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Budget Update

December 9, 2014

Tis the season for dysfunction. The annual tradition of debate over funding the Federal government is upon us, and with it, the talking heads predicting an outcome. Since the actual result is anyone's guess, and logic/reason is a bad indicator for what will actually happen, why not add my own perspective to the mix?

If anyone claims to have the definitive prediction, ask them if they're also selling oceanfront property in Arizona. We can make educated assumptions, but recent Congresses make it difficult to say anything with certainty. What we do know, however, is that Members are presently embroiled in a debate over funding the Federal government through fiscal year (FY) 2015. For those in the know, this may seem late to the game, as FY 2015 started on October 1st. Nevertheless, Congress could not complete this in a timely manner (which is the case most years) and passed a band-aide "continuing resolution" (CR) instead that provides an extension of the pre-existing appropriations, with similar spending levels, through December 11th.

Though lacking the pageantry of 2013, we also know that the process will be contentious. Recent wins by Republicans in the Senate, a White House determined to use an Executive Order on immigration reform and the steady drown from Tea Party faithful to reign in domestic spending make negotiations anything but smooth.

This leads us to the current state of affairs. Time is ticking down for a December 11th deadline to further fund the Federal government. Let's rule out Congress passing 12 individual appropriations bills. It's also safe to assume that the episodes of 2013 will not repeat themselves, despite some fringe Republicans thinking a government shutdown was a stroke of political genius. So what we're stuck with are three options: an extended CR, an omnibus, or a hybrid CR-omnibus. The latter would pass 11 of the 12 appropriations bills, but only fund the U.S. Department of Homeland Security through March. The idea is to "punish" President Obama for threats to use an Executive Order on immigration since immigration-related activities are administered by Homeland Security.

The most likely scenario is that Congress extends the CR for a short 48 hrs if Members think an omnibus/CR-omnibus deal is within striking distance. A vote on the omnibus/CR-omnibus would then be Thursday or Friday. In the meantime, debate will continue on the funding package, and what to do with Homeland Security. One point of contention has already been relieved, as TRIA (Terrorism Risk Insurance Act) was stripped from the proposed language. Nevertheless, driving forces in the debate will continue to be levels of fiscal restraint and immigration.

Assuming all things come together, and Congress passes something, the next crisis is not far behind. What does Congress do on immigration? Last Thursday the House voted 219-197 on a symbolic vote to declare any Obama action on immigration "null and void and without legal effect". However, it is unclear what weight this vote has, and the likely scenario is a robust debate once Republicans control both the House and Senate. Though some Republican lawmakers want this fight to happen now, before voting on a spending bill, a desire for the party to avoid another shutdown should quell these pleas. Therefore, stay tuned for a battle between the President and Republican leaders in early 2015.

Also on the early 2015 agenda is the ever popular debt ceiling discussion, as the debt limit suspension is set to expire on March 15, 2015. Once this expires, default is not imminent, but rather a series of extraordinary measures that can be employed by the Treasury Secretary to keep the trains running till sometime in late summer 2015. After that, all bets are off. However, it is in Congress' best interest to act beforehand, as history shows that consequences are unpredictable. Will it impact the Federal government's bond rating? Will markets react negatively? Or has uncertainty already been built in? Nevertheless, a prudent, and responsible Congress will find a solution, and some may argue the shift to a Republican controlled Senate should help this cause.

And finally, President Obama's FY 2016 budget submission will see light in late spring. This will begin the process all over again, as the President tees up his priorities for FY 2016 (the last budget of his Presidency). Though it is also difficult to hedge what is in store, one could assume the President will stay the course on many policies that have gained momentum over the last few budgets. Specifically, closing tax loopholes, tax cuts for working Americans and  investments in workforce development, innovation, infrastructure and transportation. All of this in the vein of promoting middle class income security. 

As the holidays draw near, Washington will remain a frenzy. Whatever happens this week only continues the debate, and sets up a busy 2015. In the meantime, while Republicans capitalize on their victories in November, and Democrats exploit their waning days of Senate control, warm tidings in December may be hard to find.

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