The backstop mechanism House Republicans inserted into last month’s debt ceiling package to ensure the completion of full-year appropriations would cause some collateral damage if triggered: cuts to bipartisan infrastructure law funding enacted two years ago.
That 2021 measure’s $68.5 billion in advance appropriations, which become available starting on Oct. 1, could get hit by across-the-board cuts starting more than halfway through the fiscal year next May — impacting grants for Amtrak, bridge repairs, clean energy research and drinking water and sewage line upgrades.
A result like that could muddle one of President Joe Biden’s key selling points as he campaigns for reelection next year on his “Bidenomics” platform, which has highlighted the infrastructure law’s projects around the country including the rollout of broadband expansion grants last month.
Those automatic cuts and others are among the unexplored quirks of language in the debt ceiling law inspired by Rep. Thomas Massie, R-Ky., seeking to put pressure on Congress to wrap up the annual spending bills.
Appropriations are supposed to be enacted by Oct. 1 each year, but lawmakers routinely extend the deadline through stopgap funding measures, often only clearing full-year bills around Christmas and in one giant omnibus package. In some budget cycles, final action doesn’t come until the next calendar year.
The Massie provision seeks to light a fire under lawmakers by putting a Jan. 1 deadline on the process. At that point, if all Congress has been able to do is pass continuing resolutions at the prior fiscal year’s funding rate, then the spending caps for fiscal 2024 will reset to much different levels than the debt ceiling deal envisioned.
The $886.3 billion cap on defense and related programs for fiscal 2024 would drop to $849.8 billion, or 1 percent below the enacted fiscal 2023 numbers. For nondefense programs, the fiscal 2024 cap would actually rise, from $703.7 billion to $736.4 billion, though that’s still 1 percent below the current fiscal year.
The new caps would apply to all programs, even those in any of the dozen spending bills that Biden had already signed into law. But lawmakers would still have until April 30 before the sequester enforcement mechanism actually bites. And if Congress resorts to a full-year continuing resolution rather than completing the regular spending bills, the sequester would be turned off.
Even if there’s a low likelihood of triggering the backstop cuts, it’s worth looking at how they could be implemented.
Sequesters of discretionary funds are exceedingly rare since appropriators almost always abide by any statutory caps that are in place. But steep across-the-board cuts to appropriations occurred as recently as 2013, after the “supercommittee” set up by the 2011 debt limit law couldn’t agree on a deficit reduction package.
The cuts are based on a 1985 budget enforcement law. Once the dollar amount of required cuts is determined, the Office of Management and Budget figures out what the “sequestrable base” is, or the level of funding available to be cut. That determines the percentage haircut all eligible accounts need to take if the mechanism is triggered.
Defense
For defense and related programs, the law gives the president the option of exempting military personnel appropriations for salaries and other compensation, which has been done in past instances.
Although unobligated funds from prior-year appropriations or emergency military spending don’t count toward the new fiscal year’s caps, that money is nonetheless subject to sequester.
A fiscal 2024 supplemental package for Ukraine or other defense needs could be enacted later this year, for example, which would be subject to the automatic cuts.
A cut to full-year enacted defense funding would amount to $36.5 billion, excluding military personnel accounts but including unobligated balances —a reduction of nearly 5 percent from all nonexempt defense programs, according to Seamus Daniels, a defense budget analyst at the Center for Strategic and International Studies. A supplemental spending bill could add to the sequestrable base and reduce the required percentage cuts somewhat.
There is some flexibility in how the cuts are applied: The Pentagon in 2013, when faced with roughly 7 percent across-the-board cuts, was able to shift a greater share of the pain onto unobligated prior-year balances rather than new appropriations. Separately, lawmakers signed off on a massive “reprogramming” request from the Defense Department enabling the military brass to shift funding to where it was most needed.
Typically such moves mean longer-term funding for things like procurement and research and development gets cut in order to backfill near-term expenses like operations and maintenance, a 2013 study on the sequester’s defense impact by the Center for Strategic and Budgetary Assessments found.
If Biden hasn’t signed full-year defense appropriations into law yet and there’s still a part-year stopgap measure in place on April 30, the cuts would shrink to around 1 percent, Daniels said. That could still be disruptive, especially considering the reductions would hit seven months into the fiscal year, effectively squeezing a fiscal year’s worth of cuts into just five months.
Nondefense
For nondefense programs, the calculation is a little different as unobligated balances are not subject to cuts. And some discretionary accounts are exempt under the law even without a presidential decree, including all Department of Veterans Affairs funding and Pell Grants for lower-income college students.
But as with defense funding, anything that isn’t specifically exempt under federal budget law is subject to cuts.
That’s where the $68.5 billion in infrastructure law cuts come in, or the amount appropriated in advance for fiscal 2024. Money that was appropriated under that law for previous years, including the $42.5 billion in broadband grants announced last month, wouldn’t be affected.
But the 2022 gun safety law has $695 million available next year that would be subject to cuts, including aid to state and local governments in updating criminal and mental health records and funds for school safety and mental health programs.
Since the debt ceiling law’s $703.7 billion cap on nondefense funds for fiscal 2024 is lower than the amount specified in the automatic cuts provision, appropriators will be working under that lower cap to begin with. So for nondefense programs, the only way the sequester would likely result in automatic cuts for those accounts is if Congress is operating under a CR at the higher fiscal 2023 funding rates next April.
Even under this scenario, the size of the nondefense cuts could be larger than the 1 percent sequester required under the law.
When the fiscal 2023 omnibus was enacted, the Congressional Budget Office estimated the nondefense portion included $743.9 billion before any cap-exempted funds or offsets were factored in. That’s the starting point for cuts under the debt limit law.
But if those same funding levels were scored under a CR starting Oct. 1, the amounts could be at least $10 billion higher. That’s because lawmakers will lose roughly $8 billion in housing-related receipts because of fewer mortgage originations due to higher interest rates, and they’re likely to include the $2 billion boost to VA health care agreed to in the debt limit deal.
And that’s before any other offsets from last year’s omnibus are removed from the equation, such as “rescissions” of unspent funds that don’t continue under a CR because the money is no longer available.
For illustrative purposes, assuming a CR’s nondefense funding rate is roughly $754 billion, that would mean around $18 billion in required nondefense cuts if the Massie sequester provision triggered. That’s the amount required to get down to the law’s specified $736.4 billion cap — or the fiscal 2023 level as scored by CBO in December minus 1 percent.
After backing out Pell Grants and VA appropriations but adding infrastructure and gun safety law funds, as well as funding that is offset by fee collections and other means, the required nondefense cuts could be above 2 percent, or more than twice what the law advertises.
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