Congress faces more government funding headaches in 2024 as lawmakers stare down what could be steeper spending cuts than leaders bargained for as part of a previous bipartisan budget deal.
Under legislation Congress passed last year to raise the debt ceiling, known as the Fiscal Responsibility Act (FRA), lawmakers agreed to budget caps for defense and nondefense spending for fiscal 2024.
House conservatives have since sought to lower spending under those caps, and the House and Senate have yet to complete their 12 annual spending bills.
That’s raising concerns that automatic spending cuts set into the deal to incentivize lawmakers to act quickly will go into effect, making cuts on both sides of the ledger.
Changes in Congressional Budget Office scoring have complicated matters further. When the deal was initially struck, it was thought that defense spending would be hit harder by the automatic cuts than nondefense spending. But the scores have reversed that outlook, and nondefense spending prized by Democrats could be set for much deeper cuts.
No one seems quite sure what will happen next.
“The world is our oyster in terms of possibilities here,” said Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget. “I don’t have any expectations, and I don’t think anyone really knows what is going to happen.”
The ‘1 percent’ cut
PUEBLO, COLORADO – NOVEMBER 29: US President Joe Biden speaks about Bidenomics at CS Wind on November 29, 2023 in Pueblo, Colorado. CS Wind, the largest wind turbine tower manufacturer in the world, recently announced they were expanding operations as a direct result of the Inflation Reduction Act. (Photo by Michael Ciaglo/Getty Images)
Lawmakers agreed under the FRA to cap base discretionary spending in the next fiscal year to $1.59 trillion. That includes a ceiling of about $886 billion for defense spending and almost $704 billion for nondefense spending.
Experts say a handshake agreement made as part of the larger debt limit deal would allow for north of $60 billion in additional funding on the nondefense side.
Lawmakers were expected to work from these numbers when crafting their 12 annual funding bills, but the law also included a penalty meant to incentivize the House and Senate to finish their work by Jan. 1.
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Under the penalty, Biden officials say, a 1 percent cut to defense and nondefense programs — made from fiscal 2023 funding levels — will be enforced after April 30 if the Jan. 1 deadline is missed.
The inclusion of the penalty drew immediate pushback from defense hawks at the time, who worried about how an across-the-board cut would impact national security.
As part of the debt deal that set new spending ceilings, defense spending was given a 3 percent increase from the previous fiscal year’s levels. Experts said the overall deal would effectively freeze nondefense spending year over year when accounting for the handshake deal, though hard-line conservatives are pushing for leadership to abandon the agreement.
Experts and congressional aides are now warning that nondefense funding could wind up seeing a harder hit from the threat of the automatic 1 percent cut. This is because the new scoring by the Congressional Budget Office (CBO) shows funding for nondefense is over $30 billion higher than its recorded levels initially set by lawmakers for fiscal 2023.
Experts and aides say the increase is due to a combination of factors, including funding changes for veterans programs and the Indian Health Service.
On the other side, aides say dollars for defense could see a cut, known as sequestration, of about $10 billion, if Congress fails to approve full-year spending bills by April 30.
“So, both sides, if we’re under a part-year [stopgap funding bill] on April 30, will face that sequestration,” one congressional aide said.
Some experts expect the bulk of agencies with spending subject to the annual appropriations process to suffer a blow program by program once cuts are applied, with few exceptions in areas like veterans funding.
“If you are trying to figure out how to cut government, you would never do a blanket across-the-board cut because it removes your ability to do marginal prioritization,” said Bobby Kogan, senior director of federal budget policy for the Center for American Progress.
“If it were a 5 percent cut, then it would be 5 percent to WIC, 5 percent to LIHEAP (Low Income Home Energy Assistance Program), 5 percent to Section 8,” he said.
House Democratic Appropriators also said in a notice released during the holiday recess that “the administration would have no flexibility in how to administer the cuts,” while also warning the timing of the cuts could add to their severity.
Other areas of funding they warned would not be exempted from sequestration include disaster funding and “supplemental funding for Israel and Ukraine.”
The notice also read that “a sequestration more than halfway through the year would feel more than twice as painful, as the cuts would be spread out over only 5 of 12 months.”
In a memo to federal agencies over the holiday break, the Office of Management and Budget (OMB) put offices on notice about the sequestration threat, but otherwise advised that “agencies should continue to operate as they normally would” for the time being.
“OMB will determine whether or not a sequestration is required and, if required, the amount required to be sequestered, when OMB issues the Final Sequestration Report required by law,” it said. “That report is due on the earlier of: 15 working days after all full-year discretionary appropriations bills are enacted, OR April 30.”
What about under a full-year stopgap?
Speaker Mike Johnson (R-La.) answers questions after a closed-door House Republican Conference meeting on Thursday, November 2, 2023.
While there is a lot of concern in Washington about how the sequestration will impact federal programs in April, Democrats say a simple full-year stopgap, also known as a continuing resolution (CR), would yield steep cuts that might pose a more immediate threat to nondefense programs.
That’s something that would give new Speaker Mike Johnson (R-La.) potential leverage with Democrats if he moves toward a long-term CR. Johnson wants to avoid a short-term CR given opposition to a shorter measure from conservatives who ousted former Speaker Kevin McCarthy (R-Calif.).
“Once they go past January, the official caps will change to 1 percent below 2023 [levels]. But the complication is, the caps change back if they then enact full-year appropriations,” Goldwein said, adding there “is some ambiguity as to whether a full-year CR would be considered full-year appropriations.”
Experts are waiting for the OMB to weigh in on the issue, but many think it’s possible the on-paper rules for the $1.59 trillion spending level would end up applying in the event of a simple full-year CR.
If so, that begs the question of whether a component of the previous debt limit deal not reflected in the law, in which nondefense programs stood to gain additional funding through a list of budget maneuvers, will be upheld.
House Republicans have been pushing for a full-year stopgap that would run through fiscal 2024, which ends in late September, if Congress fails to meet the mid-January deadline to prevent a partial government shutdown.
The push also comes as hard-line conservatives are seeking to put pressure on Johnson to abandon any handshake agreement to plus up spending for nondefense beyond the caps written into law.
But Democrats have pushed back strongly against the idea, with top appropriators warning such a proposal could translate to 3-4 percent less for defense dollars than the levels leaders agreed to as part of the debt limit deal, and “as much as a 9.4 percent” cut for domestic programs, excluding Veterans Affairs medical care.
Some Republicans have also pushed back against the plan in recent weeks, including Senate Minority Leader Mitch McConnell (R-Ky.), who said before the Senate left for their end-of-year recess that a “CR is simply unacceptable for a year.”
McConnell argues this would also hurt defense spending, and defense hawks could end up scuttling such a plan.
“It’s devastating, particularly for defense, and we’ve got all of these wars going on. So, we need to reach an agreement on the top line and get about getting an outcome as soon as possible.”