In the Nation's Interest
Yet Another Replay of a Leaden Oldie
by JOE MINARIK November 03, 2015
Those of you who are at all familiar with country and western music re-heard an old standard – “Help Me Make It Through The Fiscal Year” – last week. Negotiators from the Congress and the White House came to agreement over the “Bipartisan Budget Act of 2015,” – in reality, the minimal to-do list to, well, make it through the fiscal year. Plus one additional item. The bill’s last section, Title XII, designates what hitherto was known as the “small House rotunda” in the Capitol as the “Freedom Foyer.” But don’t get carried away and try to eat your “Freedom Fries” from the Longworth House Office Building cafeteria there. I doubt that freedom extends quite that far, at least as far as the Capitol Police are concerned.
So what is this bill all about? It “resolves” three potentially serious sticking points between the President and the Congress – two with some measure of certainty, one subject to residual risk. First, the two that are locked down:
Treasury Secretary Jack Lew has been trying to communicate, in tones just barely on the urgent side of panic, that he was reaching the end of his rope on the statutory debt limit. By about the date of this writing, the Secretary had said, the Treasury’s cash balance would have declined below one day’s worth of liabilities, with no borrowing authority remaining. In other words, the possibility that the Treasury could unwittingly kite some checks could not be ruled out. No, this isn’t any way to run the world’s greatest democracy, and its bedrock economic and financial power.
In keeping with the new fashion, the Bipartisan Budget Act does not increase the dollar amount of the debt limit. Instead, it suspends the limit until a future date certain – in this instance, March 15, 2017 (note: a year equally divisible by four, plus one; and hold that thought). On that date, the debt limit again comes into force at whatever the amount the debt subject to limit happens to be. The Secretary is prohibited from undertaking binge borrowing to run up a large cash balance just before the suspension expires. Thus, precisely at that time, the Secretary must begin to utilize his strictly constrained statutory authorities to convert his outstanding debt that is subject to limit into debt that is not. He will write a whole lot of informal IOUs. But absent a further understanding with the Congress, he will soon enough exhaust those statutory authorities just as he almost did in this episode. (The debt last snapped back into effect from a previous suspension on March 15 of this year.)
Forgive me for being a bit parochial, but I see the suspension of the debt limit, obviating the risk of a full-blown debt crisis (at least for two years), as the most important part of this agreement. Others might differ. For example, a second part of the deal, of vital importance to many, is the temporary resolution of the impending financing crisis in Social Security Disability Insurance. SSDI, as it is known, has been ripping through the Treasury securities in its trust fund, and likely would have exhausted them by the middle of next year. No one knows for sure what would happen at that point – the program has never been there – but we do know for certain that SSDI would not have had the legal authority to write checks in full and on time. The most common presumption is that checks would have been written on time but proportionately reduced to keep the trust fund solvent. The best estimate is that the necessary reduction would be 19 percent – a big hit for people who have been unable to work for months or even years. And it would have occurred right before the next presidential election.
The Bipartisan Budget Act includes several remedies. SSDI critics believe that the program has been abused – benefits have been claimed in unintended circumstances – and so program fixes are imposed, saving funds that help to forestall insolvency. A similar integrity patch is imposed for the associated Social Security Old Age Insurance program – the well-known retirement program – and the proceeds are transferred to the SSDI trust fund to shore it up. Together, those changes are estimated to keep the SSDI fund whole until 2017. 2017? There’s that date again…
Those are the two components of the new Bipartisan Budget Act that are relatively certain to fulfill their objectives. A third is less sure. The one, fundamental, non-negotiable requirement of the Congress each fiscal year is to fund the government. The fiscal year began on October 1, and the Congress has not yet fulfilled this basic obligation. This failure has roots extending all the way back to the debt-limit crisis of 2011. To get a last-minute (literally) deal to avoid a default, the Congress imposed a substantial reduction of future annual appropriations (through statutory “caps”), and then created the extraordinary “supercommittee” process to compel additional comprehensive deficit reduction under pain of still further, truly unthinkable, steep appropriations cuts – the notorious (Alfred Hitchcock would be proud) “sequester.” The sequester cuts were divided between defense and nondefense spending – one intolerable for Republicans, the other intolerable for Democrats. The presumption was that the cuts would be so toxic that the supercommittee could not possibly fail to deliver the goods. But it did – and the Congress has been dodging those sequester cuts ever since.
In 2013, then-House Budget Chair Paul Ryan and Senate Budget Chair Patty Murray negotiated a two-year out from the sequester cuts. But that deal has expired, and so the new budget bill again raises the caps for two years, with equal increases for defense and nondefense spending – to satisfy both Republicans and Democrats. It obviates the need for another cap negotiation until the budget process to be undertaken in calendar year, uh, 2017. Do I detect a pattern emerging here?
However, this deal is not yet done. The Congress has reset the caps at what appears to be a level mutually acceptable to Republicans and Democrats. However, there still remains the task of enacting the actual appropriations bills (or a single omnibus bill) in keeping with those new cap amounts. It appeared so far in this legislative cycle that the impediment to the process was that the caps with the sequester cuts were too low. This new agreement provides relief in amounts meeting with bipartisan approval. But the Freedom Caucus and others on the Republican right voted against this agreement – 79 Republicans for versus 167 against – and continue to call for further discretionary spending restraint. Democrats voted unanimously in favor. When the time comes to vote on the actual appropriations, the odds are that newly seated Speaker Paul Ryan will have to stand his ground with his own troops – possibly to the extent of again bringing forward legislation that is opposed by the majority of his own caucus. That is not a formula for a long and lasting honeymoon.
But at the end of the day – given that this deal was never going to usurp the authority of the appropriators to formulate the actual funding of the various federal agencies – this Bipartisan Budget Act checks the three main realistic boxes in the end-of-fiscal-year to-do list. (It does not take any steps toward resolving the gridlock over the highway bill.) However, the appropriations cap relief costs money – $39 billion for defense, plus $39 billion for nondefense, for a sum of $78 billion. And the bill spends a few more dollars as well. Given the number of our men and women in harm’s way, the Congress was predestined to add $31 billion of additional defense spending as an emergency called “Overseas Contingency Operations,” or OCO for short. That amount is included in the bill. In addition, the bill provides relief from a Medicare Part B premium increase for lower-income elderly persons who will not receive a Social Security cost-of-living increase because of the low overall rate of inflation. Throw in the interest costs resulting from these other provisions, and the total cost of the Bipartisan Budget Act comes to about $154 billion, or almost twice the cost of the increase in the appropriations caps (the sequester fix) alone.
To deal with that tab, the agreement also pursues budget savings. But the savings fall short of the total cost. Only about half is paid for. So what should we think of all this?
Some observers are disappointed that the Bipartisan Budget Act is not at least fully paid for on its own. But that was never in the cards. The sequester cuts were so deep as never to be intended to take effect. With the sequester cuts equal to about half of the new budget deal, and one half of the deal paid for, then a fair interpretation is that the sequester relief is not paid for, as it never was destined to be, but that the rest of the bill is. That is probably the most that we realistically could hope for in such a rushed last-minute deal.
One could say that this episode yet again puts paid to the myth that debt-limit crises drive major budget fixes. The Washington legislative process once again walked to the brink of a Treasury default and narrowly missed stepping over. The likelihood of a financial collapse over the debt limit may be greater at this time than that of a major deficit reduction. We are lucky to have dodged the bullet, and we would be wise to avoid tempting fate again in the near future.
So, no, we were not well served by the budget process this year, but the outcome could have been far, far worse. Holding out for a fully paid-for appropriations fix could well have resulted in a default. As sad as it may be, our elected policymakers did well under these circumstances to enact the Bipartisan Budget Act of 2015 – though we may still endure a government shutdown anyway.
And consider that timing pattern in those fixes to the debt limit, Social Security Disability Insurance, and the sequester, all extending into 2017. The bottom line is that the Congress has just completed its last “major” budget negotiation with this Administration. This Congress does not have Barack Obama to kick around anymore. And there will be no more fiscal brinks to motivate a major budget fix, either. We are on hold for two more years. It is time to summon our ideas and get ready for the next opportunity to solve our long-term problems through leadership rather than in crisis – after the 2016 election.