Congress Needs to Finish the 2017 Budget Before Tackling FY2018

Somewhat lost in the noisy critiques from both sides of the aisle of President Trump’s “skinny” Fiscal Year (FY) 2018 budget remains the question of what Congress will do with the FY2017 budget. That budget exists in the form of a Continuing Resolution for Appropriations that expires April 28, less than six weeks from now.

The recommendation by President Trump of a $30 billion defense and security supplemental to the FY17 budget will bring to a head several issues that most analysts thought would await resolution until the FY18 budget battle. The FY17 appropriations end game will likely set the battle lines for FY18’s spending negotiations.

Most presidents’ budgets are messaging documents and highly unlikely to pass as written. This one is no different.

The administration’s FY17 supplemental contains three parts. First is a request for $5 billion in additional Overseas Contingency Operations (OCO) funding and an increase of $25 billion for the base defense budget. The second is an $3 billion increase in Department of Homeland Security funding, considered non-defense, to begin work on the proposed wall between Mexico and the United States, additional detention capacity, and to set the stage for the eventual hiring of 15,000 additional border protection personnel. The third is an overall, unspecified decrease in other non-defense spending of $18 billion to partially offset the increased spending being proposed.

Due to a legal exemption, the OCO supplemental would not breach existing sequester caps that restrain appropriations spending. Crucially, however, the decrease in non-defense spending would not fully offset the $28 billion for defense and homeland security, and the supplemental calls for an increase in the defense caps for FY2017.  That leaves Congress with several options, all of which require 60 votes at some point in the Senate:

1. Accept the administration’s proposal, eliminating the sequester caps for defense only, accepting the full supplemental and pass the remaining 11 appropriations bills for FY17 while adhering to the $18 billion in non-defense cuts—this option seems highly improbable.  A number of appropriators on both sides of the aisle would oppose this level in cuts to non-defense discretionary programs.
2. Eliminate sequester caps for both defense and non-defense FY17 bills and add $22 billion in non-defense spending to evenly increase defense and non-defense spending—this option likely fails as deficit hawks object to the resulting deficit increases.
3. Reject the supplemental request and try to pass an omnibus including 11 spending bills to complete the FY17 appropriations work—opposition from defense hawks make this option unlikely.
4. Fail to reach quick agreement on the FY17 spending bills, allowing the government to suffer once again a short-term shutdown or a short continuing resolution, while the administration and Congress cobble together a deal that allowfs the FY17 process to finish, potentially with a continuing resolution for the remainder of the year.

A compromise on FY17 could entail an increase in the FY17 sequester caps for both defense and non-defense, with the administration accepting a smaller defense increase and allowing non-defense spending to increase by a like amount. Given positions laid out by Democrats opposing the president’s border funding, and Republican deficit hawks against increasing the budget caps, the 60-vote threshold faces challenges from both sides of the aisle. Although other possibilities exist, one cannot discount the possibility of a government shutdown while policymakers hammer out a deal.

While such a solution gets Congress past FY17, it doesn’t solve the inevitable FY18 spending entanglement. Few analysts believe that the President’s request for a $54 billion increase in defense and a like $54 billion cut in non-defense spending can prevail. The same tensions will exist as Congress tries to meet the October 1 deadline for passage of the FY18 appropriations. Once again there is a significant chance a government shutdown occurs before a compromise deal emerges.

Further complicating the FY18 budget is congressional Republicans’ desire to pass a FY18 Budget Resolution conference report with reconciliation instructions relating to a tax reform bill. The president’s “skinny budget” contains no mention of the direction the administration plans to take with tax reform, potentially further delaying passage of a FY18 Budget Resolution. Without passage of a budget conference report, the appropriations committees will have to guess on allocations to their 12 sub-committees and any tax reform bill will not get reconciliation protection from a filibuster in the Senate.

Most presidents’ budgets are messaging documents and highly unlikely to pass as written. This one is no different. It is, however, an opening salvo in what looks to be another incredibly contentious budget battle that risks a government shutdown as soon as April 28. At this point it is unclear which, if any, of the administration’s budget proposals could actually make it through Congress.