With the Republican Party in control of the House of Representatives this year, attention has focused on where the areas of conflict will be between the House, the Democratic-controlled Senate, and the White House. While a lot of attention has been focused on efforts to repeal health care and the upcoming hearings promised by new committee chairmen, including House Oversight and Government Reform Chairman Darrell Issa (R-CA-49), a bigger battle looms: Congress and the President must agree on a number of important spending decisions, from funding the government for the remainder of the current fiscal year to raising the national debt. Despite the recent calls for a more civil debate, the strong possibility exists that we could easily see a rerun of the budget stalemate that occurred in 1995 between then-President Clinton and the Republican-controlled Congress. This stalemate led not to one but two shutdowns of the federal government. As Yogi Berra once said: “Its déjà vu all over again”.
Here are three budget tripwires to look for in the upcoming weeks, any one of which could lead to a budget standoff:
1. Talk about taking you time paying your bills: Congress and the President have still not agreed on a budget for the current fiscal year, which began over three months ago. Fiscal Year 2011 (“FY 11”) began on October 1, 2010 and Congress and the President have still not come to agreement on the 12 spending bills needed to fund the operations of the federal government. Instead, they have chosen to pass a continuing resolution (“CR”), which keeps spending at FY 11 levels and puts off a decision on a final budget till March 4, 2011. Expect to see Republicans push for significant cuts in the FY 11 budget as the March 4th deadline approaches.
2. Oh, and about that $14 trillion we owe…well, we need more. One nice thing about being a debtor when you are the federal government: you can always give yourself the authority to borrow more money. And the government will need it too: at some point in March, the federal government will hit the current $14 trillion debt ceiling and will need to either raise it or run out of money and shut down.
3. Then there’s FY 2012. And before the ink dries on any agreement on FY 11 spending or raising the debt limit, the decision making process on FY 12 begins, with the same differences on spending between the parties. President Obama laid down a marker down this week in his State of the Union address when he called for a targeted domestic spending freeze on all non-security domestic spending which would reduce domestic spending by $400 billion over ten years. This is in advance of the Obama Administration’s FY 12 budget proposal to Congress, which is anticipated in February. However, the gap between the President’s budget cutting proposal and those put forth by Republicans suggests that an agreement with the Republicans won’t be easy to reach by the time a FY 12 budget needs to be in place, by October 1, 2011.
Both Republicans and Democrats are aware of the high risks for both parties – and the country – should there be a budget standoff leading to a partial or total government shutdown. The recent announcement from the Congressional Budget Office that the deficit for FY 11 will rise to a record $1.5 trillion may help parties come to an agreement on spending. But given the gulf that currently exists between Democrats and Republicans, a shutdown cannot be ruled out.