Lawmakers reached an eleventh hour deal to avert a credit default on 16 October 2013. The agreement hashed out by Senate Majority Leader Harry Reid (D-NV) and Senator Minority Leader Mitch McConnell (R-KY) reopened federal agencies after a 16-day shutdown and allowed the Treasury Department to borrow money and avoid a default that experts say would have disrupted the global economy.
The short-term deal funds the federal government at the fiscal year (FY) 2013 funding level of $986 billion through mid-January. This is higher than the spending cap of $967 billion for FY 2014 authorized by the Budget Control Act of 2011. The deal does not do away with budget sequestration, as some lawmakers had hoped, which means that funding for scientific research, environmental conservation, defense, and other government programs will continue to be constrained.
The legislation passed the Senate with the bipartisan support of 81 Senators. In the House, the entirety of the Democratic caucus—save for two members who were sick—was joined by 87 Republicans to pass the measure. Despite the insistence of some GOP lawmakers, the deal does not undo or delay the Affordable Care Act (also known as Obamacare), but it does require stricter efforts to verify the income of individuals who apply for health insurance subsidies.
Federal employees who were furloughed during the shutdown will be given back pay. Surprisingly, the law also provides for a one percent pay increase in January for all employees. Congress could still block the first cost-of-living increase for federal workers in four years, however.
The law requires Congress to form a budget conference committee so that the two chambers can work out differences regarding spending. Among the likely sticking points will be the overall funding level for discretionary spending, defense and non-defense programs whose budgets are determined annually by Congress. Democrats will push for a replacement to the across-the-board cuts from sequestration and the inclusion of new revenue. Republicans will likely focus on maintaining the lower overall spending level of $967 billion and changing entitlement programs.
Two years ago, Congress formed a ‘super committee’ to address the budget deficit. The failure of that committee to reach an agreement triggered the start of budget sequestration the following year.
Despite the reopening of the government and the short-term increase of the nation’s debt limit, the U.S. economy was negatively impacted by the government shutdown. According to rating agency Standard & Poor’s, the shutdown cost $24 billion and reduced gross domestic product (GDP) growth. Although many experts expect some recovery of lost economic input in the coming weeks, business investment and consumer spending could continue to be depressed because of the potential for another showdown when the deal expires in a few months.
back to Public Policy Reports