October 1 Marks New Fiscal Year & 200 Days Since Debt Limit Reached

Thursday October 1 is not only the start of the new Fiscal Year, it will also mark the passage of the fifth straight year that none of the regular appropriations bills have been passed into law. The last time the entire budget was passed without use of any Continuing Resolutions was 1997. Sometime today, Congress is expected to pass a Continuing Resolution to avoid a government shutdown before funding expires at midnight tonight. Then lawmakers will have until December 11 to work out a budget deal.

Although the budget process has been rather messy over the past several years, the caps passed in the Budget Control Act of 2011 (BCA) have worked to limit spending. Since enacted, the BCA has reduced spending by $8,980 per household. Yet, Congress will not long abide constraint, even if self-imposed. Just two years after the BCA, the Bipartisan Budget Act of 2013 lifted the budget caps to allow for more spending. It did include some offsets, but NTUF found that on net, the law would increase spending by $42.3 billion over the next five years, and, on paper, would eventually lead to spending cuts of $16 billion through 10 years.

Now another rollback of the caps is in the works. Senate Majority Leader Mitch McConnell is hopeful he will be able to reach a deal with President Obama and House Speaker John Boehner on funding levels for the next two Fiscal Years. While Republicans have been pushing to increase defense funding, the President has said that this must be matched by an increase in domestic spending. Some of the players have promised to find offsets, but as we noted in a post last week, this means that they are promising to pay for an increase in new spending, rather than addressing the government’s long-term fiscal imbalances.

There is also a third significance to October 1: it will mark the 200th straight day that the level of federal debt has been stuck at $18 trillion. In February, 2014, the debt ceiling – a statutory limit on how much the government can borrow – was temporarily suspended. Over the next thirteen months, the federal government continued to over-spend and the Treasury issued $900 billion in new debt.

Upon reinstatement on March 15th, the debt limit was reset to $18.1 trillion. Since that time, the Treasury has been unable to borrow and has been using various accounting tricks to continue funding the day-to-day operations of the federal government. But it will only have recourse to these tactics for so long. Around the time the latest CR will expire, and while lawmakers are looking to further bust through the BCA’s caps, something will have to be done regarding the debt ceiling or the government may risk defaulting on certain obligations.

It should be remembered that it was a battle over the federal debt in 2011 that led to the BCA in the first place. At the time the limit was around $14 trillion. The budget caps and sequestration were implemented as a tradeoff for increasing the ceiling. Given the push to boost spending and the relative silence from leaders on the Hill regarding the looming debt problem, it does not seem likely that the debt ceiling crisis will be used as an opportunity to build on the BCA’s reforms.