Washington Update

Inside (the Beltway) Scoop

By: Ellen Kuo
Wednesday, June 7, 2023
Default Avoided, Appropriators Can Restart Markups

After several tense weeks of negotiations on the bill text for H.R. 3746, Fiscal Responsibility Act of 2023, was passed by the House (314-117) and the Senate (63-36) and became P.L. 118-5 law on June 3. It raised the government’s spending cap for two years. Additionally, the law imposes enforceable spending caps for fiscal years 2024 and 2025 for both defense and nondefense discretionary spending.

The law caps nondefense spending, which funds the National Institutes of Health and National Science Foundation among other federal research agencies, in FY 2024 at $703.7 billion then increases it by 1% in FY 2025 to $710.7 billion. The FY 2024 level is a 5.4% cut compared to the $743.9 billion in base nondefense discretionary funding included in the FY 2023 omnibus, according to the Congressional Budget Office. At a time of 5% annual inflation, this means less funds for next year to sustain the same federal government services.

Defense spending is also sequestered in FY 2024 at $886.3 billion, a 3.3% increase from the current level, and FY 2025 at $895.2 billion.  However, Congress can still pass supplemental defense spending bills that exceed these statutory caps.  Future total increases for both defense and nondefense from FY 2026 to FY 2029 are laid out in the law to indicate the current Congress’ expectations of 1% growth per year but are nonenforceable. 

Recissions of unobligated funds of approximately $28 billion were also made available from over 120 accounts of prior laws—American Rescue Plan Act of 2021 (P.L. 117-2), P.L.s 116-123, 116-127, 116-136, and 116-139, and divisions M and N of P.L. 116-120.

While not as conservative as some Republicans in the House Freedom Caucus would have wanted, it was the best compromise for both Republicans and Democrats to avoid not being able to pay the government’s bills by June 5, as outlined in Treasury Secretary Janet Yellen’s letter to Congress. Since the House is controlled by Republicans, the expectation is that the 12 funding bills appropriators will continue to mark up and move to the House floor for final votes will have numbers much lower than the Senate’s.

The agreement has a backstop in Section 102 that provides incentives for appropriators to pass all 12 of the appropriations bills by January 1 of the following year, or else face a stopgap funding patch that cuts spending by 1 percent across the board. In other words, discretionary spending will temporarily operate at a maximum of 99% of current levels if the January deadline is missed. Meanwhile, the House Financial Services Committee held a hearing on Tuesday concerning contingency planning for future scenarios requiring an increase in the debt ceiling.