Prospects for a Government Shutdown

With the first fiscal cliff deadline now behind them, congressional leaders and the White House have already begun to position on the next series of fiscal showdowns, which include the expiring debt ceiling, that has reportedly already been breached, although the Treasury Department can creatively manage until mid- to late February; the postponed sequester, downsized to $85 billion over seven months, now scheduled for March 1; and the FY13 continuing resolution (CR), which expires March 27. In addition, the President is scheduled to submit his FY14 budget proposal to Congress on February 4, although there’s a real possibility that date will slide.

There’s deep dissatisfaction among certain factions on both sides over the recent fiscal cliff agreement. Liberal Democrats believe the President gave away too much on making permanent almost all of the Bush tax cuts, with the President now stating that any new spending cuts will need to be tied to additional tax revenue. Conservative Republicans believe that there should have been cuts in entitlement programs as part of the agreement, and no increases in tax rates, and have made it clear that they expect significant spending cuts, especially in entitlement programs, in return for lifting the debt ceiling.

The Debt Ceiling Battle
On the White House side, the President has stated that he won’t negotiate with Congress over the debt ceiling, but no one’s clear as to exactly what that means. At first blush, one might conclude that he’d invoke what some believe is his constitutional authority to raise the debt ceiling unilaterally, except he’s publicly ruled that out. I suspect the reason he’s done so is to attempt to position House Republicans to take the blame in the event of an actual default.

On the other end of the spectrum, the Republican leadership has stated that any further revenue increases are off the table, and that any increase in the debt ceiling will need to be matched by equal or greater spending cuts. Some conservatives, most notably Senate Minority Whip John Cornyn (R-TX) and Senator Patrick Toomey (R-PA) have gone on record as stating that they’re willing to at least partially shut down the government and/or default on the debt in order to secure new, deeper spending cuts. Republicans now believe they have leverage in return for an increase in the debt ceiling, as well as in negotiation over the next sequester and the expiring CR. They are seeking deep cuts in entitlement spending as well as in a range of non-defense discretionary spending.

In all likelihood, neither of the extreme positions – that the President won’t negotiate on the debt limit, nor that Republicans will shut down the government or allow the country to default on its debt unless there are deep budget cuts and no increases in revenue – is anything more than a bargaining position, and that both sides will in the end agree to some sort of compromise. While it may in fact play out that the President doesn’t negotiate directly, there’s no doubt that congressional Democrats will negotiate with congressional Republicans.

The Republicans: Pressure from Within
Some Republicans who advocate a partial shutdown argue that the Treasury Department has the legal authority to prioritize debt payments so as to avoid default on the debt by paying bondholders but shutting down certain federal agencies, such as the Department of Education (It’s unclear whether Treasury in fact has that authority.) One GOP proposal, called the “government shutdown prevention plan,” would automatically extend the CR by 90-day increments that would cut discretionary spending by one percent.

Politically, there’s considerably more pressure on Republicans than on Democrats to redress what conservatives believe to be a loss in the fiscal cliff agreement. They point to a new GOP poll in which 72 percent of those questioned believed a raise in the debt ceiling should include spending cuts that exceed the amount of the increase in borrowing authority. What they fail to point out, but are keenly aware of, is that House Republicans had only a 30% approval and a 61% disapproval rating.

For the vast majority of House Republicans, their greatest re-election threat lies in a potential primary challenge from the right, which is why Speaker Boehner failed to pass his “Plan B” legislation in December, and why two-thirds of House Republicans voted against the fiscal cliff agreement. On the other hand, many remember the political fallout from the last government shutdown, with polls clearly showing that Republicans would again take the majority of the blame.

A Tough Road for the Agencies
It’s difficult to speculate at this time what the outcome of each of these three fiscal events will be. As witnessed just a week ago, these confrontations are more likely to go down to the wire, and to a large extent they’re all tied together. The only certainty is that it makes planning rational budgets in the departments and agencies extraordinarily difficult.