John Locke Update / Research Newsletter (Archive)

Funding Negotiations – Sequestration and the Debt Limit

posted on in Fiscal Insight

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Not much time is left for Congress to agree to a spending plan to fund the federal government for FY 2014.  The current continuing resolution (CR) funding the federal government for fiscal 2013 expires at the end of the fiscal year on September 30, 2013.  If nothing is done, the government will "shut down" on October 1, meaning non-essential services will be discontinued due to a lack of funding.  There is support for a short-term continuing resolution, as it is unlikely Congress will come to an agreement in the next two weeks.  The expected CR is likely to last a few months, yet some reports are citing mid-December.  I expect the CR to garner wide-ranging support since it would allow Congress more time to focus on Syria and postpone the budget debate till later in the year.  Hopefully we won’t have a worrisome Christmas and New Year with sequestration debates, but it is looking like we are going to repeat that piece of history.

The two parties are still strongly divided on spending for the next fiscal year. Under current law, the FY 2014 spending level is set by sequestration, which establishes lower spending caps for budget writers to meet on discretionary spending while mandatory cuts remain across-the-board.    Many disagreements exist over individual programs and funding priorities, even within the same party.  The major obstacle in the budget debate is the $91 billion overall gap in discretionary spending levels between the House and Senate budget proposals.  The Senate’s spending plan assumes sequestration is repealed; the House’s plan limits overall discretionary spending to the post-sequestration level, but reduces non-defense spending caps by more than called for under current law to protect defense spending from the reductions.


Fiscal Year 2013

Fiscal Year 2014


Pre-Sequester

Post-Sequester

Current Law

House Budget

Senate Budget

Defense

$544

$518

$498

$552

$552

Non-Defense

$499

$469

$469

$415

$506

Total Base Funding (Billions)

$1,043

$988

$967

$967

$1,058

Note: Figures reflect budget authority excluding disaster, war, and program integrity adjustments.

Without an agreement to modify these spending caps, any excess discretionary spending above the limits will trigger across-the-board cuts (sequestration) to bring fiscal 2014 into compliance with the caps.  The law does not enact the cuts until January, meaning the New Year has a strong possibility of seeing the same headlines as last year.

An additional fiscal item on Congress’s list concerns the debt limit and whether or not to raise it.  A few weeks ago, U.S. Treasury Secretary Jacob Lew gave Congress an update on the Treasury Department’s ability to continue financing the federal government.  This past May, the federal government reached its statutory debt limit and has been taking specific measures to avoid default.  According to the Secretary’s most recent update to Congress, all of those measures are expected to be exhausted by mid-October, and the debt limit will need to be raised if the federal government wants to avoid any threat of default or failure to pay the government’s obligations.  Republicans continue to call for spending cuts and other reforms in exchange for raising the debt ceiling, while President Obama has again refused to negotiate over raising the borrowing limit. According to reports, lawmakers are considering another short-term suspension of the debt limit, similar to the action taken in January 2013.  This legislative action would coincide with the FY 2014 budget debate, assuming a short-term CR is passed.

At the conclusion of this newsletter is a chart showing the federal government’s deficits and surpluses over the last few decades.  One thing is overwhelming clear — spending new money on a war, health care, or any other unnecessary government operation is only going to hurt the American people.  Spending needs to be reined in, and priorities need to be set in government.  I’m sure many people would like to spend money on things that the government has prioritized in the past, but in today’s economy some things are "wants" and not "needs."  North Carolina has started on a path of fiscal responsibility; it is time the United States followed the example of many of its states and did the same.

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Sarah Curry is Director of Fiscal Policy Studies at the John Locke Foundation. Previously, she worked for the North Carolina State Senate as a research assistant for the chairs of the Senate Agricultural Committee and headed the research efforts for… ...

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