The “X Date”
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Policy Brief:
The deadline to raise the debt ceiling falls into two ranges with multiple factors – early June or early August.
Wednesday’s meeting between Congressional Leaders and the President stalled but “didn’t take anything off the table” concerning the debt ceiling issue. They meet again on Friday.
What’s driving the two dates is the traditional dip in government funding which is followed by an influx of tax receipts caused by the June 15th quarterly deadline.
Senate Appropriators are “at the ready” to introduce the Fiscal Year 2024 Appropriations Bills.
House Appropriators will begin markups of selected FY2024 Appropriations Bills next week.
House and Senate Appropriators are meeting to determine common ground ahead of the debt ceiling legislation, but those meetings have stalled due to lack of agreement on top line amounts.
Appropriations:
It is hard to know how much money to provide federal agencies to spend when Congress doesn’t know how much is going to be in the account, what credit the U.S. will have available, and how much the Nation’s has to repay of its debt owed. Now add that to the spending that Congress has “authorized” since 2020 and the total exceeds the revenue coming into the Treasury as well as the authority to borrow. All of that added together is what is known as the topline allocations (the total target amount for each agency). Congressional Appropriators are facing this problem in the Fiscal Year 2024 spending bills, and it will not be resolved until the debt ceiling (the authority for the Nation to borrow money) has been lifted.
House Republican Chairs of the Appropriations Subcommittees were given the green light by Leadership Monday to begin the legislative process on select spending bills. But these key House Republicans will have to scramble to produce government funding bills that boost spending for veterans’ benefits and other GOP priorities — and put off bills that are set to be cut — as Speaker Kevin McCarthy (R-CA) negotiates the terms of their offered debt-limit proposal. This is especially true as most of the Subcommittee Chairs have not been provide top line allocations for their respective bills.
On the other side of Capitol Hill, the Senate Appropriations Committee has been ready to go for over a month. Most key bills were wrapped up and sitting on the shelf by the second week in April pending resolution of what one Senate staffer described to Capitol Core as “the existential threat the House Republicans are self-inflicting.” The early drafting by the Senate has now proven that the bills in each House are very far apart in terms of their top line allocations. House and Senate Appropriators are meeting to discuss “common ground” which may provide the basis for likely cuts. Unfortunately, initial meetings indicated the major differences between the Houses. The stall in top line allocations is likely to postpone the Senate’s action to markup and begin the legislative process.
How long the debt ceiling negotiations will drag on will shape the Appropriations process. The politics of those debt ceiling discussions will also play a role, as Republicans are unlikely to release Appropriations bills that detail steep cut. That means Defense, Military Construction/VA, and Homeland Security are the first likely bills to be pushed to the floor but hold short of passage. The longer the debt ceiling negotiations continue will first push Congress to combine spending bills – An Omnibus or “Mini-bus” approach. Could that trail into a possible Continuing Resolution for the FY2024 Cycle? Sure, but that is not on the table yet as “CRs” always have a negative impact on Wall Street and that would tank the proposed increases to veterans’ affairs, push out the spending caps included in the GOP debt ceiling proposal, and harm defense spending as well as the other “must pass” authorization bills Congress must deal with this year. Pushing FY2024 Appropriations bills through now is prudent and as long as the debt ceiling is dealt with before the “X-Date” and before the August Congressional recess, Appropriators have time to resolve the spending bills for next year.
Debt Ceiling:
Raising the Nation’s debt limit is always fraught with brinksmanship, political theater, negotiations, demands, hold-outs, and countdown clocks. It is especially true with a divided government. In late-November 2022, Capitol Core predicted “the debt ceiling issue would suck the air out of the halls of Congress in April-May.” We were about 10-days off. It was clear, even back in November, Senate Democrats and the President wanted a clean long-term debt ceiling bill that provided a large raise in the ability for the U.S. to borrow money. By contrast, House Republicans wanted some cuts and caps in spending that would trend toward lowering the National debt.
Knowing what we did in late-November how did we get to pushing up against the “X-Date?” A four-vote margin in the House of Representatives coupled with a prolonged fight for the Speakership was thought to weaken Republicans’ bargaining power over the debt ceiling. Freedom Caucus Conservatives holding out their vote for Speaker McCarthy demanded deeper cuts, recissions in previous spending, and hacking at the President’s key legislative victory – the Inflation Reduction Act of 2022 (“IRA”). Speaker McCarthy agreed to the terms. The conventional thinking around the Hill was that Republicans could not agree upon spending cuts that would satisfy Freedom Caucus Members, a spending limitation bill would not pass the House due to a lack of cohesiveness among Republicans, and the Republican Caucus would weaken over the debate. For now, the opposite has proved true.
The President, in a brinksmanship/political move, challenged House Republicans to “provide and pass a 10-year plan.” The entire Senate held its breath in silence as the House went to work and by a two-vote margin passed HR 2811 – The Limit, Save and Grow Act of 2023 which detailed recissions in previous unspent CARES Act funding provided to States; provided a 10-year spending cap plan; and essentially gutted the IRA. Senate Democrats and the President called the bill “dead on arrival.” Which was true until the Congressional Budget Office (CBO) scored(provided their fiscal impact analysis) HR 2811 on April 25, 2023, indicating the bill would save $9.6 trillion, which includes a $4.8 billion budget deficit reduction. Senator Joe Manchin (D-WV) was the first Senate Democrat to publicly indicate he preferred a negotiated settlement to the debt ceiling issue that included spending cuts. The issue really was that with the CBO estimate the President and Senate Majority Leader Chuck Schumer has also lost key Senate Democrats including Senator Sinema (I-AZ), and Senator Tester (D-MT) in demanding a clean debt-ceiling bill. Whether or not Majority Leader Schumer had those votes in the first place is up for debate. Senate Democrats, even with Senator Feinstein (D-CA) returning to the Capitol, do not have 50 votes – let alone the 60 votes needed to close debate – on a clean debt ceiling resolution bill.
In late-November 2022, Capitol Core predicted the recission of unallocated CARES Act funds along with spending reductions. We’re holding to that prediction. What is interesting is that passage of HR 2811 put deeper spending cuts, particularly in the renewable energy space, into play. {see our From the Hill: Energy #2 for a complete summary of HR 2811}.
Is HR 2811 going to pass and be signed into law as currently written – NO. That means that some agreement where both Speaker McCarthy and Majority Leader Schumer maintain their respective caucuses to pass a debt ceiling bill must occur. How that is viewed or accepted by House Freedom Caucus Members remains to be seen. Without the vast majority of the caucus voting in favor, Republicans would have to partner with House Democrats to pass a debt-ceiling bill and begin work on FY2024 Appropriations. That may be enough to cost the Speaker his gavel. In fact, there are Members in the House counting on such a move toppling the Speaker. Are there Members of the Freedom Caucus that would be willing to risk the political and economic impacts of default? Yes, we know of at least three that would likely go that far – despite the action likely overplaying their hand.
On the Senate-side, the Majority Leader must now negotiate enough to get back his lost members plus pick up additional Republicans needed for the bill to close debate (“Cloture”). Senator Schumer does not get those Republican votes without Senator McConnell. Schumer’s also having to hold the President’s line on the issues. All creating an uncomfortable, political, and heated negotiation starting point for the Senator. From the President’s point of view, he has three choices – negotiate, invoke the 14th Amendment, or allow the default. For now, the White House has extended a willingness to negotiate, but there is a yet-unknown line in the sand that the President will not cross but it is likely well short of the provisions in HR 2811. Invoking the 14th Amendment is fraught with legal challenges and political issues. Default likely costs the Speaker his gavel, Senate Democrats their majority, and ends the President’s chances for reelection. Now that’s brinkmanship.
Right this moment, the President, the Speaker, Minority Leader McConnell, and Senator Manchin are the political powers driving this debate. But that dynamic could change at moment’s notice.
From the Hill is an industry snapshot for Capitol Core Group clients in select industries of interest. It is compiled from Capitol Core research and discussions as well as outside resources including Bloomberg Government, Roll Call, and other relevant sources. All data provided is public data but is compiled for ease of understanding.
This is a special in the series on the topic of Appropriations and the Debt Ceiling Debate
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