StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Expect Lots Of Budget Smoke, Little Fire Over Next 2+ Months

09 Nov 2013
Posted by Stan Collender

House and Senate budget conferees will formally get together again this week. This will be their first meeting since the ceremonial opening session on October 30 featured nothing more than politically self-serving opening statements,

Expect nothing to happen at this meeting...unless you believe that a further hardening of the positions each side stated at the last meeting represents something happening. it's simply too early in the process for anyone to offer a concession of any kind. The meeting will also be way too public for anything like a serious discussion, let alone an actual negotiation, to take place.

As I've said before, a budget conference committee of 29 representatives and senators is so unlikely to be able to agree on anything that, unless they want to go hungry, they had better delegate to a single staffer the authority to decide what to order for lunch. That's especially true if the lunch discussion takes place in an open hearing where CSPAN and others are broadcasting the deliberations.

Expecting little to happen should be the mantra for everyone following the budget events scheduled for the next few months.

Here, in chronological order, is what's ahead.

1. December 13. This is the deadline given to the budget conference committee to come up with some kind of agreement.

An agreement on what? Good question.

It could be to develop a budget resolution conference agreement for 2014, the fiscal year that began on October 1. Or it could be an agreement to replace the sequester that will go into effect in mid-January with something else. Or it could be that always-promised-but-ever-elusive grand bargain that includes comprehensive tax and mandatory spending reform. Or it could be all of these things.

Get the point? The same conference committee that would have so much trouble agreeing on what to order for lunch hasn't yet decided what it is going to be negotiating about.

The key question, however, is what happens if the budget conference committee fails to agree to anything by December 13.

The answer is "nothing." The government doesn't immediately shut down, there's no threat of a default and a sequester doesn't start to be imposed the next day.

Those things won't occur until at least a month later. In other words, there will still be plenty of time for the inevitably much smaller -- as in two people -- group to work out something even if (or should it be "when") the budget conference committee follows the anything-budget-super committee and fails to come to an agreement.

2. December 31. This is the date that 55 tax provisions will expire unless Congress and the White House decide to extend them. Some of these -- like the research and experimentation tax credit -- are very popular and important to the businesses and individuals that receive them.

There has been little talk so far about how to do this by the expiration date and many are assuming that they will be included in whatever budget deal the conference committee (see #1) develops. But there's no Plan B: No one has discussed what to do if, as I expect, there is no agreement by the December 13 deadline.

As has happened in the past, these provisions can be restored retroactively so Congress will likely not feel a great deal of pressure to do anything about them if there is no budget deal before the end of the year. The more likely scenario is that, if it occurs, the extension will be included in the government funding bill that will be needed by January 16 (see #3).

3. January 15. The current continuing resolution expires at midnight on January 15. If it's not extended by then, or if individual appropriations or an omnibus appropriation isn't enacted, there will be another government shutdown starting January 16.

This is likely to be the key budget decision of the winter because of the possibility of another shutdown and the fact that the CR or other funding legislation will determine whether a sequester (see #4) happens. If there is a budget deal, it is far more likely to be embodied in a continuing resolution or omnibus appropriation than in any other legislation.

Yes, the shutdown was very politically damaging to congressional Republicans. Yes, many or most House and Senate GOPers want to prevent it from happening again. And, yes, the common wisdom is that another shutdown is very unlikely.

But two factors should make it clear that another shutdown isn't completely out of the question.

First, some House and Senate Republicans may see January 15 -- before the problems with Obamacare are fixed and public opinion about the law changes -- as the best and last chance to delay the program. They may, therefore, be willing to threaten a shutdown again.

Second, it's not at all clear whether there can or will be any type of consensus on the spending levels for the next CR. Military spending has to be reduced by $20 billion from its current level to avoid a national security sequester (see #4). But it's not likely that Republicans or Democrats want to vote on their own to cut the Pentagon budget by this amount. It may be better politically for most representatives and senators to leave military spending at the higher level and then blame the sequester for the reduction.

Two other options will be equally as politically difficult. The first -- to suspend the sequester -- would stop the Pentagon budget from being cut. But that would increase spending and the deficit by $20 billion and may be unacceptable to a majority. The second -- substituting domestic for military spending cuts -- may get through the House but will never get through the Senate.

Don't be surprised if a third possibility -- a very small deal that includes revenues but not a tax increase or spreads the spending reductions required in 2014 over a number of future fiscal years -- emerges from this discussion. It may be the only budget gimmick that all sides can agree on.

4. January 18. This date is a guess. Sequestration will occur 15 days after  the first session of the 113th Congress adjourns. It is possible, although very unlikely, that both houses could agree to adjourn earlier and, if that's the case, the sequester could happen earlier as well.

But because a formal adjournment could give the White House the ability to make recess appointments, it's far more likely that the first session of the 113th Congress will end without legislation at noon on January 3. That means that sequestration could start to be implemented on January 18.

It is possible that Congress and the White House could agree to stop, delay or modify the sequester with a standalone bill. It is far more likely, however, that any change in sequestration will be included in the funding bill enacted as part of #3. This assumes, of course, that a funding bill is enacted.

5. February 4. The Obama 2015 budget is supposed to be submitted to Congress by the first Monday in February, which is the 3rd. It is unlikely, however, that the administration will meet the statutory deadline given how few of the 2015 budget decisions will be final in January.

It's not going to matter much anyway. Even if the phrase isn't used, the Obama fiscal 2015 budget will be as dead on arrival as its other budgets have been.

6. February 7. In theory, the federal debt ceiling will have to dealt with again by February 7th. It may happen before if the budget conference committee (see #1) or the funding bill (see #3) includes some kind of deal.

However, that the Treasury will be able to use its cash management techniques (the so called "extraordinary measures") starting February 7 so the real date of reckoning is closer to the middle of March. And if federal revenues come in faster or spending is slower than is currently projected, the extraordinary measures could keep the government afloat until April. At that point the influx payments from individual taxpayers could mean that the debt ceiling won't be a problem until May.


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