Falling With a Thud

The federal government’s fiscal year 2013 ends and its fiscal year 2014 begins on September 30 and October 1, two months from now.  According to the official calendar of the House of Representatives, that body leaves for its August break today, and will have only nine legislative days in September before the fiscal year ends.

That is one of the most tangible reasons why long-time Washington observers worry about a possible government shutdown – the failure to enact appropriations for the various federal agencies.

A second evident reason is that the Congress has made virtually no progress in passing the necessary appropriations, even as it packs its bags to take the August break.  Highlighting that failure is the withdrawal from the House floor of the appropriations bill for the Departments of Transportation, and Housing and Urban Development – known in the trade by its mellifluous acronym, THUD.

By jealously guarded prerogative, the House passes all appropriations bills first.  Of its 12 bills, the House thus far has passed four.  All four of those bills were “gimmees” (using the golf terminology – as in “I can’t possibly miss, so gimmee that putt”).  Three were the bills for defense, veterans, and homeland security.  Their can’t-miss status arises not only from their vivid red, white and blue color schemes, but also because the House gave those bills the largest allocations of funding relative to past years.  The fourth bill was the Energy and Water appropriations.  It is semi-red, white, and blue, in that it includes funding for the nuclear weapons programs and for the Army Corps of Engineers (which is “Army” in a limited sense), but it is a gimmee also in that with relatively small amounts of money it funds waterway projects that are of intense concern to many geographic areas around the country (including prominently parts of the South that are otherwise “anti-government”).  So it is always easy to pass.  In other words, degree-of-difficulty-adjusted, the House has completed virtually none of its appropriations work.

As we discussed last week, the House has agreed to honor the post-sequester overall discretionary spending cap; but it is violating the firewall between defense and non-defense discretionary spending.  It is using a defense cap equal to the higher, pre-sequester level, and is compensating for that by reducing the non-defense cap to well below the sequester level.  The question we asked last week was whether, and if so for how many years, the House could comply with this extraordinarily low non-defense ceiling for appropriations.

And this week, we got what may be the beginning of an answer.  The House Appropriations Committee was ready to bring to the floor the first of the three remaining bills that would provide most of the savings needed to comply with the post-sequester caps even with the relatively higher spending on the defense bills.  But on Wednesday, the House leadership announced that they were pulling that bill, the THUD bill, from the floor schedule.  And the fuss over the THUD bill disrupted the Appropriations Committee’s difficult negotiations over a second such “donor” bill, the Interior and Environment Bill.  That bill and the third donor bill, the Labor-HHS-Education bill, have not yet even cleared the Committee.  So with only nine legislative days remaining before the end of the fiscal year, the chances of the Congress completing its appropriations work and avoiding either a stop-gap continuing resolution (CR) or even a government shutdown are slim indeed.

Differences of opinion were expressed on why the THUD bill was pulled from the floor.  Some claimed that it was only the limited time available to work things out before the recess.  But somewhat surprisingly, the Chairman of the House Appropriations Committee, Rep. Hal Rogers (R-KY), issued a press release after his bill was pulled.  (As you might imagine, committee chairmen are much more likely to issue press releases when they pass bills than when they fail to do so.)  Chairman Rogers was fairly frank on his view:

The prospects for passing this bill in September are bleak at best, given the vote count on passage that was apparent this afternoon. With this action, the House has declined to proceed on the implementation of the very budget it adopted just three months ago. Thus, I believe that the House has made its choice: sequestration – and its unrealistic and ill-conceived discretionary cuts – must be brought to an end.

Thus, Chairman Rogers said publicly and plainly that the House could not pass appropriations bills that complied with its own budget.  And if that is true in this, just the second full year of budget sequestration, the situation will become only more untenable with every succeeding year of the current Budget Control Act (which runs through fiscal year 2021).

Chairman Rogers’ comments might be construed as a criticism of his own party, because of its decision to cut annual appropriations to a now apparently unrealistic degree.  But Chairman Rogers went on to propose shifting those assumed savings to the mandatory (or “entitlement”) part of the budget – which savings, in addition to the proposed appropriations cuts, are the essence of his party’s program.  Democrats resist those entitlement savings, and propose instead higher revenues – and that, of course, is the standoff that we face today.

We can argue about this House logjam over appropriations cuts until doomsday.  Some will argue that the sequester savings in the Budget Control Act are easily attainable through greater process efficiencies in government.  Others will counter that such arguments do not apply, because much of government’s activity is contracting with the private sector (whose competitive pressures already should enforce most-efficient practices), and that much of the rest is grants to state and local governments (over which the federal government does not have management authority).  Yet a third perspective may be that the federal government now does, even in the unlikely event that it is in the most efficient way, things that it should not do – like some of the public works projects funded in the THUD and the Energy and Water appropriations bills.

But at some point this dispute evokes the oft-repeated Irish saying about knowing the difference between what you can and what you cannot change.  Opinions about the merits of particular federally funded projects always will differ – often based on whether a project is or is not in the congressional district of the observer at hand.  And if one particular observer believes that he or she has an airtight case against one particular program, but that program cannot be defeated and removed from an appropriations bill, then assuming the savings from its repeal is pure self-deception, and merely underestimates the amount of other spending savings or additional revenue that must be achieved to move the budget back into the sustainable zone.

On Thursday, the plot sickened still further.  The Senate, following one step behind the House’s original schedule, tried to begin debate on its version of the THUD bill, written at a higher spending level, without the additional cuts required by the sequester.  That bill failed to overcome a filibuster.  In the Appropriations Committee, six Republicans voted for the bill.  On the floor, only one did (hence the failure to achieve the necessary 60 votes).  So it was a close thing, but the Senate signaled that while the House appropriations (with the additional sequester cuts) are too low, the Senate’s level (without the sequester cuts) may be too high.  Thus, there are important differences to be reconciled, and little sign (other than conversations between the White House and a half dozen Republican Senators who are not yet central to this issue) of movement.

This year’s appropriations battle is not yet doomed to abject failure.  The House could come back in September and find a way to pass the remaining contentious bills; or the Senate could come to closure.  Or the two sides could recognize that passing appropriations for basic government functions is at some point essential, and could agree to cut a deal before any lasting damage is done.  But right now, the prospects of such an ending look very slim, especially when the “de-funding” of the 2010 healthcare law is bound up in the mix.  And with appropriations, and the debt limit, and all of the other fiscal-cliff components pressing up against their Fall and end-of-calendar-year deadlines, both the federal government’s operations and the prospects to avoid financial-market disruption will be at risk.

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