Policy Backgrounders

The FY2024 Budget Battle

September 30, 2023

As the clock winds down on the US fiscal year, following are both the unique and some all too familiar details about this shutdown battle and the difficulties that lie ahead for finalizing a FY2024 funding bill.

• There are two traditional alternatives to avoid a shutdown—the first is a short-term funding bill, which Speaker McCarthy keeps trying unsuccessfully to negotiate. He is now calling for a short term clean continuing resolution, extending current funding levels without Ukraine monies. The second is the passage of all 12 appropriations bills—which the clock has run out on. A third longer shot, more arcane, option is a discharge petition which would bring a resolution to the floor without any action required by the Speaker. But there are important hurdles to this approach, including time and the need for support from 5 Republicans.
• What has made compromise on the passage of a full year budget even more difficult this year is the fallout from the earlier compromise this year to avoid a US government default. After enactment of the Fiscal Responsibility Act in June, House Republican Appropriators immediately rejected the compromise funding levels in the FRA and started from lower baseline numbers. The Senate “topline” appropriations figure is $1.59 trillion for all 12 appropriations bills, the figure agreed in the debt ceiling negotiations. The House, in contrast, is at $1.47 trillion for its “topline” number.
• This year, several House Republicans have directly linked voting McCarthy out of the Speakership to the budget controversy. Consequently, Speaker McCarthy has only one route to finding a compromise—and that’s within his Republican caucus, voiding the traditional route of resolving the budget battles through bi-partisan agreement, which he turned to in the default negotiations.
• Keeping the government open with a short-term clean “continuing resolution” by simply extending the FY2023 funding levels -- has hit headwinds, since a number of House Republicans think the current fiscal year levels of funding are too high, even for a short-term extension. With the slim margins in the House, the Speaker can only afford to lose 4 votes on a short-term, stopgap measure. But that has been an even more difficult number to achieve given that Republicans do not like voting for spending bills. Only 9 Republicans voted for the full government funding bill in December of 2022 and 13 House Republicans have never voted for any kind of spending bill since 2011.
• Looking beyond a short-term, stop gap measure to actually resolving the disagreements over the full year funding of the government, there is also no clear pathway for agreement on a FY2024 budget. Even if a FY2024 budget can be agreed upon between the House and Senate, Republicans in McCarthy’s caucus have also made it clear that they will not vote on an “omnibus” FY2024 funding bill, which includes all the appropriation bills in a mega bill. They want individual votes on each appropriations bill.
• The economic damage caused by a shutdown depends on the length and scope of the shutdown. With no appropriation bills signed into law and no clear pathway to agreement on an FY2024 funding bill—the scope is broad across government agencies and activities. And the length could be long. The shutdown controversy foreshadows that there is no clear pathway to reopening the government should it shutdown.
• US global leadership is not immune to impact. Moody’s has warned along with Wells Fargo that a government shutdown could harm the U.S. credit rating and dollar. The controversy over Ukraine funding is causing concern about the US longer-term commitment and leadership in the war.
• While the consequences of the budget stand-off this year are foreboding, the struggle has resulted in bipartisan coalescing both in the House and the Senate. Among the proposals is the recognition that it is necessary to reform the budget process and address our outsized national debt through a bi-partisan Fiscal Responsibility Commission, a long-standing CED recommendation. Overall reform needs to be a top priority and part of an outcome of this current year budget crisis.