Murray and Ryan Reach Small Budget Deal Partially Alleviating Sequester

December 11, 2013

Last night, budget conference co-chairs Sen. Patty Murray (D-WA) and Rep. Paul Ryan (R-WI) finalized an agreement for the fiscal year that began October 1. The deal, though not a complete elimination of sequester, provides two years of partial relief from sequestration, while also setting top line discretionary spending levels this fiscal year and next. The deal still has to be approved by the full Congress. If passed as expected, the House and Senate appropriations committees will get to work on the year’s 12 funding bills with the intent of packaging all or most together for consideration in early January, before the expiration of the current continuing resolution on January 15.

Significantly, this agreement is a departure from business-as-usual on Capitol Hill as it has been since the Summer 2011 debt ceiling debate that resulted in the Budget Control Act and, later, the sequester. House Budget Committee Chairman Paul Ryan’s role as the lead negotiator for House Republicans bestows substantial credibility on a deal that makes no changes to entitlements, as many conservatives desired. To be sure, many conservatives will not support passage for that very reason, but Speaker Boehner is expected to allow consideration of the agreement without binding it to the so-called Hastert Rule, which requires a majority of the majority’s support before being put to a vote. Nor does the plan include an extension of expiring unemployment benefits, as had been pushed by many progressive members. Instead, the Murray-Ryan plan will likely pass the House this week with significant support from more moderate members of both parties. Passage in the Senate next week is also expected, given the Democratic majority in that body.

Fiscal Debate To Date

Originally, the FY14 Budget Conference Committee seemed to have the potential to reach or consider a bigger deal – a Grand Bargain.  But recognizing the divide between the parties and the short timeframe of the conference, the House and Senate budget chairs, Paul Ryan (R-WI) and Patty Murray (D-WA), indicated they would work toward a small deal that set a FY14 funding level and mitigated the impacts of a second year of sequestration.

Earlier this year, both the House and Senate passed budget resolutions that were wildly divergent in their underlying spending assumptions. The House tightened spending for future years beyond those levels imposed by sequestration and protected the Pentagon, thereby shifting the burden of reaching the bottom line to domestic programs and potential entitlement reform. Meanwhile, the Senate resolution eliminated sequestration and provided higher spending mainly through increases in revenues ($1 trillion over the 10-year budget window). Until the October government shutdown crisis, conservative Republicans blocked a conference to reconcile the differences between the two resolutions, fearing a deal that bridged the divide would have to rely upon increased tax revenues in order to get a deal from Senate negotiators.

Therefore, for FY14, the House and Senate discretionary budgets were $91 billion apart, with the House at $967 billion and the Senate at $1.058 trillion (the current continuing resolution level funds the government at the FY13 sequester level of $986 billion)

The Agreement

The deal announced last night softens the second (this fiscal year) and third year (next) of the sequester on discretionary accounts by about $63 billion, spread over two years and split evenly between the defense and non-defense discretionary sides of the ledger. For non-defense spending, this means an additional $22.5 billion above this year’s sequester level – replacing 87 percent of last year’s cuts – and an additional $18 billion in FY15. For context, this year’s top line for non-defense accounts under sequester was $469 billion; if enacted by the full Congress, it will now be $492 billion (see chart below). The limited alleviation of the sequester means a slightly improved budget outlook for education and research. The additional funding creates a small allowance for some specific priority investments. We hope the work (see President Faust’s most recent letter with the presidents of BU, Brown, MIT and Yale here) we have engaged in over the past year – and will continue – may result in some improvements in research and education accounts.

Notably, the agreement also provides a common, agreed-upon spending level for this year and next. This presents an improved opportunity for the two houses to reconcile the annual spending bills, enact at least a few of the 12, and avoid yet another government-wide continuing resolution.

Given the current fiscal environment, Murray and Ryan needed offsets to pay for the easing of the sequester. Since entitlements and revenues were off the table, the co-chairs focused on mostly non-controversial new sources of funding, such as increased user fees (e.g. on airline tickets to cover the cost of the TSA), changes to federal retirement programs and federal asset management, and good-government changes to student loan servicing among other things.  In addition, to attract conservative support, the deal includes just over $20 billion dollars toward deficit reduction.

Looking Ahead

The current CR expires January 15. The best, and most likely, scenario for this fiscal year seems to be that, with a top line that partially mitigates the sequester, appropriators will write the 12 annual funding bills and lawmakers will enact those bills as a package in the first half of January. The worst case scenario, which at this moment appears unlikely, is the Murray-Ryan deal is not accepted by the full Congress or, if it is, the full Congress does not enact whatever omnibus spending package that appropriators put forward in early January. We could then be facing a year-long continuing resolution at the sequester level. Of course, there are middle-of-the road scenarios as well, such as a partial omnibus that does not include more controversial spending bills, such as the one that funds NIH; or another temporary CR that would allow more time for a deal and appropriations work.

Also facing the Congress early next year is another increase in the federal debt limit. The deal to reopen government in October included a suspension of the debt limit through February 7, 2014, with expected ‘extraordinary measures’ extending the deadline for Congressional action on the debt limit several weeks beyond that date. Potentially the bipartisan groundwork laid with the Murray-Ryan agreement offers a model that leadership may be able to utilize to avoid brinksmanship over the debt limit and continue to construct some moderate middle ground on these critical issues with support from both parties.

Contact

Please do be in touch with Suzanne Day or Jon Groteboer in the Washington office with any questions or concerns: (202) 863-1292.

 Non-Defense Discretionary Caps