Political Report: 3/13/2019
Main Story: Trump Administration’s FY2020 Budget Kicks Off a Tumultuous Fiscal Year
This week, the Trump administration released its FY2020 budget request. While the full justification material for the Department of Defense’s Future Year’s Defense Program (FYDP) will not be released until next week, the material provided by the Office of Management and Budget (OMB) will have enough information on FY20 where we can begin to analyze the request. While Avascent will be providing plenty of information on the Department of Defense’s request over the next few days, this piece will look at the budget within the context of the broader appropriations process. This request is sufficiently partisan and gimmicky, and is likely to create significant problems for the Congressional budget process. Should the administration decide to fight for the spending structure and priorities laid out in this document, a shutdown in October is basically assured and sequestration spending levels will become a legitimate possibility.
There are four fundamental issues that will face Congress and the White House as they work through the convoluted budget process this year. First is whether to raise the Budget Control Act (BCA) caps. The second issue is how much to raise the caps, assuming you need to raise both defense and non-defense, and whether to pay for it. Third is the request for funding for a border wall. Lastly, the new progressive wing of the House Democratic Caucus is almost certainly going to try to use the budget to impose policy riders on the White House. These potential areas of conflict are exacerbated by the structure of the budget release.
The FY2020 President’s Budget Request does not raise the BCA caps for either defense or non-defense discretionary spending. In an op-ed by Russ Vought, Acting Director of OMB, the administration lays out its position that non-defense spending must be cut to reduce the deficit and attempt to balance the budget. It will therefore limit spending on both defense and non-defense to the levels of the BCA caps. However, to ensure that the Department of Defense can execute its mission, the budget includes a massive increase in Overseas Contingency Operations funding, which is exempt from the BCA. While this funding is typically used to pay for the expenses associated with overseas operations, it has been used (some would say abused) by Congress and the White House to avoid some of the impact of the BCA over the past few years. However, Congressional Democrats are almost certain to reject this approach, creating the potential for a major fight over topline spending levels in FY20 (and FY21 when the BCA cap is still in place). If both sides stick to their guns, as is likely given the recent experience with the shutdown, these negotiations promise to be painful.
Part of the fight over raising the BCA caps will be how high to raise them and whether to pay for the increase. Prior to the Bipartisan Budget Act (BBA) of 2018, Congress had generally raised the caps slightly with two year deals that were offset in some manner (see dark grey area in the charts below). However, in the first two-year deal of the Trump administration, both defense and non-defense spending saw major increases in FY18 and FY19. This was not offset in any way, shape or form. Now the issue is twofold. First, Congress has used up many of its available sources of savings in the deals that covered FY2013-FY2017. Second, the major increases budgeted in the FY2018 BBA puts spending at a high baseline relative to the caps (see the red area in the charts below). Attempting to offset a cap increase now would require Herculean efforts by Congress, raising the possibility that the caps could be increased but to levels beneath what was appropriated in FY2019. Regardless, this will be almost as big a fight as the determination on whether to match defense and non-defense spending increases.
(President’s Proposed FY2020 Budget covers FY20-FY24 while historical numbers are based on actuals/enacted values)
The third major issue is the wall. The Trump administration’s budget request contains $8.6 billion for a wall along the southern border. It also requests $3.6 billion in additional military construction spending to offset funds it plans to use under its national emergency declaration. Given that Congress and the White House only recently finished an historic 35-day shutdown, one would have thought the administration might have elided this in the request. Instead, it’s back and it’s likely a major roadblock to any appropriations. It is almost certain that the White House will demand wall funding that simply won’t pass the House of Representatives in its FY2020 deal. Given the Department of Defense’s growing involvement in the administration’s border policy, it is unlikely DoD will be able to avoid this year’s budget fight as it did the most recent one.
Complicating all of this is a newly assertive progressive caucus in the House. Liberal Democrats in the House are feeling their oats following the 2018 midterms and are already threatening to vote against a potential budget resolution. At the same time, the moderate and conservative blocs of the Democratic caucus (New Dems and Blue Dogs) saw their membership grow significantly and have no interest in going along with a deeply progressive budget proposal. Beyond the direct issues with the budget resolution, it is easy to see House Democrats pushing for policy riders to block the administration’s efforts to shift policy in many areas, such as energy policy, conservation, and health care. To the extent this plays into the appropriations battle, it promises to add additional wrinkles to any resolution.
The result of all these obstacles is that this year’s appropriations process is rife with opportunities for the government to stumble into negative outcomes. Another shutdown in October seems highly likely, particularly if the administration is determined to push for either spending cuts or the wall. Similarly, the possibility of the imposition of sequestration caps on discretionary spending cannot be ruled out. Lifting the caps requires passing legislation that is signed into law by the White House. Given the historic levels of political animosity, it is entirely possible to see a path through which the White House vetoes or threatens to veto legislation lifting the caps. Such an outcome could have major impacts on government spending this year and even into FY2021. Budget watchers will have a lot to keep track of as we head into this whirlwind.
The House will consider a variety of resolutions under suspension of the rules. The most controversial bill will be a resolution to demand publication of the material reported from the Mueller investigation.
The Senate will work through additional nominations before taking up a resolution to block the Trump administration’s national emergency declaration constructing a border wall along the southern border.