Quick Hits - What it Means
Busy weeks on Capitol Hill this month. Over the past two weeks I personally observed appropriations staffs moving about their counterpart’s offices working diligently toward completing conference of the FY18 omnibus appropriation. Their stated goal was to be complete well before the March 23rd deadline (when CR number five expires). Chairman Frelinghuysen (House Appropriations) put the heat on subcommittee chairmen to exercise their authority, make decisions and get the bill ready for vote. Look for the House to vote on the bill this week, leaving several days of cushion to allow for any Senate fireworks. Fingers crossed, a bill will make it to President Trump for signature no later than March 23rd.
There are plenty of indications that despite said Congressional relief in timing of FY18 spending, DoD will still end the fiscal year with billions that are not able to be obligated. What this means is that there will be multiple opportunities to reprogram funds late in FY18. Staying close to your PEO and PM with ready solutions that have an available contract vehicle could serve you well. You cannot over-communicate with your PM this year.
Change of Office
Senator Shelby (R-AL) appears well-positioned to assume the Chairmanship of both the Full Senate Appropriations Committee and the Senate Appropriations Defense Subcommittee upon the April 1st retirement of Senator Cochran (R-MS). No Senators have spoken publicly of any other challenger to these key Chairmanships.Read more
The Bottom Line
After a brief shutdown that occurred over night and lasted less than six hours, the Senate approved yet another stopgap funding bill early this morning with a 71-28 vote, followed by a House vote of 240-186 to send the agreement to the president’s desk. The new stopgap bill will keep federal agencies and the military running until March 23rd. While this new legislation includes the framework for a longer budget agreement born out of the Senate on Wednesday, it is important to note that this is not a full appropriation. According to appropriations staffers, the House and the Senate will use this newly extended deadline to finally parse togetherFY18 defense appropriations. President Trump signed the bill first thing this morning.
What is Included in the Two-Year Budget Agreement?
- Increase in spending by $300B over the next two years (around $165B to the Pentagon and $131B to non-defense domestic spending)
- This year: increase in defense spending by $80B and domestic spending by $63B in excess of the 2011 budget caps
- Next year: increase in defense spending by $85B and domestic spending by $68B in excess of the budget caps
- Raises the debt ceiling until March 2019, after mid-term elections
- Will add around $1.5 trillion to the budget deficit over the next 10 years
- $90B in disaster relief funds for US states ravaged by hurricanes and wildfires
Based on an appropriation being agreed in March, expect funds to flow to agencies in June. Billions of dollars will likely go unobligated as they are being received so late in the year again.Read more
What It Means
Shutdown politics produced no “winners” this weekend. Perhaps C-SPAN’s audience ticked up a few notches than it otherwise might have as Congressional staffs followed the hype. The “losers” will prove to be Congressional incumbents of both parties as we approach 2018 mid-term primaries and elections. Most Americans outside of the beltway establishment are simply not following the nuances of the arguments being made – they don’t have the time and Washington fatigue is taking its toll. It all blurs together.
The shutdown outcome produced a continuing resolution that funds the government through 8 February and a promise to bring immigration legislation to the Senate floor by 9 February if an immigration agreement has not otherwise been forged.
What Does This Mean For You?
A fifth Continuing Resolution is in the offing. Look for the prospect of an FY18 omnibus appropriation to now move into February.
Funding negotiations among House and Senate Leaders and the President continue to look dreary. The Continuing Resolution under which the government presently operates will expire 19 January. We’ve reached the point in the timeline where a bill could not be produced for vote and publication by the 19th even if we had a miraculous agreement to terms today.
What Has Happened?
Outlook for Elections
Bottom line for now: another short-term Continuing Resolution next week.
Severe temperatures and snow storms have welcomed us into 2018, and caused Congress to adjourn a day early in their first week back. Below are some quick updates to watch in the coming weeks.
- The storms in the DC area forced Congress to leave a day early, but the deadline for the most recent continuing resolution remains 19 January. Producing non-defense spending equivalence and working on DACA are still the Democrats’ primary goals for the new budget.
- Two Democratic Senators were seated earlier this week, Doug Jones of Alabama andTina Smith of Minnesota, giving the Democrats 49 seats compared to Republicans’ 51. Senator Jones replaced Republican Luther Strange, and Senator Smith replaced former Senator Al Franken.
- On Wednesday the Senate easily confirmed John Rood as the new OSD Undersecretary for Policy, with a vote of 81-7. Rood comes to this position after serving as the vice president of Lockheed Martin, where he focused on increasing the company’s defense footprint in over 70 countries worldwide. Rood’s confirmation completes the senior OSD leadership team nearly a year into the Trump administration.
- President Trump will deliver his first State of the Union Address to Congress on 30 January. He will use this speech to outline his plans for the second year of his administration.
Despite the weather, we will monitor the upcoming legislation to ensure you have the most accurate information to best inform your business needs in the New Year.Read more
As important legislation comes to fruition right before the end of the year, here are our latest updates on the tax reform bill and the third continuing resolution before we take a break for the holidays:
The GOP tax bill passed the House yesterday afternoon with a vote of 224-201, after a procedural issue with the Senate parliamentarian rules forced them to vote a second time. There was unanimous Democrat opposition, as well as 12 GOP members who also denied the bill. The bill passed through the Senate earlier that day, with a vote of 51-48. The President signed the bill into law earlier today during an informal ceremony in the Oval Office , marking the first major legislative victory for Republicans during this administration.
Highlights from the bill include a decline in the corporate tax rate from 35 percent to 21 percent. Republicans predict that the bill will increase hiring and lead to higher wages, as well as incentivize corporations to come back to the US and produce domestically. The total amount in tax cuts in 2018 as a result of the bill is projected to be $135 billion. The bill will also reduce estate taxes and eliminate part of the Affordable Care Act, which could signal an important milestone for the GOP looking to dismantle Obamacare.
With one day to spare, Congress managed to pass a third Continuing Resolution before the 22 December expiration that funds the government through 19 January. While the CR averted a shutdown, the discussion of agreed topline funding levels for FY18 remains unresolved.
When Congress returns from the Holiday recess, it is likely that a two-year agreement on topline appropriations for both fiscal years 18 and 19 will dominate the headlines. As has been the case in recent years, the matter of defense vs. non-defense spending levels will be the crux of the debate.
Of note, an $81B disaster relief package was not included in this funding extension.
We at Capitol Integration wish you a safe and joyous holiday! See you in the New Year!Read more
Republican and Democrat leadership appear committed to averting a government shutdown.
Despite our headline above, we’ve laid back on trying to interpret or predict the future in Congress over the past couple of weeks. The dynamics have been unusual to say the least, and it has taken some time for the fog of ideological battles to dissipate.
What’s Happening Now?
Since the last Quick Hit, Congress appears to have settled on a 2017 endgame that will lead to an FY18 Omnibus appropriations bill. Here’s the quick update of where we are:
- President Trump is expected to sign FY18 National Defense Authorization Act into law in the coming days; the bill was passed to the President from Congress 30 November. It authorizes defense funding at nearly $700B across base and OCO budgets.
- The House and Senate have each passed their versions of a tax bill. Far short of the “tax reform” many hoped for, it has the potential to be the most significant change to tax policy since 1986. The tax bill must complete conference by the end of calendar year 2017 in order to use the specialized voting mechanism that accompanies the reconciliation process – a 51-vote threshold vs. a 60-vote threshold.
- The Senate Appropriations Committee released its version of the FY18 defense appropriations bill the Wednesday before Thanksgiving. It marked to a number about $50B below what many had hoped for and what the House Appropriations Committee had marked to.
- The present Continuing Resolution will expire 8 December. Expect another short-term CR to fund the government through 22 December. This CR is intended to allow Congressional leadership to finally agree on a topline budget number for defense and domestic spending. The NDAA sets a solid target that “defense hawks” hope to reflect in appropriations ($700B). As mentioned above, the Senate is still short of that target today. This means there will be some negotiation about comparable increases on the domestic side of the budget. Expect some flash and bang in the headlines, but look for a compromise to emerge.
- Yet a third CR will then be agreed to fund the government from 23 December into mid-or-late January. This CR is intended to create negotiating space for the final tax bill, as well as some incorporation of immigration legislation (border wall, Dreamer Act, etc.) into a final Omnibus.
The potential exists for substantive Congressional victories on tax policy, budget and appropriations as we transition into calendar year 2018 and Fiscal year 2019 positioning.
What It Means
There is movement and a general sense of optimism that an omnibus appropriation will pass before the end of the year. It would not be without a few challenges along the way. Here’s the streamlined recap below:
- The President’s FY 2018 request for defense spending was $640B, well above theBudget Control Act (BCA) cap of $549B
- The FY18 Budget Resolution, agreed upon on 10/26/17, calls for $640B for defense along with $77B for Overseas Contingency Operation (OCO) funding. Recall the Budget Resolution is a non-binding document. It is not legislation; the President does not sign it. Think of it as bipartisan political guidance.
- The FY18 National Defense Authorization Act (NDAA) is in the final phase of conference between the House and Senate versions. The Senate version calls for $631B base defense and $60B for OCO. The House version calls for $640B base defense and $60B for OCO. Look for conference to complete this week.
- The Senate Appropriations Committee’s Defense Subcommittee has not released the FY18 Defense Appropriations Bill, the bill that actually spends. (SAC-D). The FY18 House version of the same bill calls for $584B in base defense and $74B for OCO.
- It is clear all defense bills released to date suggest the BCA cap ($549B) will once again be ignored. Recall that OCO is considered “off budget.” In recent years, OCO funding has funded items with little relevance to overseas contingencies. Look for Democrats to use these facts as leverage in vying for increases in non-defense categories of the eventual omnibus appropriation.
Tax Reform and the Impact on Appropriations
House Ways and Means Chairman Brady has been the most prominent spokesman for his committee’s version of the Tax bill.
The House GOP plan for a renewed tax code was released this past week, calling for $1.51 trillionadded to deficits over the next decade. Corporate rates and individual rates will see the most substantial cuts in the House version. Certain politically debated clauses, like mortgage interest and property taxes, were combined into a single, more vague provision that should produce $1.2 trillion windfall in the coming years. The provision calling for the elimination of state and local tax deductions was not well received by all, and will be a point of contention going forward that could stall progress.
The markup period for a Tax bill has historically been one week, but with the number of highly charged provisions that remain unresolved, the markup phase will likely go longer. The House hopes to pass the bill on to the Senate before the Thanksgiving recess.
President Trump has made clear he firmly believes a Tax bill can be completed before Christmas. The outcome of the markup phase of the Tax bill will directly impact the movement of an Omnibus appropriation.Read more
What’s the number?
A fundamental disconnect among categories of numbers is the crux of the current appropriations logjam for FY18 funding. Until these numbers are reconciled, a Continuing Resolution (CR) will fund FY18 – the current CR runs through December 8th.
- The President requested $640B for defense, $91B above the Budget Control Act (BCA) spending cap of $549B.
- The House Budget Committee has approved $622B for defense, and $87B for OCO. Passage of a Budget resolution in House took months to accomplish.
- The Senate Budget Committee has not approved a budget. The absence of Sen. Thad Cochran (due to health concerns) in today’s markup suggests passage in the Senate could be attempted later in the week. Every vote counts and Republicans have none to spare.
- In the absence of an agreed budget plan, House and Senate Authorizers marked their defense bill at $631B and $640B respectively, along with $60B in OCO spending, above the aforementioned BCA spending cap.
- House Defense Appropriators marked their bill at $584B for defense, along with $74B in OCO, also above the aforementioned BCA spending cap.
- Senate Defense Appropriators have not yet publicly marked their bill, citing the lack of an agreed budget.
- Republicans in particular had hoped that the repeal of the Affordable Care Act would have produced savings that would have paved the way for dramatic tax reform. We saw multiple efforts of ACA repeal fail through the summer.
- House and Senate Republicans view tax reform as a major legislative objective, as does President Trump.
What It Means…
The contours of ACA and tax savings must be generally agreed in the Senate before a budget agreement can be struck. Without a budget agreement, finalizing appropriations for FY18 remains in jeopardy.
On the current Congressional calendar, there are 27 legislative days remaining before the “traditional” December recess.
Under the protection of the previously passed continuing resolution that funds the government through December 9th, work towards a final NDAA moves to conference, and the 2018 appropriations process inches forward.
A joint House-Senate conference will begin this week to discuss and finalize details for the 2018 NDAA. All policy issues should be completed by the end of October, according to leading members of both the House and Senate Armed Services Committees. The Senate bill presently authorizes $640B base and $60B OCO; The House bill presently authorizes $621.5B base and $75 OCO. The final agreed number would be influenced by the outcome of the budget cap debate highlighted below.
The House pushed their version of the FY18 budget resolution through on Thursday, with highlights including major tax reform plans, an overhaul of the Medicare program and an increase in the Pentagon’s base budget.
The Senate approved their resolution on Thursday as well, with a 12-11 vote, and should move to the Senate floor on October 16th.
While a budget agreement does not carry the force of law, reaching agreement signals at least the potential for agreements later in the fall on similarly challenging issues: taxes, immigration, etc.
There has been ongoing chatter about repealing the budget caps set on domestic and defense spending by the 2011 Budget Control Act. HASC Chairman Mac Thornberry has been vocal about his willingness to increase domestic spending if it means an increase in defense spending. President Trump announced last week he stands by his support of a $700 billion defense budget, which exceeds the budget caps by over $100 billion.Read more