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Budget Conference Committee Meets Today

Formal budget negotiations begin today with Democrats pushing for a multibillion-dollar job creation package aimed at speeding up economic growth. That will be in contrast with Republicans who want to maintain spending cuts under sequestration that will keep government operations running at reduced levels through the rest of FY2014. One thing that leaders in both parties already agree to: no grand bargain. The conference has until December 13th to recommend a plan under an agreement linked to spending and debt limit legislation that was passed October 16th (PL 113-46).

The goal for most of the budget conference committee members is to find a way to replace sequestration and agree on an overall FY2014 spending limit. While the House and Senate budget plans introduced earlier this year are far apart on tax and spending policy, they are somewhat closer on the more immediate issue of FY2014 discretionary spending. The House proposes an overall discretionary cap of $967 billion, $91 billion less than the Senate’s limit of $1.058 trillion. Absent an agreement on FY2014 funding, automatic spending cuts under the sequester would reduce spending by about $20 billion from current levels, to $498 billion for defense and $469 billion for domestic programs.

The House and Senate are both scheduled to recess next week through Veteran’s Day, and then will return to DC to continue negotiations. They will work for two weeks in November, and then take a two-week recess for Thanksgiving (November 25-December 6). That will leave just one week in December to complete work on the budget negotiations before the December 13th deadline. Again, most of the real negotiations will take place behind the scenes so the truncated work schedule should not affect the outcome that much. If a deal is not reached by the December deadline, Congressional leaders may need to consider another continuing resolution to keep government funded beyond January 15th.

Budget Discussions Begin (Again) this Week

Both the House and Senate are in session this week. The Senate is expected to consider energy efficiency and pharmacy compounding legislation, as well as a labor board nominee. The House will consider a resolution disapproving of the debt ceiling increase as well as financial services measures.

But the big show begins on Wednesday as the House and Senate kick off their conference on the FY2014 budget resolutions at 10:00am. Both parties are downplaying their hopes for a broad deal in budget talks that begin on Wednesday, suggesting they would settle for a more narrow accord on FY2014 spending that averts automatic spending cuts due early next year (sequestration). Only $19 billion separates the $986 billion discretionary spending level for FY2013, which has been extended until January 15th, and the $967 billion FY2014 limit set under the sequester rules enacted in the 2011 Budget Control Act. Democrats on the conference committee are unlikely to settle for any top-line discretionary figure lower than $986 billion, while Republicans insist any agreement to raise spending above the post-sequester $967 billion level must offset at least some of the increase with longer-term spending cuts.

It is still to early to predict what might come of this latest round of budget negotiations, but familiar themes related to taxes and entitlements will certainly come back up as they attempt to reach some sort of deal. And a year-long CR is not out of the question as appropriators cannot continue work on FY2014 bills until they have some clarity on top-line budget numbers.

Shutdown Over but Fiscal Issues Remain

The most recent fiscal crisis has been resolved, government is reopened, and the nation’s debt limit has been raised sufficiently to cover our bills. But that doesn’t mean that the broader fiscal issues aren’t still front and center. The next budget fights and political battles are beginning to take shape as all sides are now focusing on a “balanced” year-end budget deal – or grand bargain. Lawmakers are preparing for the first budget conference committee in four years with our own US Senator Patty Murray (D-WA) leading the charge for the Senate. Rep. Paul Ryan (R-WI) will take the lead for the House. The big question for that conference committee is whether they can even agree on how to reconcile the differences between the House and Senate budget measures – a difference of $91 billion. Neither side has yet agreed to using reconciliation.

The reconciliation process allows for adding instructions to a budget resolution that direct conference committees to submit legislation changing existing law, including tax and budget laws, with specified savings and spending targets. It also allows for that legislation to bypass Senate filibusters.

Regardless, the recent history of budget negotiations suggest it will be difficult to overcome the obstacles that have held back budget agreements for the past four years.

Shutdown: Day 16 and Default Looming

Negotiations broke down (again) yesterday as the House GOP leadership failed to find enough support among their caucus to move forward two separate proposals to end the shutdown and raise the nation’s debt limit. All eyes are on the Senate as they resume negotiations. The tentative deal under discussion in the Senate would reopen the government by extending current funding levels of $986 billion through January 15th, lift the debt ceiling until February 7th, and start a budget conference with instructions that it report a broader budget deal by December 13th. The December date is significant because it would give Congress time between now and then to negotiate a broader budget agreement to potentially modify or end sequestration before the next round of cuts are scheduled to hit in January.

The deal being discussed is expected to contain a single change in the 2010 health care law: stricter efforts to verify the income of individuals who apply for subsidies under the Affordable Care Act. The proposal would also allow the Treasury Department to use extraordinary measures when approaching a future debt limit. And finally there is support in both parties for a provision that would give agencies more flexibility to implement future sequestration cuts rather than just applying those cuts across-the-board.

Meanwhile, financial markets and credit ratings agencies are monitoring the action on Capitol Hill for any signs of a standoff that could lead to default. There is great uncertainty over when exactly the Treasury Department would run out of money if there is a default. Treasury Secretary Jacob Lew has said the government would only have $30 billion in cash on hand beyond Thursday to meet obligations.

Shutdown: Day 12 and Progress!

Congressional leaders continue to work toward reopening government and extend the debt limit before the October 27th deadline. While details are vague, it appears that the proposal would immediately end the shutdown and fund federal agencies for six months at current spending levels. It would maintain the automatic cuts, or sequester, but give agency officials more flexibility to decide where the cuts should fall rather than just mandating across-the-board cuts (although some agencies may ultimately decide to implement some uniform reductions). In addition, the proposal would raise the debt limit through January 31, 2014.

It is unclear at this point whether the proposal will also include directions to House and Senate budget committees to immediately enter negotiations over broader budget issues and to issue a report by January 15, 2014. If an agreement could be reached, it would clear a path for another increase in the debt limit later that month, without additional drama.

In exchange, Republicans may seek minor adjustments to health care reform. The first would delay for two years a 2.3 percent tax on medical devices that is unpopular in both parties. The second would require internal auditors to ensure that people who get tax subsidies to buy health insurance are in fact eligible.

House GOP leaders are meeting this morning to discuss their options. Both chambers are scheduled to meet today and could possible begin moving a compromise proposal forward to end the current fiscal crisis.