On Deck: FY18 Budget Resolution, FY18 Appropriations, and the Debt Limit

Although it’s the August recess, we’re already thinking ahead to the legislative agenda for the first few days Congress is back in September. While there are certainly many items on the table, including a host of expiring provisions and the ongoing debate on modifying the Affordable Care Act (ACA), we’re expecting the FY18 budget resolution, FY18 appropriations, and the debt ceiling to be front and center when Congress returns.

Typically, the annual budget resolution is produced by the House and Senate Budget Committees in April, and considered by the full House and Senate in a timely manner to provide guidance on the appropriations process. However, we have yet to see passage of a budget resolution this year. The major reason it has taken so long is because of the need to bridge the gap between budget hawks and defense hawks.

By way of background, while the FY17 budget resolution may have appeared to be a full budget, it was just reconciliation instructions. All the numbers were Congressional Budget Office (CBO) baseline, with the exception of $2 billion in deficit reduction required by the reconciliation instructions for repeal and replacement of the ACA. The parliamentarian has not yet ruled if the FY17 reconciliation for repeal and replace will carry over into October. A ruling on this matter is not anticipated until mid-September, which will determine whether the GOP will need one (tax reform) or two (tax reform and health care) reconciliation orders for FY18. All this to say, we could see an FY18 budget resolution that looks a lot like the FY17 budget resolution, in that it is just reconciliation order(s).

Even though neither the House nor the Senate has passed a budget resolution, the FY18 appropriations process is moving forward. Although realistically, a short-term continuing resolution (CR) that expires sometime before the end of the calendar year is likely. It typically takes 4-5 weeks for appropriators to draft an omnibus once budget numbers are finalized. The fact that there are no final FY18 budget numbers, appropriators are not currently negotiating an omnibus, and that there are just 12 legislative days left in the House before the end of the fiscal year further reinforces that a CR is likely.

For those keeping track, the House Appropriations Committee has reported out all 12 appropriations bills. Before adjourning for the August recess, the full House passed a national security minibus including four of the 12 FY18 bills – Defense; Military Construction, Veterans Affairs, and Related Agencies (MilCon-VA); Energy and Water Development; and Legislative Branch (Leg Branch) – in addition to $1.6 billion for the border wall. The House is expected to package its eight remaining FY18 bills and bring the package to the floor shortly after Labor Day. While the House FY18 appropriations bills include roughly the same number of riders as the FY17 appropriations bills, these riders are not expected to survive in the Senate.

The Senate Appropriations Committee has already reported out its FY18 Commerce, Justice, Science and Related Agencies (CJS); Transportation, Housing, Urban Development and Related Agencies (THUD); Leg Branch; Energy and Water Development; Agriculture, Rural Development, Food and Drug Administration, and Related Agencies (Ag); and MilCon-VA bills. Committee staff is drafting the Subcommittee reports over the August recess and is on track to finish marking up its remaining FY18 appropriations bills the first three weeks the Senate is back in session.

Obviously, there are several potential scenarios for what Congress may pass to keep the government funded beyond September 30th. The White House has already signaled to congressional appropriators that its top two priorities for the FY18 appropriations cycle are an increase in defense spending and money for a border wall. For these reasons, the White House does not want a year-long CR. It has also been implied that, in exchange for the increased defense spending and wall funding, the White House might be open to lifting spending caps.

Further complicating the end-of-the-fiscal-year scenarios is the need to raise the debt limit. It seems Republican leadership in Congress is going to need at least some Democratic votes for the debt limit and to avoid a government shutdown. To secure these Democratic votes, Republicans will likely need to offer something in exchange, possibly health insurance subsidies. Such a package could also be expanded to include funding for the border wall or higher levels of defense spending. At the moment, it remains unclear where the votes lie in the House and the Senate on various combinations of these issues come the end of September.

Looking beyond the short-term CR, it is anticipated the Administration will continue to seek an increase in defense spending over the next two years. In some projections, this increase in defense spending could also be tied to some lower level increase in non-defense spending over the same period, but it would be nearly impossible to find the pay-fors to fund significant increases in both defense and non-defense spending. However, if increases in defense spending are not paid for, it may be possible to find the pay-fors for increased social spending. Potential pay-fors might include some of the $400 billion in entitlement savings proposed by President Barack Obama.

Another potential sticking point will be the border wall. As noted above, the House has already passed $1.6 billion in FY18 funding for the wall. The Senate is expected to include something in its appropriations bills for the wall, but it will likely be less than $1.6 billion. At the moment, it’s unclear if Democrats would shut down the government over the wall. This will be a call that Minority Leaders Chuck Schumer (D-NY) and Nancy Pelosi (D-CA) will make after they feel out the Democratic caucuses and, if needed, develop a plan to shift blame to the Republicans. While Democrats are opposed to the wall, they may see political advantages in passing an appropriations measure that includes wall funding so that they can message that, contrary to the president’s promise that Mexico will pay for the wall, American taxpayers are now on the hook. Our instincts, however, tell us that Democrats might be willing to allow money for the border wall, as well as an increase in defense spending, so long as there is also an increase in social spending.