US: CR to Pass, Keep Eye on March

Published on January 18, 2018

Barring last minute disruptive tweets or inchoate demands from the fringes of both parties, we are fairly confident H.J.Res.125 will pass, if not by its Friday midnight deadline, then over the weekend before Monday morning.  But that is not what we would be concerned about, but rather what comes next month when the debt ceiling too needs to be addressed.

*** House Speaker Paul Ryan has picked up support within his conference since yesterday afternoon. Besides amendments to woo wavering Republicans, votes are being secured in a two-part messaging that a shutdown would unavoidably be blamed on the GOP and that it, in turn, would undercut the building political tailwind of the tax cuts and economic growth that offers the best hope of protecting the GOP majority in the November mid-term elections. ***

*** In the Senate, needing at least Democratic votes, Majority Leader Mitch McConnell has said he is ready to deal, and we believe along with some vaguely phrased “border security” funding, a “down payment” on DACA will be included, which should allow Democratic Minority Leader Chuck Schumer to deliver the needed Democratic votes. If passage misses the Friday midnight deadline, it is still likely to be passed over the weekend. ***

*** But we are more concerned with the CR passing than a brief shutdown: as written, H.J.Res.125 will expire within a few weeks of a “must pass” vote to increase the federal debt ceiling before early March. In other words, passing the CR may be setting up a more significant political battle that will again put at least some degree of default risk back on the market’s radar — and in the run-up to the critical mid-March Federal Open Market Committee meeting. ***

Securing the Votes

The scramble on Capitol Hill over the 72 hours or so to pass H.J.Res.125, the Extension of the Continuing Appropriations Act 2018, is almost certainly going to be volatile, with swings in mood, last minute delays or rushed amendments, votes held close to the chest to see which way floor votes are going, and perhaps an even shorter “bridging” CR of a few days needed.

Speaker Ryan is said to be determined to press ahead for a floor vote on H.J.Res.125 beginning sometime after 7pm tonight. The Rules Committee voted 9-3 last night to clear the way for the terms of a relatively brief period of debate to begin late this afternoon.

Notwithstanding his expressions of confidence, Speaker Ryan is said to be uncomfortably uncertain whether he has at least 218 Republicans on board to pass the CR without Democratic votes. That is because whipping the vote count so far has been near-impossible, as we understand that many Freedom Caucus and other members of the House Republican conference have simply refused to indicate how they will vote.

Partly because of that, the Rules Committee gave Speaker Ryan unusually wide procedural latitude to introduce last minute amendments to the bill — or any bill for that matter, which raised loud objections from the minority Democrats – if they are needed to secure those last needed votes to get to 218.

Among the measures Ryan has already tossed into the mix is more money for missile defense and NASA, summer programs, some small business lending and housing funding, further delays to Obamacare medical device taxes, and a cornerstone six-year funding for the Children’s Health Insurance Program, a high priority funding for Democrats and many Republicans alike. Helping things along, this afternoon the White House reversed on an earlier Trump tweet opposing its inclusion after the President was informed the bill would be doomed without it.

It may also help Speaker Ryan to keep GOP defections to a minimum if the Democrats seem to be lining up behind Minority Leader Nancy Pelosi’s vow of a united no vote, which in fact is unlikely as two or three Democrats are likely to break away and vote yes.

The Senate political dynamics in passing the CR is defined by McConnells’s need for at least ten and probably a dozen or more Democratic votes to get to a filibuster-proof 60 vote majority. So the Senate vote will come down to what Minority Leader Schumer puts on his ask list, and more to the point, how much discipline in the Democratic ranks he can maintain as the floor vote draws near.

But Schumer’s leverage has been undermined in recent days due to a handful of Democratic 2020 presidential hopefuls hardening their demands to woo donors on the left while to Schumer’s right, vulnerable Democrats up for re-election in Red states are digging in, anxious to avoid any blame for a shutdown over immigration issues.

Centrist Democrats and Republicans had thought a compromise on the politically charged Deferred Action for Childhood Arrivals, or DACA, crafted by Republican Lindsey Graham and Democrat Richard Durbin, would make for a fairly smooth passage of the CR. But President Trump’s controversial remarks at a White House meeting last Thursday all but torpedoed the efforts and in effect further inflamed the stakes in some version of DACA being included.

Although the Democratic rhetoric has hardened, we still have a sense that compromise language on DACA will find its way into the CR, that will bring enough Democrats on board. There has been some talk, for instance some form of a “down payment” on DACA, perhaps a measure barring deportations during the period of negotiations on a final, broader version of the bill.

Linked CR and Debt Ceiling Vote Looms

But before the Senate takes up a vote, we expect Speaker Ryan will first secure a 218 Republican vote majority by Friday to pass the CR. His votes, as well as some of those in the Senate, are being built around two new calculations.

The first is what has been an effective two-part messaging in the last day or more that Republicans will be blamed by the public if there is a shutdown again – given that they are in the majority and control the White House – and that the GOP should ride the positive tailwinds of the tax cuts and continued economic momentum as the best means of safeguarding their majority control of the House come November.

Not all House or Senate Republicans will be won over by that messaging or by party discipline, but a second calculation for exactly the opposite reason is also driving towards a yes vote: passing the CR will hand dissident Freedom Caucus and other deficit hawks an even better and more elevated platform to press their demands for spending cuts by linking the vote when the CR expires to the pending vote to increase the federal debt ceiling.

Congress suspended the debt limit through Dec. 8 last year in the first stopgap funding bill in September. The debt limit was reset last December 11 in the current CR, and Treasury since then has been forced to turn to tapping its various investments accounts to allow continued borrowing to fund the government operating expenses and meet obligations to Treasury debt holders.

The drop-dead deadline when Treasury finally runs out of cash is difficult to pinpoint, but the current consensus is that it will need the reset to the federal debt limit, now standing at $20.4 trillion before a March 1 auction. Borrowing needs are set to rise sharply on the back of the $1.5 trillion added to the deficit over a ten-year baseline in the tax cuts last December.

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