulski has stressed that when the Senate Appropriations Committee meets the week of June 17 to approve its version of the discretionary spending allocations, the new cap for fiscal 2014 will total $1.058 trillion.
“There’s no ambiguity on her part about where we’re going to march,” said a senior Senate Democratic aide. “What we don’t know is what will happen when we go down this road.”
For all the difficulty ahead, one glimmer of good news is that Congress will have far more flexibility to determine how and where to make sequester cuts in the government programs and agencies than they did in the first go-round, when most of those cuts were automatically imposed across the board. Lawmakers and President Obama have complained repeatedly that those cuts were a “dumb” and destructive way of achieving savings. In many cases, they have forced agencies to furlough workers and make unwise cuts in important social programs and government sponsored research.
From now on, the law will set a tough overall spending cap each year -- $1.058 trillion for fiscal 2014 -- but will leave it up to Congress and the administration to decide how to achieve that target.
House and Senate Republicans who are concerned about protecting the Pentagon from further sequester cuts are pressing to shift most of the future defense savings to domestic programs. Senate and House Democrats favor more spending on social services, education, scientific research and infrastructure as a means of further spurring the economy.
“Sequester in the second year is a reduction in the budget top line,” said Joseph Minarik, a former Clinton administration budget official and now the vice president for research at the Committee for Economic Development. “And people write bills to provide agency budgets anyway they want within the top line. It is as though the political process has been given complete freedom of adjustment when you get to 2014.”
Rep. Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee, agrees that lawmakers will have more room to maneuver in making those future cuts. But he notes that Congress nonetheless will be dealing with greatly diminished funding for important economic initiatives.
“Those cuts are taking place within the discretionary part of the budget,” he said. “People point out if you look at the entire U.S. budget it is not a huge percentage. But it is a very large percentage of the discretionary budget, a significant percentage.” Domestic and defense discretionary spending constitutes about a third of the overall federal budget. The rest of the budget goes for entitlement programs like Social Security and Medicare and interest on the national debt.
Until recently, the White House and congressional leaders had in mind a game plan in which the need to reauthorize the federal debt ceiling to avoid a default would force the two parties to strike a deal this summer to set new spending targets for the coming year and beyond.
While technically the government began to bump up against its nearly $17 trillion borrowing authority last weekend, a combination of “extraordinary” evasive actions and an improving economy that is generating more tax revenues will postpone the day of reckoning past Labor Day. So rather than achieving another major budget deal this summer, it’s far more likely now that Republicans and Democrats will have to settle for a temporary continuing resolution to keep the government operating beyond the start of the new fiscal year, Oct. 1.