US: A Short Dated Budget CR Likely

Published on November 18, 2014

As could be expected, there were plenty of Tea Party Republicans available to the media these last few days to threaten another government shutdown in response to President Obama’s stick in the eye of an Executive Order on immigration. The GOP leadership has been mostly silent, letting their more conservative Tea Party members vent with the angry threats of a shutdown, while they weigh their options to avoid exactly that.

*** While there is still only a very low chance of a shutdown in December (SGH 11/14/14, “US: Political Headwinds, Fiscal Tailwinds”), the politics of passing at least some spending bills or another Continuing Resolution on the appropriations for the FY 2014 budget are hardening rapidly and will invariably mean very volatile headlines before a final version clears both the Senate and House. It could also mean pushing the negotiations through the December 11 deadline of the current CR with “mini CRs” right up to January 3 when the 114th Congress convenes. ***

*** What’s more, it may take several versions of the CR to exhaust the demands of a House still swayed by Tea Party dissidents and a Senate still controlled by Democrats. And while we suspect the efforts to attach defunding language to the CR will ultimately fall alongside the shutdown threats, the compromise now more likely than not is a short dated CR only into the spring next year, which means a potentially explosive linkage to the bill to increase the debt ceiling. ***

*** Even though the price to be paid in the coming immigration firefight is the falling odds for a longer dated CR to next September, we are still confident the Republican leadership will be better positioned to tame its extreme wing while the Senate political dynamics will still favor more centrist deal-making (SGH 11/5/14, “US: Two Points on the GOP Red Wave”), most specifically on fiscal policy that will result in a greater fiscal tailwind to US growth. ***

A “Flushing Out” Strategy

The House and Senate are unlikely to do much in the way of the CR until after the Thanksgiving recess, which will push the debate and a first round of floor votes into the first week of December, to leave around ten days before the current CR expires on December 11.

The final details of the President’s executive order on immigration will be important in shaping how the GOP responds to the challenge on such a hot button issue. But House Speaker John Boehner is likely to pursue a similar strategy to what he has used in the past, namely to first “flush out” the demands among his Tea Party wing as well as the likely response on the Democratic side to see where the middle course lies.

House Appropriations Committee Chairman Hal Rogers is already putting the finishing touches to a number of different versions of a CR, including one with a short date, possibly through March of 2015, and a longer date, through October of 2015. Either version could contain a limitation on funding to enforce an Executive Order on Immigration, essentially blocking the President’s move.

So, assuming more moderate and conservative House Republicans go along with the more confrontational demands of the Tea Party wing and its outside advocates, a first round version of the CR is highly likely to go to the House floor with language defunding the federal agencies tasked with implementing the President’s executive order on immigration.

Another idea circulating on the House side is to pass and send to the Senate a CR that includes eleven of the 12 spending bills that go into the annual budget, but sets aside the appropriations for Homeland Security as a standalone bill. It would then be sent over to the Senate with the defunding language attached to it.

Either way, for all the Republican anger, whatever version of the CR bill with the defunding language is passed in the House is likely to die in the Democratic-controlled Senate.

The GOP leadership knows that, but is hoping to exhaust the Tea Party demands by showing them their versions of the legislation cannot be passed. That, in turn, is likely to push Congress right up against the December 11 deadline on the current CR, but if need be, mini CRs of just a few days could be passed to buy some more time to wring out the last of Tea Party demands for a cleaner CR that can clear the Democratic Senate.

A Short-dated CR and the Debt Ceiling

So that is where our sense is that a short dated CR may emerge as a compromise bill that can pass in both the House and Senate. This would be the price paid to cool the heat stirred by the immigration firestorm, even though the leadership on both sides of the aisle in both chambers is still keen on a full year extension to the end of September 2015.

The Republican leadership is planning at least to then shift the response to the immigration challenge into the upcoming 114th Congress where the response would be channeled into the “regular order” business hearings by the Senate and House judiciary committees and possible legislation to overturn the expected executive order, or for legal challenges to be pursued.

A short dated CR does, however, inevitably put the need for yet another vote to avoid a shutdown within the same timeframe as the opening rounds to the debate to pass another debt ceiling bill.

But, at least this time, we do understand the GOP leadership in the House as well as the Senate to be in a far stronger position to limit the more extreme demands within their ranks.

Next year, both Senate Majority Leader Mitch McConnell and Speaker Boehner promise a return to a return to “regular order” on legislative activity, and that empowers the swing votes from the depleted but, we think, newly energized ranks of centrist Senate Democrats. Incoming Budget Committee Chairman Jeff Sessions can complicate that strategy, but, by then, he will be isolated within the cul-de-sac of the right wingers.

And in any case, however winding the road to keeping the government funded to the end of next September, we still think it will result in a bit more of a fiscal tailwind (SGH 11/14/14, “US: Political Headwinds, Fiscal Tailwinds”), with higher federal spending a near certainty compared to the levels set by the sequester under the Budget Control Act of 2011.

That will be a welcome lift to growth even if the ugly headlines of heated political rhetoric chip away at consumer and business confidence.

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