By Matt Vallone, Senior Analysis Manager
Main Story: September Work Period Sets up Budget for Post-Election Debate
Congress returns this week for a short September sprint before recessing through the November election. The main items of concern for defense watchers–the FY 2017 National Defense Authorization Act (NDAA) and the FY 2017 Defense Appropriations bill–remain locked in place as Democrats and Republicans argue over funding levels. At its core, the budget dispute centers on whether to provide an additional $18 billion of defense spending above the levels agreed upon in last year’s Bipartisan Budget Act (BBA). Democrats argue that any increase in the defense budget should be matched by increased non-defense spending, while Republicans argue that the overseas contingency operations (OCO) budget agreed to in the BBA deal represented only a floor, and that increased operations justify increased defense expenditures.
Complicating matters further, the Obama administration will likely submit a request for a supplemental funding increase to cover operations in Afghanistan and request additional matching non-defense funding at the same time. If some sort of funding arrangement is not in place before the end of the fiscal year on September 30th, the government would shut down. It is unlikely that such a dire outcome will take place. But given time constraints and the pending election, it is almost impossible for any full-year funding agreement to be reached. Thus, it is highly likely that Congress will be forced to adopt some form of continuing resolution.
This report will explain what options are being considered by Congress and the implications they may have for any eventual appropriations bill. In order to properly understand the endgame for this year’s budget fight we need to consider not just the decisions facing Congress before September 30th, but also how these will interplay with the results of the November election. While this piece will seek to lay out the options for this Congress, a future political report will look at the impact of the upcoming election on defense spending in FY 2017 and beyond.
Formal Appropriations by the Start of FY 2017 Are Highly Unlikely
Despite House Speaker Paul Ryan’s (R-WI) high hopes for a ‘regular’ appropriations process this year, it is unlikely that any appropriations bills will make their way to the White House for the President’s signature prior to the end of the fiscal year on September 30. Senate Majority Leader Mitch McConnell (R-KY) may call for repeated votes on a motion to proceed to the Defense Appropriations bill, but only as a means of forcing Democrats to continue their filibuster of the bill, and risk political embarrassment.
For their part, having already blocked this bill earlier this year, Democrats will have little incentive to shift their positions until some sort of funding agreement is reached. Beyond the budget issue, Congress would only have four weeks of session to try to sort through a number of issues to pass an omnibus appropriation, and negotiations on many of these issues have barely even begun. It is thus highly unlikely there will be any sort of successful September action on full year appropriations.
Most Likely Scenario: Short-Term CR
The most likely and widely predicted outcome of the September work period is a continuing resolution (CR) that runs until sometime in December. Congress will have returned from their break by the end of November and is scheduled to depart on December 16th. A continuing resolution until the second or third week of December would give Congress time to campaign, take stock of the election result, and then come to some sort of agreement on an omnibus bill to fund the government. (They could also fail to agree on an omnibus bill, and so pass another CR). While governing by CR is a bad practice that DoD and other agencies find disruptive, it is politically a highly appealing option as it defers major fights until after the election by maintaining the status quo. However, beyond conservative opposition, there are other potential obstacles that may prevent a simple, short-term CR from being adopted.
First, Congress will need to decide whether to provide funding for the President’s plan to maintain additional troops in Afghanistan. While the DoD could likely find ways to reprogram to cover this, it will likely be a subject of considerable debate in the run-up to September 30th. Second, Congress may decide to go forward on some sort of supplemental to support the fight against the Zika virus. Republicans from the Gulf Coast may put increasing pressure on leadership to adopt some sort of compromise. Similarly, the White House and Democrats may want to have this issue decided prior to the election. Lastly, it is somewhat unlikely, but the issue of providing emergency aid to Flint may come up as part of any debate around supplemental funding. The most likely outcome is that Congress either ignores or finesses all of these issues and pushes off to December serious discussion on the budget.
Less Likely Scenario: Long-Term CR
Normally it would be fairly uncontroversial to move a short-term CR before the election and then finish up a full funding bill in a lame-duck session. However, some House Republicans and conservative organizations are ramping up efforts to block consideration of a funding bill during the lame duck session. Republicans have pushed for a longer-term CR in an effort to skip the normal post-election lame duck session. These members oppose spending at the levels of the BBA and believe that a lame duck could adopt an omnibus bill at an even higher level. These groups have begun to lobby House leadership to pass a CR that runs into calendar year 2017. Passage of such legislation would force budget decisions to occur concurrent with debates over the debt ceiling, creating a new fiscal cliff for the incoming administration. High stakes negotiations over the budget and the debt ceiling would likely have to be combined into one politically contentious and economically disruptive debate. Senate Minority Leader Harry Reid has proclaimed that they will not accept any CR that slides into 2017, making a long-term CR even less likely.
In addition to creating a fiscal cliff, pushing a CR to extend into 2017 would make FY 2017 funding levels heavily contingent on the outcome of the upcoming elections, both at the presidential and congressional levels. Leaders in both parties and in both chambers will be deeply hesitant to sign off on such a proposal. Similarly, it is unlikely that President Obama will want to leave office without passing one last spending bill.
However, pushing the matter into 2017 would create the possibility that Republicans or Democrats may gain complete control of the White House and Congress. It is unlikely that this would remove the crippling budgetary uncertainty of the past few years. More likely, however, is an election that results in divided government, with a Democrat in the White House and Republicans controlling at least the House of Representatives, if not the Senate also. This would yield further budget uncertainty. Next week’s political report will look at the upcoming elections and their potential impact on defense spending.
Government Shutdown Very Unlikely
Aside from the prospect of both sides coming together to agree to full appropriations, the most unlikely option for the start if fiscal year 2017 is a government shutdown. No matter the extent of the divisions facing members of Congress, no side has any interest in heading into the election under the cloud of a high-profile government shutdown. Harry Reid threatened a government shutdown last week if Republicans tried to push through a long-term CR, but that threat has been largely dismissed.
That being said, the 2013 shutdown was largely avoidable but Congress still ended up closing the government down. A shutdown now would likely come about only if House Republicans are unable to come to an agreement on a continuing resolution, or if Speaker Ryan is unwilling to pass a CR using mostly Democratic votes. Speaker Ryan has a much better relationship with House conservatives than former Speaker John Boehner, but he has yet to deal with these sorts of divisive votes. Passing a short-term CR may require Speaker Ryan to violate the so-called ‘Hastert Rule’, which is the convention that any bill brought before the House have the support of a majority of the GOP caucus or, in practice, can be passed solely with majority votes. Improved communication between the House Freedom Caucus and leadership should make a shutdown less likely, but the possibility of one cannot be dismissed entirely. If there is a shutdown it will likely be resolved with the adoption of a short-term CR.
While the contours of the disagreement have been fairly clear since early on in the budget debate, there has been almost no progress made on a resolution and the clock is ticking towards the end of the fiscal year. Funding for FY 2016 will end on September 30th and new funding, almost certainly under some sort of continuing resolution (CR), will need to be in place in order to avert a shutdown. While it is highly unlikely that a shutdown will occur given that most members of Congress will want to get back out on the campaign trail, there remains considerable uncertainty about how long a continuing resolution may last. The length of the CR will then impact what type of defense spending is available in FY 2017. Defense watchers should look carefully at the positioning and statements of leaders in Congress and the White House, as well as from both Presidential candidates, to understand what type of funding mechanism will be adopted as we head into FY 2017.
- SASC – No hearing scheduled
- 9/7 Deferred Maintenance in the Nuclear Security Enterprise: Safety and Mission Risks, 2118 Rayburn House Office Building, 3:30pm
- 9/8 Views on H.R. 4298: Vietnam Helicopter Crew Memorial Act and H.R. 5458: Veteran’s TRICARE Choice Act, 2118 Rayburn House Office Building, 3:30 pm
- HAC-D – No hearing scheduled
- SAC-D – No hearing scheduled
Government Activity Round-Up
There are few interesting reports out over the last month. CBO has released an updated Budget and Economic Outlook through 2026, available for download on their website. Further, the CBO has published two separate DoD-related reports. The first looks at deficiencies in DoD reporting of Operation and Maintenance Base Obligations. The second, in a similar style, looks at Navy audit deficiencies.
Other DC/Defense Activity
Some our experts in Avascent’s European office wrote an in depth white paper on Poland’s defense modernization efforts as the International Defence Industry Exhibition MSPO was held last week in Kielce. Read and download it here. As the summer transitions to fall, DC think tanks and events ramp back up. The Atlantic Council is discussing the ‘Art of Cyber War’ on Tuesday at 4 pm, and the International Institute for Strategic Studies follows that vein with a talk on China’s Cyber power on Wednesday at 10:30. In a somewhat unique event, former Green Party candidate Medea Benjamin is talking about her new book on US-Saudi relations on Tuesday at 6:30 at the downtown Busboys and Poets.
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