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Budget Feud’s Next Round Keeps Cuts to Avoid Shutdown

March 05, 2013

Congress Budget Feud Next Round Keeps Cuts to Avoid Shutdown

President Barack Obama meets with his Cabinet at the White House on March 4, 2013. Photographer: Win McNamee/Getty Images

While Congress negotiates a U.S. spending plan for the rest of the budget year, leaders are preserving automatic cuts and seeking ways to give agencies flexibility in implementing the reductions.

That work starts this week with a House vote on Republicans’ proposal to fund the government after current spending authority expires March 27. The House bill retains the $85 billion in cuts that took effect March 1 -- a reduction of 5.8 percent through the fiscal year ending Sept. 30.

Lawmakers in both parties and President Barack Obama agree they want to avoid a federal shutdown. The latest feud is as much about which agencies -- notably defense -- will be given flexibility to manage the reductions as it is about the amount of spending.

“I don’t think these guys are going to get enough heat before the 27th” to change the spending cuts, said Scott Lilly, a senior fellow at the Center for American Progress a Washington-based public policy group aligned with Democrats.

The across-the-board reductions, known as sequestration, are set to total $1.2 trillion over the next nine years, including $85 billion for this fiscal year. Agencies aren’t allowed to shift money to crucial programs from those considered less important.

Economic Growth

The automatic budget reductions, if they remain in place, will cause a 0.6 percentage-point reduction in U.S. economic growth this year, the nonpartisan Congressional Budget Office has estimated. Federal Reserve Chairman Ben S. Bernanke told the Senate Banking Committee on Feb. 26 that “this additional near- term burden on the recovery is significant.”

Investors haven’t been deterred. The Dow Jones (INDU) Industrial Average climbed today to a record, rising 125.95 points, or 0.9 percent, to close at 14,253.77 in New York. That surpassed its previous closing high of 14,164.53 as well as its intraday peak of 14,198.1 from Oct. 11, 2007.

Treasury 10-year yields increased two basis points, or 0.02 percentage point, to 1.9 percent at 5 p.m. in New York, according to Bloomberg Bond Trader data.

The House bill unveiled yesterday would finance the U.S. government at an annual rate of about $982 billion through Sept. 30. It would give the departments of Defense and Veterans Affairs more leeway to decide how to spend their money and implement the mandated cuts.

Vote Tomorrow

With the threat of a big snowstorm that may cause air travel cancellations, the House accelerated its plans and scheduled a vote on the stopgap measure tomorrow instead of March 7.

“Our goal is to cut spending, not to shut the government down,” House Speaker John Boehner, an Ohio Republican, told reporters today. He urged the Senate to take up the plan “expeditiously” and pass it.

Obama said March 1 that to avoid a government shutdown, he would sign legislation that would keep spending at the same level as a result of the automatic cuts.

The Office of Management and Budget said in a statement that the Obama administration is “deeply concerned” about the effect of the spending levels on government agencies’ ability to provide services. Still, it didn’t threaten a veto, saying the “the administration looks forward to working with Congress” to address its concerns.

Senate Democrats

Senate Democratic leaders, though, haven’t decided the approach they will take to funding the government after March 27. They are considering whether to give other agencies -- in addition to defense and veterans’ affairs -- the ability to move money among programs to ensure priorities are funded.

Senate Appropriations Chairwoman Barbara Mikulski, a Maryland Democrat, said last week that her bill would include spending at an annualized rate of $1.043 trillion. Unless the Senate agrees to turn off the automatic cuts, the spending authority in the bill would drop to about $982 billion.

The Senate could decide to take up the House bill. Still, Majority Leader Harry Reid, a Nevada Democrat, said today that his chamber will consider its own bill next week.

“ I’m cautiously optimistic that we’ll reach a solution before we leave here for the Easter recess after we do the budget,” Reid told reporters today.

House Appropriations Committee Chairman Hal Rogers, a Kentucky Republican, said yesterday that his chamber’s spending plan would avoid a federal government shutdown.

‘Hard Choices’

“It is clear that this nation is facing some very hard choices, and it’s up to Congress to pave the way for our financial future,” Rogers said in a statement. “This bill will fund essential federal programs and services, help maintain our national security, and take a potential shutdown off the table.”

Under Rogers’s bill, the Defense Department would receive $10 billion more to train troops, maintain weaponry and pay for operations. It would allow the department to transfer as much as $4 billion between accounts for some purposes such as “unforeseen military requirements,” with advance notification to Congress. Some accounts such as military personnel and pay are exempt from the automatic cuts.

Current legislation prohibits the Defense Department from moving money between accounts, and it can’t start new programs or enter into multiyear contracts. As a result, the department has reported funding shortfalls for its operations, according to Rogers. The House measure would alleviate that, he said.

Pay Raise

The House bill also would cancel a 0.5 percent pay raise for federal civilian employees scheduled to take effect in April, the first time the federal pay schedule was to be increased since 2010. The provision is expected to save $11 billion over 10 years, Republicans have said.

Eliminating such a “tiny” pay adjustment “doesn’t make any sense,” Jacqueline Simon, public policy director for the American Federation of Government Employees, said in an interview. The labor union represents about 650,000 federal and District of Columbia workers.

“You can only describe it as a desire to inflict harm on working class and middle-class people who happen to work for the federal government,” Simon said.

The Republican spending measure is already being criticized by Democrats.

New York Representative Nita Lowey, the Appropriations Committee’s top Democrat, said in a statement she was “disappointed” that Rogers’s proposal “would lock most of the federal government into outdated plans and spending levels.”

Lowey said the automatic discretionary spending cuts that are preserved in the bill “will result in job losses and furloughs, slowed economic growth” and a reduction of government services.

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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