FY17 at August Recess (July 15)

Mike &. Co.,
Congress adjourned for its annual August recess two weeks earlier than usual because of the convention schedule.
Congress’ stalled appropriations process is a rather unwelcome state of fiscal affairs, as both the White House and the Congressional Budget Office released projections on the budget this week, with the latter estimating that long-term increases in debt will have severe ramifications on economic growth.

Below we outline the failure of Congress to finalize appropriations legislation before its long recess, the current state of the budget, and the process from here.

Enjoy the weekend,

Dana
———-
The State of the Budget 
Today, amid stalled FY 2017 spending decisions on the Hill, the White House released its mid-session review of the federal budget, projecting the budget deficit for 2016 will be $600 billion, an increase of $162 billion from that of 2015.   This estimate shows a decrease in $16 billion in the total deficit from the prior February review.
On Tuesday, the Congressional Budget Office earlier this week also offered predictions of the budget moving forward, albeit with a more long-term focus.  CBO’s 2016 Long-Term Budget Outlook examined the budget projections for the next three decades, assuming that lawmakers continue to appropriate funds in a similar fashion to the most recent spending legislation.

CBO found that, under this scenario, debt held by the public will rise from 75 percent of GDP in 2016 to 141 percent of GDP in 2046, a gloomier projection than last year.  Spending is forecasted to grow at a much faster pace than revenue over the same period of time.  While the CBO predicts spending to grow from 21.1 percent in 2016 to 28.2 percent in 2046, revenue will rise to only 19.4 percent in 2046, from 18.2 percent in 2016.

CBO concludes that the accumulated debt over this time frame will negatively impact economic growth, resulting in a 5% decrease in the size of the economy by 2046.  Put another way, GNP per capita in three decades would be $4,000 smaller than in the present day.

As a cherry on top, CBO notes that several major federal trust funds will soon be insolvent, including the Highway Trust Fund (by 2021), Social Security Disability Insurance (by 2022), Medicare Part A Hospital Insurance (by 2026), and Social Security Old Age and Survivors Insurance (by 2030).  Given this severe outlook, it is disappointing that Congress continues to fail to act on appropriations, instead letting this important process fall prey to partisan struggles.

Another constraint on the budget is the debt ceiling, which has been suspended until March 2017.  Senate Finance Chair Orrin Hatch this week pressed the Federal Reserve and the Treasury to release details on contingency plans should the debt ceiling be breached.  While the ceiling won’t be reached until later next year, this serious issue will need near-term , and will bring further partisanship into the budget process.

 
Budget Far from Finalized

Several pieces of legislation have been pushed aside to accommodate a pre-Friday departure, including bills pertaining to appropriations for Fiscal Year 2017.  While both Senate and House Appropriations released spending bills in record time this year, floor consideration has moved at a much slower pace.

Some of this sluggishness is due to the usual partisan gridlock.  The Financial Services and General Governance spending bill recently passed by the House is filled with political riders that are almost certain to not be included in the Senate version.

But some bills have been delayed by recent political developments.  The debate on gun control legislation slowed the Senate amendment process of the Commerce, Science, and Justice (CJS) bill and stalled conference negotiations on the lay-up Military Construction and Veterans Affairs bill.  The bill has been politically linked to funding addressing the Zika virus, which has devolved into a partisan issue loaded with poisonous riders.  Should Zika become a more serious problem, the failure to address the issue in tandem with critical spending legislation would clearly demonstrate Congressional Republican leadership’s inability to pass the most vital of bills in a nonpartisan manner.

This rushed process for funding the government departs from earlier promises by House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell to return Congress to regular order for appropriations.  Of the twelve required spending bills, the House has passed five, the Senate only three.

The Process Going Forward

Though Congress will return in September, both chambers will be in session for only a month, as Members will return to campaigning in early October through the November election, leaving a few weeks to finalize the spending legislation before the government would otherwise shut down on September 30. House Appropriations Chair Hal Rogers even jokes openly about the House’s ability to pass all remaining seven spending bills in September.  Experts project that Congress will be forced to pass a short-term stop-gap funding bill in early October.

Expect continuing disagreement as to how long a short-term spending bill should extend, at least until the lame duck session or even  2017.   Depending on the the outcome of the election, a temporary funding measure would last until the third week of November.  It is primarily the far right that supports a spending patch lasting into the new year, with the hopes of finalizing a budget under a President Trump.  A large omnibus spending bill could then be passed in either December, or sometime in early 2017, depending on the timing of the extension.

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