Fiscal Year Countdown

Congress is going to pass a CR, the only real question is how long will it be?

So while this blog will generally steer clear of politics, this week’s entry is going to focus on Congress and the status of appropriations for fiscal year 2023. I used to write fairly regular pieces on defense activity in Congress while employed at Avascent and continue to follow the process, though the roughly weekly articles have stopped. So this post will be my attempt at providing more of a summary of what is going on this legislative year.

For those of you who don’t follow Congressional appropriations closely, each year through a process established in the 1974 Congressional Budget and Impoundment Control, Congress must pass twelve appropriations bills in order to fund the government for the following fiscal year prior to the end of the fiscal year on September 30th. In practice, however, this almost never happens. Most years, Congress passes a continuing resolution, which is a funding mechanism that allows the government to keep spending money on already appropriated programs at levels aligned with the previous years funding, kicking the can down the road for future negotiations. Typically, absent major policy fights or shutdown threats, appropriations for the new fiscal year are adopted sometime before the end of the calendar year.

This year, remarkably little progress has been made by either chamber on passing appropriations bills. The House Appropriations Committee has passed all twelve bills, but only six have been passed by the full chamber. The Senate has done even less. The leadership on the Senate Appropriations Committee has released their versions of the bill, the committee itself has not passed a single one. So heading into September, a lot of work needs to be done. Given limited floor time, passing individual appropriations bills through both chambers simply could not happen and negotiations on full appropriations haven’t really gotten underway, so a CR is virtually assured.

However, there are a few wrinkles in the spending negotiations this year that are worth watching as they could impact the duration of the CR and what unrelated bills might try to ride along with the CR.

The first wrinkle for this year is that it’s an election year. While one would think that since this happens 50% of the time Congress would have built in some structures into the process to make it less disruptive, that would be wrong. So, both parties are looking to November and thinking about how to approach a spending bill given the likely results of the election. Democrats probably want to lock in their current authority as much as possible and will want a CR that ends prior to the start of the next Congress. Republicans will want a longer CR, expecting that, come calendar year 2023, they will control at least the House.

Indeed, the House Freedom Caucus has already put down its marker for negotiations with a letter to Republican leadership this summer pushing for a CR until 2023 and then capping spending levels at FY2019 values. It’s worth flagging for defense-focused readers that the letter does not indicate any exceptions for DoD, which would mean a major cut in spending in real terms should that happen. It almost certainly won’t given that Biden will be in the White House regardless of the election result, but these sort of hard-edge demands helped create the Budget Control Act back in 2011, so people should be paying attention.

Back to the end of the year - the tension between the two parties expectations around the election result will clearly impact negotiations around the CR.

Another wrinkle, albeit one that is very inside the Beltway, is that the two most senior members of the Senate Appropriations Committee, Patrick Leahy (D-VT) and Richard Shelby (R-AL), are both retiring. Both men will want to leave having passed a final set of appropriations and will fight to avoid a CR running into the next Congress.

A third complication is the passage of the Inflation Reduction Act earlier this year. Republicans uniformly opposed this measure, which was largely full of Democratic priorities and had committed to opposing other bipartisan measures until it had failed. It failed, the measures passed, and then, phoenix-like (or zombie-like, depending on one’s affiliation) it returned and was signed into law. Now Congressional Republicans are furious. They will likely have even higher demands on any full-year appropriations bill than they would have prior.

Lastly, there are inevitably a series of bills that must pass that need to be attached to vehicles that move through Congress. This year, at a minimum, there will need to be adjustments to a series of expiring tax cuts (“tax extenders” is the lingo for what is a budget gimmick to understate the cost of the tax breaks) and Congress also needs to reauthorize the Small Business Innovation Research (SBIR) program. There are undoubtedly others, but finding ways to include those sorts of disparate legislative concepts on must-pass articles is a well-loved Congressional tradition that may impact the CR/eventual appropriations deal.

Overall, it will likely sound like a very dramatic September with negotiations, shutdown threats and more, but no one wants to shut the government down heading into an election. Expect a CR that runs until late in the year and then another round of these same debates in December/January.