Federal Update: Two-Year Bipartisan Budget Agreement Relieves Sequester, Avoids Default

October 27, 2015

With two important fiscal deadlines looming, Congressional leaders and the Administration unveiled a bipartisan budget agreement that would provide two-years of relief from the constraints of sequestration as imposed by the 2011 Budget Control Act, suspend the risk of default, and pave the way to avoid a government shutdown. The agreement would raise the current budget caps by a total of $80 billion over the next two years, with the money split evenly between defense and non-defense spending. Of that total, $50 billion would be applied to fiscal year 2016, with the remaining $30 billion going to fiscal year 2017. The $80 billion of increases to the caps are reportedly fully offset, though details on exactly how are still emerging. There are also off-budget increases of $8 billion per year for both defense and non-defense, funded through an emergency account dedicated to national security needs. While this agreement does not fund the government or specific programs, it does provide the framework and a slightly healthier climate to provide longer-term appropriations beyond December 11th, when current funding runs out.

The road to this agreement has been an uncertain one, with few details emerging from any negotiations over the past several weeks. When Speaker John Boehner announced that he would resign from office effective the end of October, there was little certainty regarding the fiscal path forward, and hope for a  two-year budget agreement also seemed faint following last-month’s short-term funding extension. However, yesterday’s announcement of a bipartisan budget deal appears to operationalize the Speaker’s stated intention to “clean up the barn” before leaving office. By excluding Paul Ryan—his likely replacement—from the negotiations, Speaker Boehner inoculated him from any criticism of this agreement and its process outside of regular order through which it was conceived.

The main points of the agreement are the roughly five-percent increases above the sequestration-level spending caps ($548.1 billion FY16 Defense, up from $523 billion; $518.5 billion FY16 nondefense discretionary, up from $493.5 billion) and suspension of the debt limit until March 15, 2017. The period of this agreement would take debate over budget caps and the debt limit off the table until after the 2016 elections. The agreement would also include an additional $16 billion in funding, split evenly over both years, out of the Overseas Contingency Operations (OCO) fund. Traditionally, OCO funding is used for war-related activities; however, in light of sequestration and other belt-tightening, OCO has become a tool for providing necessary funding outside of traditional caps.

While some conservative members may object to the increased “spending” this agreement would allow, the deal is fully paid for using a variety of sources and programs. Among those offsets are requirements to sell crude oil from the Strategic Petroleum Reserve, auction off federal spectrum frequency bands, and extend the sequester on certain Medicare and other mandatory programs by one year to FY25. The petroleum reserve offset had previously been used in the House-passed 21st Century Cures bill that would have provided five years of new, mandatory NIH funding. The use of this offset, and others, complicates the path forward for that legislation in the Senate, as well as certain others, such as a long-term highway bill. However, it provides much-needed space within the annual funding bills to provide increases for critical agencies, like NIH, without – we hope – damaging other priorities.

In terms of the logistics of passing this agreement, Speaker Boehner announced the House would vote on the bill Wednesday morning. House passage tomorrow would allow Senate Majority Leader McConnell enough time to navigate his chamber’s procedural hurdles before the November 3rd debt limit deadline.

While it seems likely most Democrats will support the bill, there is still some calculus required to convince enough Republicans to back the measure. The Defense increases are likely to sway most defense hawks (influential members like Sen. John McCain (R-AZ) and Rep. Michael Turner (R-OH) have each hinted at their support), and more moderate Republicans may well be convinced by the offsets and longer-term certainty. However, the far right, represented by the House Freedom Caucus, is likely to oppose the budget deal. The conservative Heritage Action group has also announced its opposition. Despite this opposition, the odds are slightly in favor of passage.

Should this budget deal pass both chambers of Congress and receive the President’s signature, there will still be the urgent need for appropriators to craft a catch-all omnibus package to fund the government beyond the December 11th expiration of the current continuing resolution. This deal may take federal default off the table, but a shutdown or more short-term funding measures are still possible. While this agreement is an encouraging step forward for providing longer-term fiscal certainty, it remains the start of a process.


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