AGREEMENT PAVES WAY FOR FY2024 APPROPRIATIONS
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Policy Brief:
The Debt Ceiling Legislation will be voted on by the House of Representatives on Wednesday.
Suspends the debt ceiling until January 2025.
Establishes a two fiscal-year spending limit and a limits discretionary spending through fiscal year 2029.
Passage of the legislation will pave the way for topline allocations in most appropriations measures.
Limits to spending will cut IRA and discretionary IIJA funding (estimated impact in the hundred-billion range).
Debt Ceiling Legislation:
We have a deal on the debt ceiling. The legislation, HR 3746 (McHenry, R-NC) – Fiscal Responsibility Act of 2023,must pass both the House and Senate without substantive changes to provisions agreed upon by the White House and House Republican Leaders. The main points of the agreement were unveiled on Friday and a draft bill provided to Members on Sunday morning for their review. A vote in the House of Representatives is expected Wednesday and will likely require bipartisan votes to pass. House Freedom Caucus Members and Progressive Democrats are expected to vote “NO” on the bill requiring centrists from both sides of the aisle to pass the bill. The Senate is already bracing for a vote with the vast majority of both Republicans and Democrats agreeing to the provisions.
The substance of the agreement would suspend the debt limit through Jan. 1, 2025, in exchange for a cap in overall spending for two years, allowing a slight increase for defense, veterans’ affairs, agriculture, and cutting non-defense funds. Beyond fiscal-year 2025 through fiscal-year 2029, the bill places specific limits on discretionary spending. As expected, the bill rescinds unobligated CARES Act funding.
Specifics concerning funding limits include FY-24 nondefense spending levels about equal to the FY-23 due to legislative adjustments in spending bills, including a plan to repurpose certain CARES Act funding and mandatory Internal Revenue Service funding. In FY-2024, defense spending would be limited to $886.3 billion, a 3.3% increase from the current level of $858.4 billion. Non-defense spending would be capped in 2024 at $703.7 billion. That’s a 5.4% cut compared to the $743.9 billion in base non-defense discretionary funding included in the FY-2023 omnibus, according to the Congressional Budget Office. The bill also outlines projected spending levels for fiscal 2026 to 2029, gradually increasing the top-line discretionary level to $1.67 trillion in 2029, though those figures aren’t statutory spending caps with the full legal effect of the FY-2024 and FY-2025 figures.
The Congressional Budget Office has yet to release a score estimating how much the bill would reduce the deficit. This will be less than the $9.8 trillion spending reduction which included $4.8 trillion in deficit reduction within a three-year period that was part of the original House plan.
Impact on FY2024 Appropriations and Beyond:
The impact on FY-24 Appropriations has not been fully realized with topline spending allocations only provided on Military & Veterans Affairs, Agriculture, Government Operations, and Homeland Security. Passage of the Debt Ceiling bill will clear the way for Appropriators in both the House and Senate to begin working on their respective spending measures. The Debt Ceiling bill did take into account the possibility of a Continuing Resolution for FY-2024 imposing a 1% across-the-board cut to discretionary funds if lawmakers rely on a CR beyond the end of calendar year 2023. This certainly places pressure on Appropriators to strike a deal this and the next fiscal year.
Although not directly repealed through the bill, as indicated in the House of Representative’s original debt ceiling package (HR 2811), the agreement does represent cuts to spending in both the Infrastructure, Investment and Jobs Act (i.e., the Bipartisan Infrastructure Bill) and the Inflation Reduction Act (the Budget Reconciliation Act). Limitations on overall spending, as proposed in the debt ceiling bill, essentially freeze the last two remaining years of the IIJA at FY-2023 levels and limit the ability to fully fund the tax-credit provisions of the IRA without further cutting spending. For the non-mandatory appropriations within the IIJA, Appropriators will be forced to reconcile the spending limit to the remaining authorizations contained in the IIJA and IRA. The impact is really trading infrastructure for energy provisions, unless House/Senate Democrats want to further reduce social program spending to reallocate tax incentives provided under their “clean energy economy” as outlined in the IRA. With the last-year of the IIJA funding set to sunset in FY-2026, Democrats are holding out that some authorized IRA funding will remain between 2027 and 2029. But in reality, the proposal will claw back billions of dollars in clean energy funds from Democrats’ climate and tax law.
Legislatively directed spending (“earmarks”) and other discretionary spending programs will continue to be limited through FY-2029.
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 the second edition in a special in the series on the topic of Appropriations and the Debt Ceiling Debate.
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