Shutdown Risk Spikes as Congress Faces Another December Deadline

(Bloomberg) -- The clock is ticking again toward a partial U.S. government shutdown, and the end-of-the-year dealmaking is only getting riskier.

After passing a two-week spending bill last week, Congress has little time to come up with new funds to keep the government operating after Dec. 22. Pressure is building to increase military spending and resolve a pile-up of difficult issues, including health care and immigration.

At the same time, Republicans are trying to agree on a final version of their massive tax-cut proposal by the end of December. It’s their top priority, and House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell don’t want any problems with the year-end spending bill to risk losing Republican support on taxes.

Republicans have several choices on how to approach a spending bill, given that they need votes from eight Democrats to pass it in the Senate, even though the GOP controls both chambers.

The first option is to negotiate with Democrats to get a bill through the Senate. Some conservative House Republicans may oppose such a deal, possibly enough to require the GOP to get Democratic support in the House too.

Option two is to put together a bill that funds defense for the full fiscal year, through September 2018, while leaving the rest of the government on temporary funding. Democrats strongly oppose that idea. The House may be able to pass it with only Republican votes -- and the GOP then would dare Senate Democrats to oppose it and shut down the government.

If they can’t work an agreement with either Democrats or conservative Republicans, the third possibility passing another short-term spending bill keeping the government open after Dec. 22 until sometime in January.

If Republicans choose the third option and also pass the tax bill, that GOP unity won’t necessarily carry over into the next government shutdown fight.

North Carolina Republican Mark Meadows, chairman of the conservative Freedom Caucus, said GOP leaders promised him that a Dec. 22 measure will fully fund the Pentagon and leave other government functions on temporary funding. But he recognized that striking a deal with Democrats would mean Ryan won’t need votes from his group of about three dozen conservatives.

"Those things getting added in could be very problematic,” Meadows said Friday at the Heritage Foundation. “If you plus-up spending enough, then Freedom Caucus is a non-leverage point because you will get enough Democrats to come across and vote for it."

Two Democratic congressional aides briefed on the talks said Monday that negotiations were proceeding slowly, making it possible that a budget deal wouldn’t be unveiled until late next week. McConnell’s office declined to comment.

Here are the sticking points that need to be resolved, along with some of the issues that may be added to the final must-pass spending bill of the year:

Getting Around the Budget Control Act

This 2011 law ties increases in defense spending to the cost of discretionary government programs, and Congress needs to change those limits. Ryan, McConnell and Democratic leaders Nancy Pelosi and Chuck Schumer met with President Donald Trump Thursday and said they made progress.

Current-year appropriations are limited to $549 billion for defense and $516 billion for non-defense costs. House Republicans want to raise the defense cap by as much as $73 billion to $622 billion, while the Trump administration proposed a $54 billion increase. One option to bridge the difference would be to pay some regular defense costs with money from an uncapped war fund -- a gimmick that’s been used before.

Democrats say any defense spending increase must be matched dollar-for-dollar with non-defense funds.

Republican leaders seem willing to raise some non-defense spending in exchange for spending cuts or fee increases elsewhere, similar to deals reached by both parties in 2013 and 2015. Prior moves included fee increases for pensions and airlines, strategic petroleum reserve sales and cuts to crop insurance, federal employee benefits and Medicare.

Overall numbers for defense and non-defense spending must be agreed on before Congress can finish a trillion-dollar spending package, known as an omnibus. Ryan said there won’t be time to finish the 12 spending bills for the omnibus before Dec. 22, so any deal will include some short-term spending, probably until mid-January.

Obamacare Fixes

Senator Susan Collins, a Maine Republican, wants the next spending bill to contain two health care measures -- one to make “cost sharing” payments to insurers who take on sicker patients, and the other to boost reinsurance funding.

McConnell promised her the Senate will pass them by the end of the year, but House conservatives say they won’t support anything that props up the Affordable Care Act. Representative Mark Walker, chairman of the conservative Republican Study Committee, said he has a commitment from Ryan not to include it in the next spending bill.

Children’s Health Insurance Program

The popular CHIP program expired Sept. 30 and a long-term extension is likely to be included in the Dec. 22 bill. The House and Senate have worked on different versions of an extension. The bill has been held up in part because it can be used as a bargaining chip in a bid to repeal some Obamacare taxes such as the "Cadillac" tax on premium employer-provided health insurance.

Flood Insurance

The troubled National Flood Insurance Program was extended to Dec. 22 by last week’s stopgap measure, and a long-term extension may be attached to the next spending bill. The House last month passed a five-year extension, with changes sought by Financial Service Committee Chairman Jeb Hensarling to make it easier for private insurers to enter the market and bar the government from insuring especially flood-prone properties. The Senate Banking Committee has its own six-year proposal that doesn’t include privatization.

Disaster Aid

Congress is under pressure to provide another round of hurricane relief for Texas, Florida and Puerto Rico and pay for damage from California wildfires.

Trump’s $44 billion request for aid sent to the Capitol last month was widely panned, as was the proposal to offset the cost with spending cuts elsewhere. Florida is seeking additional assistance for its damaged citrus industry, and changes could be made to Puerto Rico’s bankruptcy process.

Puerto Rico has asked for an additional $94 billion, while Texas has requested $61 billion.

‘Dreamers’ and Border Security

Immigration has been one of Democrats’ main policy priorities since Trump said he would end Obama-era protection against deportation for people who were brought to the U.S. illegally as children. He gave Congress until March to come up with a legislative replacement for the program, known as Deferred Action for Childhood Arrivals.

Pelosi says protecting the immigrants known as "dreamers" is her top goal before the end of the year. Ryan also says he wants to provide legal protection, but that it must be accompanied by stiffer border security and immigration enforcement. Some Republicans, like Representative Carlos Curbelo of Florida and Senator Jeff Flake of Arizona, say this legal limbo should be resolved as soon as possible.

Complicating the immigration debate, Trump is demanding $1.6 billion for a wall on the U.S.-Mexico border, which Democrats call a nonstarter. Members of a conservative working group on immigration haven’t agreed on a plan among themselves, much less within the wider Republican Party.

©2017 Bloomberg L.P.