Fall 2023
Top Line Take Aways:
The potential for a full government shutdown will dominate all discourse in Washington and drown out pretty much everything else that needs to get done in September. Speaker McCarthy is currently floating a 30-day Continuing Resolution (CR) to his members, while Senate Republican Leader McConnell has said he expects a CR to run into early December. We think the latter scenario is more likely...but expect an ugly fight for the next few weeks and through the end of the year. For a briefer on what actually happens to government operations during a shutdown, see below.
The Freedom Caucus issued an August ultimatum that they will not support a Continuing Resolution to keep the government funded unless certain demands are met and also have expressed previous opposition to Omnibus spending bills. September currently has 11 total days of session scheduled and, if you’re counting at home…that’s not enough.
Someone is going to have to blink. At present, none of the Democrats in the House, the Senate, or White House have any incentive to bail out House Republicans. Oh yeah, and the Freedom Caucus is demanding their immigration package, H.R. 2, be included as well. See below for an in-depth appropriations update.
Senate Majority Leader Schumer sent a Dear Colleague outlining his plans for September and the fall. In addition to appropriations and judges, he lays out an ambitious agenda including: Artificial Intelligence, cannabis banking, drug pricing, bank exec claw backs, rail safety, online safety, NDAA, FAA Reauthorization, Ukraine Aid, and Disaster Relief.
The Senate is still at an impasse over the blockade of military nominations by Senator Tuberville (R-AL). Unless Leader McConnell threatens any repercussions to Tuberville for his actions, don’t expect a change in the status quo there soon.
The National Defense Authorization Act is a rare bright spot where both House and Senate have passed their bills. It might be delayed over abortion policy, but has been passed on time in bipartisan fashion every year for 62 years. We don’t expect that to change.
There are a host of major authorizations expiring this Fall. Most will get extensions—see a more detailed outlook below.
Where We Are – Appropriations
Stark Differences in Funding Levels
The House and Senate are marking their respective Fiscal Year (FY) 2024 appropriations bills to remarkably different levels. Despite bipartisan agreement for the discretionary funding caps established in the Fiscal Responsibility Act of 2023, the House Appropriations Committee has decided to mark their FY24 appropriations bills to FY22 spending levels – at $1.470 trillion.
The Senate, meanwhile, is marking each of their bills to the discretionary spending caps agreed to in the Fiscal Responsibility Act of 2023 - $1.590 trillion - a strategy endorsed by Leader McConnell, and has successfully proceeded to pass all 12 bills out of committee with broad bipartisan support.
As we near the end of the fiscal year on September 30th, the ~$120 billion difference between the two chambers, and disagreement over how to proceed with a stopgap continuing resolution, (combined with general animosity between the two parties [or two chambers]) have resulted in the current spending fiasco.
Supplemental Funding Request for Ukraine Assistance and Disaster Relief
Adding to the spending mess in Congress, President Biden earlier in August submitted a request to Congress for an additional $40.1 billion in emergency supplemental appropriations, including an additional $24.1 billion for additional funding to support Ukraine, $12 billion to support disaster relief for recent wildfires in Hawaii and flooding in Vermont, as well as nearly $4 billion to help strengthen the security of the southern border.
The Administration is hopeful that by tying the additional Ukraine funding to popular disaster relief support and additional funding for border security, the wide-ranging package can garner the votes necessary to pass. It’s possible that the hurricane this week impacting Florida, Georgia and the Carolinas could increase likelihood of a Disaster Supplemental paired with aid to Ukraine. Several Freedom Caucus members hail from affected states and that would be a very difficult “NO” vote.
House Majority Leader Kevin McCarthy has repeatedly said that he is unwilling to provide a “blank check” for Ukraine and will have to contend with a growing number of House Republicans who oppose any additional funding for the conflict. On the other side of the Capitol, Senate Republicans nearly revolted on the Fiscal Responsibility Act because it, in their view, did not include enough defense funding, including for Ukraine – this will continue to be a point of contention between the two chambers, particularly as the presidential race heats up.
House Appropriations Outlook
Tier One – Most Likely to See Action
Defense: The most likely bill to move to the floor in the first week the House returns from recess. It’s currently in front of Rules and has a 3.6% increase in spending over 2023 levels so isn’t a casualty of the spending wars. As of this sending, amendments are no longer being accepted.
Agriculture: Also in front of Rules, but on indefinite hold. Why? The inclusion of language to prevent the Biden Administration’s rule allowing Mifepristone (a drug used in medical abortions) to be issued through the mail. There are a sufficient number of Republican Members who oppose this language (including vulnerable New York Republicans) leaving the bill in limbo. They are no longer accepting amendments.
Homeland Security: The 2nd of the “must pass” bills for House Leadership. They are loath to head into a shutdown scenario not paying troops or funding border security – a self-inflicted PR nightmare the Democrats would relish. However, Freedom Caucus hardliners are insisting on the inclusions of H.R. 2, the House’s border security bill, which not only violates the rules of “regular order” by legislating on appropriations but also causes a lot of consternation from Ag and immigration friendly GOPers over its E-Verify provisions. It is possible Rules meets on Homeland the first week the House is back in session, a situation Leadership is aiming for. Rules is accepting amendments until September 6th.
Tier Two – Possible, if There is Time
Financial Services and General Government/State and Foreign Ops: Neither of these bills generate headlines back home but they’re caught up over various riders included during Committee Markups. GOP Leadership may be keen to put them on the floor to give Republicans a bite at the IRS and various foreign policy issues related to Israel, the BDS movement, a potential Iran Deal, among other things.
Tier Three – Not Likely but Less Controversial
Interior: Always issues here with the naming of national monuments, cemeteries, etc.
Energy and Water: Efforts by House Republicans to chip away at IRA programs and expansion of green energy projects at what Republicans claim is the expense of fossil fuels will likely keep this from getting prominent floor time in September.
THUD: THUD bill is normally popular and bipartisan and it’s where the vast majority of earmarks lay that Members like to tout back home. However, THUD is victim to major cuts in funding and disputes over earmark ratios between the majority and minority members.
Tier Four – Not Going to Happen
Labor-HHS: Your hosts can’t recall a time this bill has ever passed a GOP controlled House under regular order. There are simply too many land mines on social issues and funding for health care programs that GOP Leaders determine it isn’t worth the floor fight. Adding to the issue is the bill hasn’t even been passed out of Committee.
Commerce, Justice, Science: Likewise, has not been considered in Committee. Now that attention seekers in the GOP Conference want to “defund” the prosecution of Donald Trump – an absurd notion that has no basis in Constitutional law or any chance of happening – this bill is going nowhere.
Leg Branch: If the Government is going to shut down, House Leadership will not want to make law a bill to fund the staff that makes up the Government. For better or worse the optics are bad here.
*Reminder: MilCon-VA passed the House before the August Recess. Take THAT Senate!
Senate Appropriations Outlook
In contrast to the mess the House finds itself in, Senate appropriations leaders Patty Murray (D-WA) and Susan Collins (R-WA) have done an impressive job passing all 12 appropriations bills out of their committee—the first time since 2018, and this time with broad bipartisan support.
As we noted earlier the disparity between funding levels in each chamber is one of the issues that has set up the September 30th showdown between both chambers. But, how hard will Republicans fight to defend their bills? Expect McConnell and Collins to largely defer to Murray, Leader Schumer, and President Biden to take the lead in negotiations with the House.
While the House frets, the Senate will use its limited September floor time to move forward with business as usual. Leader Schumer is looking to move at least three appropriations bills in September, with Transportation-Housing and Urban Development, Agriculture, and Military Construction-VA primed to be first up.
So, Are We Going to Shut Down?
Bret: If House Republicans can get DoD and Homeland Security Appropriations through the House my belief is nearly 100% chance of a shutdown. If they can’t, House Republicans are handing the White House and Congressional Democrats enormous firepower heading into a Presidential election. How does the GOP run political ads targeting immigration at the border while refusing to fund the Border Patrol? If that issue, and paying troops, is off the table it’ll be hard for GOP Leadership to wrangle the necessary votes since there is a large enough portion of the Republican Conference that believes two things. One, that shutdowns simply don’t matter that much to the average voter and don’t impact much of anything. Two, that whatever pain a shutdown does cause, not getting any spending cuts and reform would be worse.
My Pet Conspiracy Theory: I have a theory that the demands and posturing from the Freedom Caucus isn’t really about spending. It’s about getting rid of Speaker McCarthy. In order to keep the government open, Speaker McCarthy would have to work with Democrats, to whom he would need to provide concessions. This would give them the perfect excuse to motion to vacate the Chair while avoiding any blame and acrimony for shutting down the government. Maybe I’m overthinking it!
David: Speaker McCarthy has done an impressive job keeping and (from some peoples’ point of view) succeeding in his job leading his conference—better than nearly anyone in town thought he could, not that they’ll ever admit it. If he wants his run to continue, he needs to thread the needle on appeasing his members while making the House Republican majority look at least semi-competent at governing. How does he get from here to there? Probably by creating a lot of short-term pain. I agree with Bret: if the House can get their Defense and Homeland bills done, McCarthy can claim to his members that they’ve done their job and it’s the Democrats’ fault for not adhering to their hardline demands. The question is, how long do we shut down for? During the last shutdown it took 10 missing air traffic controllers – and the ensuring air travel chaos across the Eastern seaboard – to end the longest shutdown in history at 35 days. I’m going to (optimistically, perhaps) say we don’t see anything like that this time. A short-term shutdown lets McCarthy claim a win with his members, but the gravity of what a shutdown means to the federal government and economy will pull the House to the negotiating table to get us to the holidays.
Selected Bills that Expire and Need Reauthorization
Federal Aviation Administration Reauthorization: The House has done its work here and sent a bipartisan bill over to the Senate, where disputes over pilot training requirements and slots at Reagan National Airport have clogged up the Senate Commerce Committee. There simply isn’t enough time for Chair Cantwell to get a bill out and conference with the House before an extension is needed. So, the question is – can the committee get to a bill in September before the inevitable short-term extension is required. No one, not even the committee, appears to know whether that’s a possibility right now. Expect frantic negotiations when the Senate returns to see if a deal can be in the making.
The Farm Bill: Neither Chairwoman Stabenow nor Chairman GT Thompson have made a lot of headway on Farm program reauthorizations. While we hear that the House Agriculture Committee will have text ready in September, it is unlikely that they will release it publicly unless there are assurances from leadership that it will receive floor consideration in the near future, rather than languishing out in the abyss. That said, there are significantly more roadblocks in the House with issues over the expansion of benefits during COVID, food stamps, work requirements, crop subsidies, and what to do with conservation funding and the rapid collapse of the traditional rural-inner city member coalition on the FARM Bill. Your hosts don’t expect to see text until October or November. How much does this matter? The vast majority of Farm Programs keep going without an authorization. The last time a FARM Bill was passed outside of an election year was more than 30 years ago, so this is more of the same in a way.
National Defense Authorization Act: The House and Senate have each passed their versions of NDAA, the House on a partisan basis and the Senate with broad bipartisan support. Abortion policy and culture war issues were a big factor in the House debate and vote, but we expect those issues to fall out in a Conference Report since they can’t pass the Senate. Conservative hardliners in the House will make a lot of noise about that but the Conference report will pass with broad bipartisan support. We have heard from House Leadership that NDAA is likely a December action. Senate staff have said the same, in terms of timing.
National Flood Insurance Program: Flood Insurance has long been an issue that has vexed Congressional Republicans. Fiscal hardliners, like former Financial Services Chairman Jeb Hensarling, hated the program, saying it was a national subsidy for rich people with beach houses. However, plenty of Republicans represent districts in coastal states that experience flooding, like Majority Leader Steve Scalise. With him, current FSC Chairman McHenry, Rep. Garrett Graves and Senate Majority Leader Chuck Schumer expect this to get done. However, since 2017, Flood Insurance reauthorization has been synced up with Appropriations, so any lapse in government funding could be a disaster heading into hurricane season. Last year’s Congress didn’t get a reauthorization to the President’s desk until December 29th.
Temporary Assistance for Needy Families (TANF): TANF was last fully reauthorized in 2005. Since 2010 it’s been extended by a series of short-term extensions, most recently through September of this year in last year’s Omnibus spending package. House Republicans secured reforms to TANF work requirements in the Fiscal Responsibility Act (the “debt deal”) but they’d like to secure more so we expect a one-year extension to be tucked in to whatever bill keeps or re-opens the Federal Government.
President’s Emergency Plan for AIDS Relief (PEPFAR): One important point on PEPFAR is that the program will continue absent a reauthorization as long as Congress will appropriate funds for it (it will). Reauthorization is in jeopardy because the program is the latest casualty of abortion policy. House and Senate Republicans have accused the White House of using the program to fund abortion services abroad. Because the program continues in the absence of an official authorization, we expect this one to languish late into this session of Congress.
Pandemic and All Hazards Preparedness Act (PAHPA): Freedom Caucus Members likewise are threatening to block reauthorization of PAHPA unless reforms are made relating to how the federal government responded to COVID-19. Senate HELP passed their reauthorization 17-3 while House Energy and Commerce advanced on a party line vote. House Conservatives are demanding several things, including a ban on gain-of-function research, ending and preventing vaccine mandates, compensation for anyone with a vaccine injury, and a reduction in funding to pre-pandemic levels. It’s likely that reauthorization of PAHPA lapses past September 30, moderate Republicans are very comfortable talking about lockdowns and their associated affects so the normal pressures on vulnerable members doesn’t apply here.
SUPPORT for Patients and Communities Act: This was House Republicans big Opioid package during the Trump Administration and the issue remains a top priority for Chairwoman McMorris-Rodgers. The House will have a reauthorization of its many programs along with new bills to tackle fentanyl ready for when the House returns in September. TBD on what the Senate does in this area but it has the opportunity for broad bipartisan support as its an issue that impacts Members’ districts of all stripes.
GET SMART – What Happens in a Shutdown?
Does Literally Every Government Action and Employee Shut Down?: No! It’s important to remember that many functioning elements of the Federal government exist on a permanent or “mandatory” basis. Social Security, Medicare and Medicaid for instance exist outside of the Appropriations process. Any job that is funded by monies that exist outside of the Appropriations process is not affected by a shutdown. Social Security checks will still go out to Seniors and claims can still be processed. However, at least some of the employees that operate these programs will be affected by a lack of appropriations so service will certainly suffer and it may lead to delays. Other functions that collect fees to supplement operations can likewise keep operating. A government shutdown due to a lack of appropriations isn’t an order to stop working, it means relative Agencies don’t have access to monies to fund operations. So mandatory programs and fee-based programs can still operate, though their full potential may be hampered.
What Else Is Exempt? Law Enforcement and the Military? Tax Collection?: Yes! To be clear, OMB proscribes the procedures to be followed by Agencies during a lapse in government funding, and it is at the discretion of OMB should the agency choose to modify its guidance. Using past as prolog however, OMB has relied on agency guidance since 1981 that details various categories of exempted activities in the absence of appropriations. Those activities include anything that provides for the national security, essential activities to protect life and property such as medical care, public health and safety, air traffic control, border and coastal protection, care of prisoners, law enforcement and criminal investigations generally, borrowing and tax collections of the Treasury, among other things.
Can Agencies Declare Employees Exempt or Essential?: Agencies have a limited degree of latitude, provided that it is not proscribed by law, to determine which employees must show up to work in the event of a shutdown. Each Agency is required to have on hand its plan in the event of a shutdown. Here is the Department of Homeland Security’s plan. They estimate nearly 60,000 CBP employees alone that would be exempt from a shutdown, in addition to other employees that will still be required to report for duty.
What About Congress And Their Staff?: Members of Congress are performing a constitutional duty, so not only do they have to show up, the Constitution also requires them to get paid. You’ll hear a lot of sound bites about not paying Members during a shutdown, but absent a constitutional amendment, they’ll get paid. Each office has the ability to determine which employees are deemed “essential” to operations and thus have to show up. Way back in 2013 it wasn’t uncommon for this to be one or two people. In reality GOP offices will likely require most of their employees to report, since they’ll be inundated with calls about why the taxpayer is paying all these employees if they aren’t “essential.”
OK So If All These Things Are Exempt, What’s the Big Deal!?: Well for starters, none of the employees who are showing up to work under essential and exempt status, whose salaries are funded by appropriations, are being paid. If the shutdown lasts long enough, hundreds of thousands of workers will be furloughed without pay, while hundreds of thousands more will be required to work without knowing when or if they’ll be paid next. Further, the government does a lot of things that aren’t providing for national defense. Countless programs that exist to aid homeowners, farmers, the homeless, provide insurance, will cease operations and the people who depend on them will very much object. Additionally, large portions of the Federal justice system will be unable to function, and SNAP payments will be significantly reduced. The Congressional Budget Office estimated that the last shutdown, in 2019, cost the government about $5 billion and lowered GDP by $8 billion. Not to mention the financial markets hate it and even if the average American doesn’t personally feel pain, it makes D.C. look ridiculous and furthers the national feeling that D.C. politicians just don’t have their act together.
What Is Important for Me and My Employer/Clients To Know?: Of the top, if your business has any federal contract for any type of non-exempt activity, it’ll likely be impacted. Even if the contract is for essential work, fewer government employees will be available to process invoices and get money out the door or to approve permits, environmental reviews, etc. The Small Business Administration would be severely handicapped, it won’t consider loan applications or process requests, including disaster related loans. SBA processes anywhere from 60,000+ loans in 2014 to over 9 million in 2020. This could lead to significant challenges in your customer base or supply chain. Additionally, any federally funded research, and the programs supporting it likewise come to a halt.
