GM 13-111

Bipartisan Budget Agreement Reached; Enactment Likely This Week

Senate and House Budget Committee Chairs, Senator Murray (D-WA) and Representative Ryan (R-WI), announced last week that the committee charged with making recommendations on topline discretionary spending levels for fiscal years (FYs) 2014 and 2015 had reached such an agreement. This agreement would slightly raise the FYs 2014 and 2015 spending caps set in the Budget Control Act of 2011 (PL 112-25, “BCA”). If this agreement is enacted, there would not be an across-the-board reduction in discretionary spending “sequestration” in FYs 2014 and 2015, provided that the appropriations committees enact bills which do not exceed these new caps. This agreement does not however, include a change to the formula for automatic cuts to mandatory spending that the BCA provides, therefore the sequestration of mandatory spending will continue. The budget agreement was put into legislative language as a substitute amendment to H. J. Res. 59 and was approved by the House on December 12, 2013, by a vote of 332-94. The Senate is expected to begin consideration of the bill on December 17 and the President has stated that he will sign it.

How the BCA Works. The BCA works by setting overall spending caps for each FY from FY 2013-FY 2021 and then imposing additional cuts or “sequestration” to further lower these caps if Congress does not craft a package of spending reductions and revenue increases. Hence, each FY has a spending cap and then an even lower cap which would be the result of sequestration if Congress does not act. For example, Congress failed to craft a package of spending reductions and revenue increases so there was a partial sequestration in FY 2013.

What the Budget Deal Would Provide. For FY 2014, Senate Democrats had proposed keeping the BCA’s FY 2014 spending cap but not including the additional spending cuts from sequestration. This spending cap would have been $1.058 trillion. The House Republicans, however, had proposed keeping the BCA’s FY 2014 spending cap AND including the additional cuts from sequestration. This spending cap would have been $967 billion. The budget agreement being considered by Congress essentially splits the difference between the House and Senate numbers and provides a $1.012 trillion cap for FY 2014 discretionary spending and a $1.014 trillion cap for FY 2015 discretionary spending while making some targeted spending cuts and increasing certain fees. We note that while both of these caps are higher than the FY 2013 cap they are still more than $31 billion lower than the total spending level for FY 2012 ($1.043 trillion).

Outlook for Appropriations. All attention now is on the appropriations committees which, having agreement between the House and Senate on a topline spending cap, can complete work on FY 2014 appropriations bills. Before that work begins, the appropriations chairs must allocate the funding among the subcommittees, which is expected to be done within a few days. It has been reported that the subcommittee allocation amounts will not be made public. Committee members and staff will work over the holidays to complete their bills, most of which will be combined into an omnibus appropriations bill to be introduced in early January in hopes of enactment prior to January 15, 2014, the day the Continuing Resolution which is funding federal agencies, expires.

Two bills often mentioned as unlikely to be in the omnibus bill due to the vast differences between the House and Senate are the Interior, Environment, and Related Agencies and the Labor-HHS-Education and Related Agencies bills. The alternative is for Interior and Labor-HHS Education to receive funding under a Continuing Resolution, thus making it very difficult to get any increases.

Sequestration of Mandatory Programs; SDPI. Funding for the Special Diabetes Program for Indians (SDPI) is considered “mandatory” funding and is still subject to sequestration under a different section of the BCA which includes a complicated formula for calculating the amount of sequestration for these “mandatory” programs. In FY 2013, SDPI received a 2 percent cut – as did other mandatory programs. The House and Senate agreement would not change the formula in the BCA but the numbers going into the formula may differ between FY 2013 and FY 2014. We have inquired with IHS as to whether they believe there will be sequestration of SDPI funds under the budget agreement but they are still reviewing the matter.

Other Provisions. The bill also contains a Medicare “doc fix” which blocks the 23.7 percent reduction in Medicare physician services which was scheduled to take effect January 1. There are many other provisions in HJ Res 59, and a summary and section by section analysis may be found here:

Please let us know if we may provide additional information regarding the budget agreement.