Policy Paper

Q&A: Everything You Need to Know About a Budget Conference

 For an updated version of this resource, click here.

The bipartisan deal to end the government shutdown and avoid defaulting on our obligations passed Congress and was signed by the President on October 17th, temporarily resolving the fiscal impasse that shut down the government for 16 days. As part of the agreement, a budget conference was established to reconcile the House and Senate budget resolutions, and ideally find agreement on government funding levels and how to set the country on a fiscally sustainable long-term path. With attention rightfully turning to the budget conference committee, the Committee for a Responsible Federal Budget takes an in-depth look at the process and what it could accomplish:

What is a budget conference?

A budget conference is a process by which the House and Senate reconcile the budget resolutions they have each separately passed to arrive at one budget that each chamber agrees to adopt.

Over what time period will the conference negotiate?

The conferees for the budget conference were named on October 16. When the conferees were named, the House and Senate both set a non-binding deadline for the conference to report its recommendations by December 13, about one month before the government funding bill expires on January 15, 2014. The Chairman and Ranking Members of the House and Senate Budget Committees had a preliminary meeting on October 17. The first official meeting of the full conference is expected to occur during the week of October 28.

Who is in the budget conference?

The budget conference committee includes 29 lawmakers – 22 from the Senate and 7 from the House of Representatives. Of the Senate members, 12 are Democrats (including two independents caucusing with Democrats) and 10 are Republicans. Of the House members, 4 are Republicans and 3 Democrats. The conference committee is chaired by Congressman Paul Ryan (R-WI) and Senator Patty Murray (D-WA), and includes Representatives Diane Black (R-TN), James Clyburn (D-SC), Tom Cole (R-OK), Nita Lowey (D-NY), Tom Price (R-GA), and Chris Van Hollen (D-MD) and Senators Kelly Ayotte (R-NH), Tammy Baldwin (D-WI), Chris Coons (D-DE), Mike Crapo (R-ID), Mike Enzi (R-WY), Tim Kaine (D-VA), Angus King (I-ME), Lindsey Graham (R-SC), Charles Grassley (R-IA), Ron Johnson (R-WI), Jeff Merkley (D-OR), Bill Nelson (D-FL), Rob Portman (R-OH), Bernie Sanders (I-VT), Jeff Sessions (R-AL), Debbie Stabenow (D-MI), Pat Toomey (R-PA), Mark Warner (D-VA), Sheldon Whitehouse (D-RI), Roger Wicker (R-MS), and Ron Wyden (D-OR).

How many people have to agree to the recommendations?

In order for the conference committee to offer recommendations, the proposal must be agreed upon by a majority of each chamber’s representatives to the conference. In this case, 4 members from the House and 12 members from the Senate must agree upon the final proposal from the conference. If it obtains this support, it will then be sent to the Senate and House for a vote, where a simple majority will be required to pass the conference agreement as a budget resolution.

What is a budget resolution?

A budget resolution is a topline blueprint outlining intended revenue levels and spending by category for the coming fiscal year as well as future years. The blueprint does not mandate any specific policy changes and does not directly change government policy in any way. A concurrent budget resolution is not signed by the President and is not legally binding.

While a budget resolution does not, by itself, carry the force of law, it can establish rules in both chambers of Congress in ways that can make future laws easier to enact. A budget resolution can be an important component of any ultimate budget agreement for at least three reasons. First, budget resolutions give each committee an allocation for spending levels, including giving appropriators an allocation for how much to spend on discretionary programs and establishing process-based hurdles if those levels are exceeded. Second, budget resolutions can include a process known as reconciliation that requires the various committees to achieve a certain amount of deficit reduction and removes legislative hurdles (such as the filibuster in the Senate) for legislation that meets the given target and other criteria. And finally, concurrent budget resolutions can represent an important political agreement between the chambers (and in the case of divided government, the parties) on how to set future fiscal policy.

What cannot be decided in a budget resolution?

While a budget resolution allocates spending limits for committees of jurisdiction and may include instructions for savings that must be achieved, it does not determine the allocation of funds within that limit or dictate how any assumed savings can be achieved. Setting funding levels for specific discretionary programs within the overall spending allocations is a task designated to the House and Senate appropriations committees. A budget resolution also cannot directly enact policy changes for mandatory spending or revenue, although it can provide instructions to other Congressional committees to achieve a certain level of savings.

What happens after the budget conference?

If the conference committee is able to reach an agreement on spending levels and any other reforms or instructions, the final resolution would receive expedited, or “fast track,” consideration in Congress. That means that it can pass with only 51 votes in the Senate as opposed to the 60-vote margin typically needed to overcome a filibuster. After the resolution has been approved by both chambers, the respective appropriations committees may work on funding bills to fit within the spending caps laid out in the budget resolution. Also, if the budget resolution includes reconciliation instructions, the instructed committees must report legislation that complies with the instructions by the date specified in the budget resolution.

When was the last time we had a budget conference?

The last budget conference took place in April 2009 (the budget resolution for Fiscal Year 2010). At that time, Democrats held majorities in both the House and Senate, so the resolutions were relatively similar. Among other things, the resolution provided reconciliation instructions for what would become the Health Care and Education Reconciliation Act, which was part of the Affordable Care Act. Since 2009 was the last time that both chambers passed a concurrent budget resolution, it is also the last time there was an opportunity to have a budget conference.

Where are the two sides starting from as we enter the new budget conference?

Both the House and Senate passed their own respective budget resolutions earlier this year. The House budget, put forward by Congressman Paul Ryan, generates savings entirely on the spending side – calling for $1.8 trillion of savings through repealing the coverage expansions in the Affordable Care Act, close to $900 billion from Medicare and Medicaid, $950 billion in non-health mandatory reductions, and $250 billion from discretionary programs beyond the sequester (although defense funding is returned to pre-sequester levels with the remainder cut from non-defense programs). The House budget also calls for a revenue-neutral tax reform that reduces tax preferences in order to reduce tax rates. The Senate budget, put forward by Senator Patty Murray, generates savings from both spending cuts and revenue increases. The budget calls for $975 billion of savings from tax reform, $275 billion from health care programs, $75 billion of non-health mandatory reductions, and $380 billion from discretionary spending in place of the $940 billion sequester. It also includes $100 billion of short-term stimulus, or new spending, measures. See a full comparison on our blog here.

What is budget reconciliation?

Budget reconciliation is a process of expedited consideration for changes to mandatory spending programs or federal revenue. The budget resolution can provide reconciliation instructions to committees to achieve a certain level of savings. Lawmakers can pass a reconciliation bill with only a simple majority in the Senate. A special rule, known as the “Byrd Rule,” places several limits on what can be considered in the reconciliation process, prohibiting provisions that are not related to mandatory spending and revenues, that increase deficits beyond the timeframe covered by the resolution, and that have no budgetary effect, among other limitations. In total, 22 bills have been passed through reconciliation, including the 1990 Omnibus Budget Reconciliation Act, the Balanced Budget Act of 1997, and the 2001 and 2003 tax cuts.

How does the budget conference relate to the sequester?

The budget conference cannot directly repeal the sequester, but it can help build bipartisan agreement around modified discretionary spending levels and identify budget savings to help facilitate a separate bill to replace some or all of the sequester and increase discretionary spending levels above those imposed by the sequester (although the additional bill to repeal any part of the sequester would not be privy to the same fast-track procedures as a reconciliation bill, and therefore would likely require the support of 60 Senators to overcome a filibuster).

How does the budget conference relate to the debt limit?

The agreement in the Senate to establish a budget conference included a provision prohibiting the Senate from considering any proposal from the conference committee that provides for an increase in the statutory debt limit. Leaders have agreed to do this to prevent a debt ceiling increase being approved through the reconciliation process under the 51-vote threshold. This means that the debt limit will have to be dealt with on a separate track. However, an agreement on a plan to reduce deficits as part of the budget conference may facilitate action on separate legislation increasing the debt limit.

What should policymakers do now?

The budget conference is a perfect place to instruct the relevant committees to find long-lasting solutions to our long-term fiscal challenges and to diminish the frequency and intensity of the showdowns the country has become accustomed to in the last few years. Both the House and Senate budget resolutions this spring called for putting debt on a downward path as a share of the economy, and the same should be expected from the conference committee recommendations and any subsequent action.

Lawmakers should take advantage of the opportunity of having nearly two months to negotiate the details of a long-term plan, the support of many members of Congress and the White House, and the national attention that continues to focus on the country’s unsustainable budget problems. Ultimately, the conference committee should instruct committees to replace at least part of the sequester with significantly larger, permanent, and targeted reforms to our entitlement programs and the tax code.

For more information, see the following:

Q&A: Everything You Should Know About the Debt Ceiling

While it is incredibly disappointing that elected officials in Washington failed to avoid a government shutdown, attention is quickly turning towards raising the federal debt ceiling, which currently stands at $16.699 trillion. The Treasury Department projects it will run out of borrowing authority on October 17th, at which point it will only have $30 billion left on hand, and would run out of cash soon after – between October 22nd and October 31st according to the Congressional Budget Office. The following is a short primer on the debt ceiling and on the ways to responsibly address it while also dealing with unsustainable federal borrowing going forward.

What is the debt ceiling?

The debt ceiling is the legal limit on the total level of federal debt the government can accrue. The limit applies to almost all federal debt (certain types of debt are exempt, but are quite small in value), including the debt held by the public and what the government owes to itself through various accounts such as the Social Security and Medicare trust funds. The debt ceiling applies to both debt held by the public as a result of borrowing necessary to finance deficits, and debt owed to trust funds. As a result,  the debt subject to limit increases both as a result of annual budget deficits financed by borrowing from the public and increases in government trust fund balances invested in Treasury bills. The current debt subject to limit of more than $16.7 trillion is composed of nearly $12 trillion in debt held by the public and slightly more than $4.7 trillion in debt held by government accounts. Most economists feel debt held by public is the more relevant measure of the economic impact of government debt.

How much has the debt ceiling grown?

Since it was established, Congress and the President have increased the debt ceiling roughly 100 times. During the 1980s, the debt ceiling increased from less than $1 trillion to nearly $3 trillion. Over the course of the 1990s it doubled to nearly $6 trillion, and in the 2000s, it doubled again to well over $12 trillion. The Budget Control Act of 2011 automatically raised the debt ceiling by $900 billion and gave the President authority to increase the limit (subject to a Resolution of Disapproval) by an additional $1.2 trillion, to $16.394 trillion. In February of 2013, lawmakers temporarily suspended the debt ceiling through May of 2013, resulting in a de facto increase of about $305 billion and bringing the debt ceiling to its current level of $16.699 trillion.

Fig. 1: Statutory Debt Limit and Federal Debt Subject to Limit (Trillions)


Sources: Treasury Department, Office of Management and Budget.

Why is Congress debating this now?

The president signed the No Budget, No Pay Act into law on February 4, 2013, which temporarily suspended the statutory debt limit until May 18, 2013. At that point, the debt ceiling was automatically raised to $16.699 trillion to cover new borrowing since suspension. Since May of this year, the Treasury has been employing “extraordinary measures” to avoid breaching the debt ceiling (see more about this below). These extraordinary measures are likely to last through mid- to late-October, at which time a formal debt limit increase or suspension will be necessary.

Can breaching the debt ceiling be avoided without Congressional action?

The Treasury Department can use a variety of accounting tricks known as “extraordinary measures” to postpone the need to raise the debt ceiling. For example, it can prematurely redeem treasury bonds held in federal employee retirement savings (and replace them later plus interest), halt contributions to certain government pension funds, or borrow from money set aside to manage exchange rate fluctuations in order to buy time. While these actions are within the Treasury’s authority, they do not make for very good policy, and can have negative economic, financial, and political consequences. Some believe the Treasury Department could buy even more time by engaging in other, unprecedented actions, such as selling large amounts of gold, minting a special large-denomination coin, or invoking the fourteenth amendment in order to override the statutory debt limit. Whether any of these tools is truly available is in question – the Obama Administration has ruled out all three – and the potential economic and political consequences of each of these options are unknown.

What happens if the debt ceiling is breached?

Once the government hits the debt ceiling and exhausts all available extraordinary measures, it is no longer allowed to issue additional debt. At that point, the government must rely on its remaining cash on hand and incoming receipts to pay all obligations. However, when the federal government is in a period of running annual deficits – as is the case today – incoming revenues to the federal government are insufficient to cover all of the government’s obligations, be it salaries for federal civilian employees and the military, utility bills, veterans’ benefits, or Social Security payments, to name a few. Between October 18th and November 15th, for example, the Bipartisan Policy Center estimates that approximately 32 percent of the government’s obligations would have to go unpaid, if relying only on incoming receipts to pay bills. Instead of or in addition to failing to meet these obligations, the government could also potentially default on regular interest payments on the debt.

A default, of even the perceived threat of a default, could have serious negative economic implications. An actual default would roil global financial markets, as both domestic and international markets depend on the relative economic and political stability of U.S. debt instruments and the U.S. economy. Interest rates would rise as demand for Treasuries would account for the increased risk of default, with demand for Treasury bills dropping as investors  stop or scale back investments in Treasury securities if they are no longer considered a 100% safe investment. GAO has estimated that the 2011 debt limit debate led to higher interest rates on Treasuries issued during the standoff based on concerns about a potential default, which will cost the federal budget an estimated $19 billion over 10 years. The impact of an actual default would have a far greater and longer lasting impact on interest rates on Treasuries than concerns about a potential default during a temporary standoff.

Higher interest rates for Treasuries would increase interest rates across the economy, affecting car loans, credit cards, home mortgages, business investments, and other costs of borrowing and investment. The balance sheets of banks and other institutions with large holding of Treasuries would decline as the value of Treasuries dropped, potentially tightening the availability of credit.

How does a shutdown differ from a default?

In a shutdown, government temporarily stops paying employees and contractors who perform government services, whereas the list of parties not paid in a default is much broader (See Q&A: Everything You Should Know About Government Shutdowns). In a default, the government exceeds the statutory debt limit and is unable to pay on time some of its obligations to its citizens or creditors. Without enough money to pay its bills, any of its payments are at risk—including all government spending, mandatory payments, interest on our debts, and payments to U.S. bondholders. Whereas a government shutdown would be disruptive, a government default could be disastrous.

How are lawmakers proposing to address the debt ceiling?

President Obama and most Congressional Democrats have called for a “clean” debt ceiling increase, meaning that no other policies are attached to the increase. The President has stated clearly that he will not negotiate on the debt ceiling. Most Republicans, on the other hand, have previously called for accompanying a debt ceiling increase with deficit reduction (sometimes in a dollar for dollar proportion), changes to the Affordable Care Act, or other policies. Speaker Boehner recently suggested that the House of Representatives would pass a one year debt ceiling increase which included a one-year delay of the Affordable Care Act, a process for tax reform, several relatively modest deficit reduction measures, and a wide-ranging set of Republican-preferred policies that are unrelated to the budget.

Have policymakers used the debt ceiling to pursue deficit reduction in the past?

Although policymakers have often enacted “clean” debt ceiling increases, Congress has coupled such increases with other legislative changes on many occasions. In a number of cases, Congress has attached debt ceiling increases to budget reconciliation legislation and other deficit-reduction policies or processes.

Indeed, most of the major deficit-reduction agreements made since 1980 have been accompanied by a debt ceiling increase. Causality has moved in both directions, though – on some occasions, the debt limit has been used successfully to help prompt deficit reduction; in other instances, Congress has tacked on debt ceiling increases to deficit-reduction efforts.

Notably, however, in virtually all instances in which a debt limit increase was either accompanied by deficit reduction measures or included in a deficit reduction package, lawmakers have generally approved temporary increases in the debt limit to allow time for negotiations to be completed without the risk of default. For example, Congress approved a modest increase in the debt limit in December 2009 while negotiations over Statutory PAYGO and establishment of the National Commission on Fiscal Responsibility and Reform were ongoing.  During the negotiations and consideration of the 1990 budget agreement Congress approved six temporary increases in the debt limit before approving a long term increase in the limit as part of the reconciliation bill implementing the deficit reduction agreement.

Further discussion regarding past uses of the debt ceiling can be found in the Appendix to a recent CRFB paper, What We Expect from the Upcoming Fiscal Discussions, which is included in this document.

What should policymakers do?

Failing to raise the debt ceiling would be disastrous, and would surely, and rapidly, result in severely negative consequences that experts are not capable of fully knowing in advance. Even threatening a default or taking the country to the brink of default could have serious negative repercussions. Importantly, though, failing to control the debt could ultimately stunt economic growth, reduce fiscal flexibility, and increase the burden on future generations. But the latter should not be sought by bringing America close to the brink of default. If lawmakers wish to accomplish deficit reduction, they should at least pass temporary increases of the debt limit to avoid nearing the brink.

Given these facts, Congress and the President must raise the debt ceiling – and they should do so as soon as possible. Yet they should also pursue a deficit reduction plan which would ideally replace the sequester, reform the tax code to make it simpler and raise more revenue, slow the growth of entitlement programs, and put the debt on a clear downward path relative to the economy. CRFB has described this strategy in more detail in our recent paper, What We Expect from the Upcoming Fiscal Discussions.

Although the need to raise the debt ceiling can serve as a useful moment for taking stock of our fiscal state, lawmakers should enact a comprehensive deficit reduction plan without jeopardizing the full faith and credit of the U.S. government.

Where can I learn more?

Appendix: Examples of How Debt Ceiling Has Been Used in the Past

The Gramm-Rudman-Hollings Act in 1985: The Gramm-Rudman-Hollings Act (GRH) in 1985 raised the debt limit by $175 billion and also set a target for a balanced budget target in Fiscal Year (FY) 1991, with across-the-board cuts in spending by sequestration designed as an enforcement mechanism. Although the deficit-reduction goals under GRH were not achieved, the experience gained under the act contributed to the development of more workable and effective procedures five years later.

Omnibus Budget Reconciliation Act of 1990: The Omnibus Budget Reconciliation Act (OBRA) of 1990 raised the debt limit by $915 billion, the largest increase up until that point, but also contained nearly $500 billion in debt reduction over the next five years and enforcement procedures in the Budget Enforcement Act (BEA), which helped lead to the budget surpluses in the late 1990s. The BEA created adjustable limits for separate categories of discretionary spending and the pay-as-you-go (PAYGO) procedure that required tax cuts or increases in mandatory spending to be offset. Congress approved six temporary increases in the debt limit while negotiations were ongoing and Congress was considering legislation implementing the budget agreement.

Omnibus Budget Reconciliation Act of 1993: The Omnibus Budget Reconciliation Act of 1993 raised the debt limit by $600 billion, an increase that lasted for about two and a half years. OBRA '93 was the second major deficit reduction package of the 1990s, also containing nearly $500 billion in deficit reduction over five years. The agreement extended the original spending caps from 1990 and raised taxes on high earners, among other reforms.

Balanced Budget Act of 1997: The Balanced Budget Act of 1997 included a $450 billion debt limit increase which, thanks to the surpluses of the late 1990s and early 2000s, enabled it to last until 2002. At the time, the legislation called for about $125 billion of net deficit reduction over five years and $425 billion over ten years. It did so mainly through reductions in health care spending via provider payment reductions and increased premiums. The Act also created a few new programs -- Medicare+Choice (later renamed Medicare Advantage or Medicare Part C) and the State Children’s Health Insurance Program (SCHIP).

Statutory PAYGO Act of 2010: The Statutory PAYGO Act of 2010 contained a debt limit increase of $1.9 trillion, the largest nominal increase ever enacted until that point in time. The legislation also reinstituted statutory PAYGO procedures that require tax cuts and mandatory spending increases to be fully offset (with some exemptions). Informally, the agreement to raise the debt ceiling also led to the creation of a National Commission on Fiscal Responsibility and Reform, to which President Obama later appointed Erskine Bowles and former Senator Al Simpson as co-chairs.

Budget Control Act of 2011: The Budget Control Act (BCA) gave the President the authority to increase the debt limit in tranches – subject to a Congressional motion of disapproval – by a total of $2.1 trillion. The BCA also contained $917 billion in deficit reduction over ten years, primarily through caps on discretionary spending. In addition, the bill established the Joint Committee on Deficit Reduction (“Super Committee”) to produce deficit-reduction legislation of at least $1.2 trillion in savings, with budget sequestration to begin in 2013 as the enticement for the Super Committee to succeed. The bill also required Congress to vote on a Balanced Budget Amendment, which it did not pass.

No Budget, No Pay Act of 2013: Lawmakers enacted the No Budget, No Pay Act in early February 2013, which temporarily suspended the debt ceiling through May 18th, 2013 and then set an automatic “catch up” on May 19th that allowed for a $300 billion increase in the debt ceiling. The agreement would have also withheld the pay of Members of Congress if no budget resolution was passed in each House (though there was no requirement that the resolutions being agreed to jointly, which is necessary to go forward with the budget process).

Q&A: Everything You Should Know About Government Shutdowns

It’s déjà vu all over again – Congress seems deadlocked in the face of several looming fiscal crises. The first obstacle is just around the corner: if lawmakers fail to pass legislation to fund federal programs before September 30, the government will shut down. Below, we offer a brief primer to describe what that would mean.

What is a government shutdown?

Many federal government agencies and programs rely on annual funding appropriations made by Congress. Since the government’s fiscal year starts on October 1, a government shutdown will occur if Congress has not passed appropriations bills for next fiscal year by September 30. In a “shutdown,” federal agencies must discontinue all non-essential discretionary functions until new funding legislation is passed and signed into law. Essential services continue to function, as do mandatory spending programs.

What services are affected in a shutdown and how?

Each federal agency develops its own shutdown plan, following guidance from previous cases and coordinated by the Office of Management and Budget (OMB). The plan identifies which government activities may not continue until appropriations are restored, requiring furloughs and the halting of many agency activities. However, “essential services” – mainly those related to public safety – continue to receive funding. In prior shutdowns, border protection, medical care of inpatients, air traffic control, law enforcement, and power grid maintenance have been among the services classified as essential, while legislative and judicial staff have also been largely protected. Mandatory spending on programs like Social Security, Medicare and Medicaid also continue.

Although a number of programs are exempt, the public is still likely to feel the impact of a shutdown in a number of ways. For example:

  • Social Security and Medicare: Checks are sent out, but new applicants likely will not have their applications processed until funding resumes. In 1996, over 10,000 Medicare applicants were turned away every day of shutdown.
  • Law Enforcement: Although public safety generally continues to be funded, some functions are delayed. In 1996, applications to the Bureau of Alcohol, Tobacco, and Firearms were not processed, bankruptcy cases were suspended, hiring of law enforcement officers was postponed, and delinquent child support cases were delayed.
  • National Parks: In 1995, the National Parks Service turned away 9 million visitors to more than 350 parks and dozens of national monuments.
  • Passport Processing: Passport processing employees will be sent home during the shutdown. In 1995, 200,000 U.S. applications for passports went unprocessed. More than 20,000 applications by foreigners for visas went unprocessed each day; airlines and the tourist industry lost millions.
  • Federal Housing Administration: In the event of a shutdown, the FHA, which guarantees many mortgages, would not be able to guarantee housing loans. In 2011, a senior administration official said that "would have significant impact on the housing market."

Is the government preparing for a shutdown?

On September 17, the Office of Management and Budget told federal departments and agencies to begin making plans for the government shutdown. In the memo, OMB Director Sylvia Burwell said that although there was enough time for Congress to prevent a shutdown, “prudent management requires that agencies be prepared for the possibility of a lapse.” Federal departments and agencies are now updating their contingency plans in case the government does shut down, including the determination of which functions will and will not operate, consistent with existing law and past legal opinions.

How would federal employees be affected?

If agency shutdown plans are similar to those in place in 2011, the last time there was a possibility of a shutdown, approximately 800,000 of 2.1 million federal employees would be furloughed. These employees would not be allowed to work, and would not receive paychecks. Although Congress has historically granted back pay, it is not guaranteed.

How and why do mandatory programs continue during a shutdown?

Whereas discretionary spending must be appropriated every year, mandatory spending is authorized either for multi-year periods or permanently. Thus mandatory spending generally continues during a shutdown. However, some services associated with mandatory programs may be diminished if there is a discretionary component. For instance, in the 1996 shutdowns, Social Security checks continued to go out, but staff who handled new enrollments and other services, such as changing addresses or handling requests for a new Social Security card, were initially furloughed – though this decision was ultimately reversed when they were deemed necessary to administer the mandatory program.

How many times has the government shutdown?

Since Congress introduced the modern budget process in 1976, there have been 17 “funding gaps,” where funds had not been appropriated for at least one day. However, before 1980 government did not shut down, but continued normal operations through six funding gaps. Between 1981 and 1994, all nine funding gaps occurred over a weekend, and government operations were only minimally affected. The only “true” shutdowns happened in the winter of 1995-1996, when President Bill Clinton and the Republican Congress were unable to agree on spending levels and shut down the government twice for a total of 26 days. 

Does a government shutdown save money?

While estimates vary widely, evidence suggests that shutdowns tend to cost, not save, money. For one, putting contingency plans in place has a real cost. In addition, a number of user fees and other charges are not collected during a shutdown. Contractors sometimes include premiums in their bids to account for uncertainty in being paid. And although many federal employees are forced to be idle during a shutdown, they have historically received back pay, negating much of the potential savings on that front. OMB official estimates of the 1996 government shutdown found that it cost the taxpayer $1.4 billion (over $2 billion in 2013 dollars), and some estimates have put an even greater price tag on a shutdown.

How can Congress avoid a shutdown?

There are essentially two ways to avoid a government shutdown – by passing appropriations or through a continuing resolution (see below question on “What is a Continuing Resolution”). Theoretically, the House and Senate Appropriations committees are supposed to consider 12 different appropriations bills, broken up by subject area, and based on funding levels allocated in a budget resolution. Often these bills are combined into a larger “omnibus” or “minibus” set of appropriations. And sometimes, when the House and Senate fail to agree to a concurrent budget resolution, the levels in these measures must be “deemed” by each house.

This year, a budget resolution has not been passed and neither chamber of Congress has had success getting appropriations bills passed by the full body, even as they have been moving through committees. The House Appropriations Committee has passed ten out of twelve bills, but only four – Defense, Military Construction-VA, Energy-Water, and Homeland Security – have made it through the full House. Meanwhile, the Senate Appropriations Committee has passed eleven bills (all but Interior-Environment), but the full Senate has not passed any of them.

What is a Continuing Resolution (CR)?

A continuing resolution temporarily funds the government in the absence of full appropriations bills, often by continuing funding levels from the prior year. Traditionally, CRs have been used to give lawmakers a short period of time to complete their work on remaining appropriations bills while keeping the government operating. CRs sometimes apply to only a few categories of spending, but can also be used to fund all discretionary functions.

CRs differ from normal appropriations bills in that they often “continue” the funding allocations from previous bills. Even when overall funding levels have differed, lawmakers have often simply scaled up all accounts by a percent change in spending rather than making individual decisions on spending accounts. However, CRs often do include certain “anomalies” where select accounts are increased or decreased or “policy riders,” specifying certain statements of policy.

How often does Congress pass CRs?

Congress frequently passes CRs during periods of political turmoil, and occasionally, many CRs are necessary to fund the government for an entire fiscal year. They have also sometimes been relied on during Presidential transition years. In FY 2001, for instance, a series of intense congressional negotiations leading up to the 2000 elections led to a series of ten one-day CRs. In total, Congress funded the first three months of that fiscal year with 21 continuing resolutions. Not surprisingly, they have been quite prevalent in the past few years, being used to fund the government entirely in FY 2011, when 8 CRs were passed, and FY 2013, when 2 CRs were passed. The most recent year when a full-year appropriations bill passed and no CRs were necessary was 1997.

What are the disadvantages of using CRs?

Continuing Resolutions have several negative implications on the budget’s overall efficiency. CRs usually continue funding at the past year’s level without any regard for changing policy needs or the value of each program within an agency. Using a continuing resolution wastes hundreds of hours of careful consideration and program evaluation incorporated into each agency’s budget submission. For instance, the President’s Budget annually proposes a list of eliminations and reductions of programs which are duplicative or ineffective. A continuing resolution will continue to fund these unwanted programs. Finally, the use of continuing resolutions disrupts activities within agencies, makes it difficult to plan future projects, and costs staff time to revise work plans every time the budget changes

What would the recently passed House CR do?

The House passed a CR on September 20, which would avert a government shutdown and appropriate funds through December 15. The House CR sets appropriations at an annual level of $986 billion, approximately equal to last year’s post-sequester level with minor adjustments. This level is $19 billion dollars higher than allowed under the sequester—with all of the additional funding going to the defense department. In other words, if this CR became law and were extended into next year, a $19 billion across-the-board defense cut would be implemented in mid-January.

Importantly, the House CR, in addition to setting spending levels, includes language to “defund Obamacare,” preventing any discretionary funding from being used to implement the Affordable Care Act. However, many of the law’s functions are funded with mandatory funds and would continue.

What is the Senate’s plan to avoid a shutdown?

The Senate-passed budget resolution would reverse the discretionary reductions called for under sequestration and fund government at $1,058 billion, compared to $988 billion last year.

Given the temporary nature of a CR, however, Senate Majority Leader Harry Reid has said the Senate will consider the House-passed CR, though it will strip out the language relating to the Affordable Care Act. The Senate would have to make it over several procedural hurdles to pass such a bill, and then the House would have to pass that piece of legislation.

How does a shutdown differ from “sequestration”?

A government shutdown closes down non-essential government operations due to lack of funding, whereas sequestration keeps agencies open, but automatically reduces funding levels to enforce budgetary targets. The first example of sequestration was included in the Gramm–Rudman–Hollings Balanced Budget and Emergency Deficit Control Act of 1985. The current version of sequestration is a product of the Budget Control Act (BCA) that resolved the 2011 debt ceiling negotiations. The BCA called on a Joint Select Committee on Deficit Reduction (the “Super Committee”) to identify at least $1.5 trillion in deficit reduction over ten years, and set in motion a “sequestration” if it did not identify at least $1.2 trillion. After a two-month delay, this sequestration went into effect on March 1, cutting discretionary programs and certain non-exempt mandatory programs across-the-board. Under sequestration, government remains “open,” but must operate at lower funding levels.

How does a shutdown differ from a default?

In a shutdown, government temporarily stops paying employees and contractors who perform government services, whereas the list of parties not paid in a default is much broader. In a default, the government exceeds the statutory debt limit and is unable to pay its creditors (or other obligations). Without enough money to pay its bills, any of its payments are at risk—including all government spending, mandatory payments, interest on our debts, and payments to U.S. bondholders. Whereas a government shutdown would be disruptive, a government default could be disastrous.

For more information, see the following:

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