Quick update on BCRA

FY 2018 Budget Outlook

 

 

Quick update on BCRA

PREVIEW
The Senate returns to session on Monday, June 10th. Senate Republicans are facing a time crunch on agreeing to a health reform bill, with only 15 days of session (three weeks) until the start of August recess on the week of July 31st. While other legislative issues need attention as well, such as FDA user fee reauthorization, the debt ceiling, and appropriations, the current pace of things suggests these may be pushed to September.

CANCELLING RECESS?
While 10 Republicans Senators sent a letter to leadership suggesting the August recess should be cancelled to give Congress time to address the issues before it, we believe it is highly unlikely that the schedule will change. But, anything is possible and the optics of doing so may be politically appealing for Senate Majority Leader Mitch McConnell (R-KY).

TIMELINE FOR A VOTE?
Based on current reports, a vote on a bill in the Senate may occur the week of July 17th. Next week the Senate is already set to consider a series of nominations, consuming floor time. In terms of scheduling and sequence, CBO still needs to release its score of the latest version of the Senate bill (as early as next week). After that, some Republicans will likely demand time to review the bill, a pitfall that hampered the original Senate bill but was a serious concern of undecided Republican Senators. Then, Sen. McConnell could choose to offer the Motion to Proceed to begin the reconciliation voting sequence, but it is still unclear if he will proceed if he doesn’t have the votes.

LATEST REVISIONS:
(1) Cruz-Lee amendment (being scored by CBO) would allow insurers to sell plans that do not meet the ACA’s standards so long as the insurer offers at least one qualifying plan on the exchange; (2) adding at least $45 billion to address the opioid crisis, and (3) allowing consumers to use Health Savings Account dollars to pay for their premiums.

WHIP LIST OF NO VOTES EXCEEDS 10:
At the end of last week, the reported no votes were: Collins (ME), Heller (NV), Paul (KY), Cruz (TX), Lee (UT), Johnson (WI), Moran (KS), Capito (WY), and Portman (OH). Murkowski (AK) and Cassidy (LA) have raised concerns but did not offer firm no’s. Since then, Hoeven (ND) has noted his concerns with the bill as well.

BIPARTISAN FIX?:
Sen. McConnell has repeatedly warned Senate Republicans that if an agreement within the caucus cannot be reached on a health bill, Republicans will have to seek Democratic votes to pass a fix it bill to stabilize the market next year. Sen. McConnell reportedly reiterated this sentiment this week. While this statement is intended to jostle his caucus into supporting the bill, it seems clear that seeking a bipartisan solution is the preferred end game for some in his caucus, particularly those who have expressed opposition to the Senate bill.

FY 2018 Budget Outlook

The House GOP’s impasse over spending levels — fought largely between defense hawks and budget hawks — has held up the budget resolution for weeks. That delay is so problematic for spending bills that senior House Republicans are seriously talking about abandoning the budget blueprint altogether (like FY 2017). House Budget Chairman Diane Black (R-TN) would prefer to avoid this scenario, but there is an increasing school of thought that members may decide to “deem” the numbers rather than spend another week attempting to bridge the divide on top line numbers. Chairman Black (R-TN) will likely get one more chance this week to produce a budget resolution – otherwise, appropriators will move forward in earnest without it.

On May 23, President Trump issued his full budget request for Fiscal Year 2018. The President has indicated that increasing defense spending and securing resources for border security remain his top priorities for FY 2018. Typically, a new President’s first budget is delayed, thus delaying consideration on a formal budget resolution in Congress. Complicating things, FY 2018 marks another likely suspension of the sequestration,, along with continued pressure on budget hawks to balance the budget in ten years, and the need for leadership to include reconciliation instructions to preserve the tax reform agenda.

Meanwhile, under the law governing the fiscal calendar, the House and Senate are supposed to pass budgets by April 15 that establish a total federal spending level. That figure is then divvied up among 12 appropriations subcommittees, which draft bills to fund the federal government that must be passed by Sept. 30. Congress hasn’t finished its spending work on time in two decades, but this year’s effort stands out for its struggles. Budget-writers need two straight weeks on the calendar to release, mark up and pass their bill.

Outlook

Ultimately, Republicans don’t need to pass a budget, but would like to demonstrate their commitment to deficit reduction and utilize “budget reconciliation” as a mechanism to pass comprehensive tax reform in 2017. Unless the process is initiated in committee next week, Republican leaders would most likely abandon the formal process — leaving it up to appropriators to draft the remaining 7 bills without revised top line numbers. The House ended up approving a “shell budget” in early 2017 that simply allowed for an Obamacare repeal effort without a fully fleshed out fiscal plan. With the Senate Budget Committee unlikely to complete work on their own budget resolution, it is most likely that leaders engage in a similar exercise for FY 2018, with a final agreement that is in essence an empty shell, only this time with instructions for tax reform instead of health care reform. With tax reform negotiations in flux, similar to health care, we may not know until September whether or not this “shell budget” will be pursued by leadership.

Reaching Agreement on the Numbers…

The current fiscal blueprint is expected to propose more than $1.1 trillion for the next fiscal year and would provide more money for the military and domestic spending than President Donald Trump requested in his budget. The plan would provide $621.5 billion in base defense spending, as well as $75 billion in war funding, known as Overseas Contingency Operations. The defense funding violates spending caps established by the 2011 Budget Control Act. The defense cap for 2018 is $549 billion, and if the cap is not changed, the Pentagon would be subject to across-the-board cuts known as sequestration. The House budget blueprint would also set domestic discretionary spending at $511 billion.

There has been widespread disagreement among Republicans, Democrats, and the White House over what top line spending levels should be, not to mention the reconciliation instructions to committees to force mandatory spending cuts. Republican defense hawks want to repeal the budget caps for defense, as President Trump has requested, but Democrats won’t go along unless the cap is also removed for domestic spending. Additionally, other lawmakers are reluctant for a few reasons: (1) current proposal does not adhere to statutory spending caps set by the Budget Control Act, and (2) the Senate is unlikely to adopt a resolution of their own or agree to a joint resolution between now and the fall without additional clarity on tax reform.

We breakdown the various factions below.

  • Defense hawks – Chairman Black and other budget panel members wanted to keep defense spending in line with current law, capped at $549 billion, but House Armed Services Chairman Mac Thornberry (R-TX) demanded $640 billion. (Black secured agreement at $621 billion)
  • Budget hawks – Fiscal hawks were determined to see significant cuts to domestic spending, at the President’s request level or higher. (Black secured agreement at $511 billion)
  • Committee Chairmen – Agriculture, Energy & Commerce, and Ways & Means all objected to tackling proposed mandatory spending cuts between $150 billion and $200 billion. Their preference would be the lowest possible number, but conservatives needed $50 billion-plus to accept increased Defense spending. (Black secured agreement at $200 billion)
  • Tuesday Group – Tuesday Group co-chairman Rep. Charlie Dent (R-PA) has collected more than 20 signatures on a letter that officially objects to a draft GOP budget aimed at curbing entitlement spending and threatens opposition without a bipartisan deal to increase spending caps.

In the meantime, House Appropriators are moving forward with drafting and reporting on spending bills absent a final budget resolution. At present, only four bills have not yet been drafted or considered in committee.

One proposed scenario by Rep. Tom Graves (R-GA) would have appropriators merge all 12 spending bills into an omnibus bill and move it to the floor prior to the August recess, deviating from the tradition of considering separate standalone appropriations bills. Regardless of what the House of Representatives ends up passing, any final appropriations proposal will need at least some support from Senate Democrats, as Majority Leader Mitch McConnell has stated that he has no intention of using the “nuclear option” to eliminate filibuster protections traditionally granted to the minority party in the upper chamber for such legislation.

Plan B = Deeming

In past years when Congress hasn’t passed a budget, the House and Senate have typically deployed a procedural maneuver to “deem” a top-line spending level. That may be the likeliest course if the fractious GOP is unable to agree on a budget.

Since the current timetable for action on the budget resolution was established in 1985, there have been nine years when the House and Senate did not reach agreement on a budget resolution. In such years, Congress often employs alternative legislative tools to serve as a substitute for a budget resolution. These substitutes are typically referred to as “deeming resolutions,” because they are deemed to serve in place of an annual budget resolution for the purposes of establishing enforceable budget levels for the upcoming fiscal year.

While referred to as deeming resolutions, such mechanisms are not formally defined and have no specifically prescribed content. Instead, they simply denote the House and Senate, often separately, engaging legislative procedures to deal with enforcement issues on an ad hoc basis.

In some cases, the deeming resolution has stated that the chairs of the House and Senate Budget Committees shall subsequently file in the Congressional Record levels that will then become enforceable as if they had been included in a budget resolution. The committee chairs are typically directed to file particular levels, such as those consistent with discretionary spending caps or those consistent with the baseline projections of the Congressional Budget Office. Such provisions have been used recently in both the Budget Control Act of 2011 and the Bipartisan Budget Act of 2013.

As stated above, deeming resolutions will sometimes reference a budget resolution that has been previously adopted by that chamber and will deem that budget resolution to be enforceable. Alternatively, mechanisms may include or reference only certain levels normally included in a budget resolution. For example, in some cases deeming resolutions have included only committee allocations to the Appropriations Committee, while in other cases they have included allocations for all committees, as well as aggregate spending and revenue levels.

CODA

Finally, on the issue of “double reconciliation,” a 2006 precedent gives Congress ability to move forward on FY 2018 budget resolution without endangering the FY 2017 health care process. In 2006, the Senate adopted FY 2007 budget resolution (Mar 16) and then passed tax cuts later in year (May 11) from FY 2006 budget reconciliation instructions. Essentially, the House and Senate can advance FY 2018 up to the point of adoption without jeopardizing health effort. Many presume that the parliamentarian would rule in favor of allowing a “shell” budget resolution beyond September 30, in the event that health care reconciliation legislation had yet to be enacted.