Steps Toward a Deal on Federal Shutdown and Debt Limit

After weeks of dueling press conferences, Washington policymakers worked through the weekend on a deal to reopen the federal government and increase the federal debt limit. In recent days, Senate leaders have moved into the lead on the negotiations and outlines of a potential deal have begun to emerge. The focus today is on how House Republicans will react and how quickly any deal can move through the Congress to the President. If progress in these talks are to result in a solution by late in the week to avoid a breach in the debt limit on October 17, House Republicans will need to be active participants in the final legislative package. This has been a difficult challenge to overcome in previous negotiations.

While the situation is very fluid, following is a quick summary of the potential common ground and remaining open issues:

• Reopen the Federal Government – extending current funding levels through January 15
• Raise Federal Debt Ceiling through February 7

Outstanding issues:

• Limitation on extraordinary measures to block the Treasury Secretary from using cash management tools to delay impact of debt limit beyond February 15
• Modest changes to the Affordable Care Act – repeal/delay of Medical Devices tax, tax on health insurance plan beneficiaries, coverage of Congress and White House
• Specifications on next steps for budget negotiations – outlines for tax reform, or other entitlement changes

Continuing Resolution

Until the last few days, both parties have held public, firm and opposing positions on the government shutdown. The Administration and Congressional Democrats have insisted that there be a “clean” continuing resolution to reopen the government. Republicans have sought to leverage continued government funding to defund, delay or modify the Affordable Care Act. As the shutdown has continued, House Republicans have also sought to reopen popular parts of government, but Democrats have rejected this piecemeal approach and pushed for a simple reopening of government agencies before negotiating on the longer term budget issues. The emerging deal appears to extend current funding level through January 15, 2014, the date that, in the absence of legislative modification, the second year of sequester automatically kicks in. Democrats, after earlier efforts to reverse the sequester in this deal fell through, pushed hard for this date in the hopes of rolling back the sequester cuts and moving to a higher level of spending.

Debt Limit

The other, perhaps more pressing issue, that has driven these negotiations is the deadline on the federal debt limit. Secretary of the Treasury Jack Lew has indicated that, beyond October 17, it is unclear if the federal treasury will be able to meet its obligations because the $16.7 trillion debt limit has been reached. The growing alarm in the markets about this approaching deadline (and perhaps poor polling numbers) has appeared to have focused members and motivated them to move away from their earlier positions. Both parties at this point seem willing to extend the debt limit with the disagreements focused on the length of the extension and the potential of limiting the Secretary of the Treasury’s actions to extend that date further through his administrative powers. The Senate measure emerging proposes extending the debt limit through February 15, 2014 but it remains unclear if the final deal will allow or block the extraordinary measures the Treasury Secretary has used in the past to manage funds beyond that date.

The Path Forward

While hopes that the logjam is breaking remain high, the negotiations continue to proceed in fits and starts. Recent reports suggest the House may attempt to move its own version of a deal that would adopt the Senate bill’s timelines but include many of the policy-riders favored by the conservatives. However, the Senate indicates it will continue with its approach and it seems more likely to have bipartisan backing for its plan.

As the negotiations continue, we will continue to keep you apprised of developments in DC. In addition, working with the Office of Sponsored Research, we continue to stay in close touch with senior leadership and research administrators across the campus to follow and hopefully work through some of the impacts of the shutdown. There have been staff and students affected across the University, with delayed research, furloughed staff at the CfA, and significant disruption of grant applications. The NIH and NSF are not awarding new or continuation grants, nor are they accepting grant proposals. Review panels are not meeting and the longer the shutdown lasts the more likely entire grant cycles could be missed.

Contact

Please feel free to be in touch Suzanne Day or Jon Groteboer in our Washington office (at 202 863-1292 or via email at suzanne_day@harvard.edu or jon_groteboer@harvard.edu) with questions or concerns.