Policy Paper

Appropriations 101

Note: We have updated this paper, please see our Updated Appropriations 101.

What are appropriations?

Appropriations are annual decisions made by Congress about how the federal government spends some of its money. In general, the appropriations process addresses the discretionary portion of the budget – spending ranging from national defense to food safety to education to federal employee salaries, but excludes mandatory spending, such as Medicare and Social Security, which is spent automatically according to formulas.

How does Congress determine the total level of appropriations?

Under current law, after the President submits the Administration’s budget proposal to Congress, the House and Senate Budget Committees are each directed to report a budget resolution, which if passed by their respective houses, would then be reconciled in a budget conference (see Q&A: Everything You Need to Know About a Budget Conference). The resulting budget resolution, which is a concurrent resolution and therefore not signed by the President, includes what is known as a 302(a) allocation that sets a total amount of money for the Appropriations Committees to spend.

If a concurrent budget resolution does not pass both chambers, each house then may adopt legislation “deeming” 302(a) allocations – a practice which has become increasingly common in recent years. For example, the recent Bipartisan Budget Act directed the Budget Committee Chairs in the House and Senate to set the 302(a) limit for FY2015 at $1.014 trillion.

In addition, discretionary spending is currently subject to statutory spending caps.  The Budget Control Act of 2011 set discretionary caps through 2021, which were modified for 2013, 2014, and 2015 by the American Taxpayer Relief Act of 2012 and Bipartisan Budget Act of 2013. Beyond 2015, the statutory caps set by the Budget Control Act are reduced by about $90 billion annually through an enforcement mechanism known as “sequestration” (see Understanding the Sequester) implemented after the failure of the Joint Select Committee on Deficit Reduction to produce legislation to reduce the debt.

How does Congress allocate appropriations?

Once they receive 302(a) allocations, the House and Senate Appropriations Committees set 302(b) allocations to divide total appropriations among 12 subcommittees, each dealing with a different part of the budget. Those subcommittees must then decide how to distribute funds within their 302(b) allocations. These 302(b) allocations are voted on by the respective Appropriations Committees but are not subject to review or vote by the full House or Senate. The table below lists the FY2014 regular (non-war, non-disaster) appropriations, along with the President’s budget request for FY2015 and House FY2015 302(b) allocations for each of the subcommittees.

Each subcommittee must propose a bill that ultimately must pass both chambers of Congress and be signed by the President to take effect. Although the budget process calls for 12 individual bills, many of them are often combined into what is known as an omnibus appropriations bill and sometimes a few are combined into what has been termed a minibus appropriations bill.

How are appropriations levels enforced?

If any appropriations bill or amendment in either house exceeds the 302(b) allocation for that bill, causes total spending to exceed the 302(a) allocation, or causes total spending to exceed statutory spending caps, then any Member of Congress can raise a budget “point of order” against consideration of the bill. The point of order can be waived by a simple majority in the House as part of the rule for floor consideration of the bill and overridden by a 60-vote majority in the Senate. If, despite these points of order, Congress enacts legislation increasing spending beyond the defense or non-defense caps, then the President must issue a sequestration order to reduce discretionary spending across-the-board in the category in which the caps were exceeded, effective 15 days after Congress adjourns for the year. Importantly, certain types of discretionary spending – including for overseas contingency operations and for designated emergencies – do not count against the statutory caps.

What happens if funds are needed outside of the appropriations process?

Congress can pass a supplemental appropriations bill in situations that require additional funding immediately, rather than waiting until the following year’s appropriations process. Supplementals are often used for emergencies such as natural disasters or military actions. Occasionally, Congress has used supplemental appropriations to stimulate the economy or to provide more money for routine government functions after determining that the amount originally appropriated was insufficient. Supplemental appropriations bills are subject to the same internal and statutory spending limits as regular appropriations. They require the same offsets to ensure they do not exceed spending limits, unless designated as emergency spending.

What role does the President play in the appropriations process?

Although the President has no power to set appropriations, he influences both the size and composition of appropriations by sending requests to Congress. Specifically, each year the President’s Office of Management and Budget (OMB) submits a detailed budget proposal to Congress based on requests from agencies. The appendix to the President’s budget submission contains much of the technical information and legislative language used by the Appropriations Committees. In addition, the President must sign or veto each of the 12 appropriations bills, giving him additional influence over what the bills look like.

What is the timeline for appropriations?

The 1974 Budget Act calls for the President to submit his budget request by the first Monday in February and for Congress to agree to a concurrent budget resolution by April 15th.  The House may begin consideration of appropriations bills on May 15th even if a budget resolution has not been adopted, and is supposed to complete action on appropriations bills by June 30th. However, none of these deadlines are enforceable and they are regularly missed. The practical deadline for passage of appropriations is October 1st, when the next fiscal year begins and the previous appropriation bills expire. For a full timeline of the budget process click here.

What happens if appropriations bills do not pass by October 1?

If the appropriations bills are not enacted before the fiscal year begins on October 1st, federal funding will lapse, resulting in a government shutdown. To avoid a shutdown, Congress will often pass a continuing resolution, which allows for continued funding, providing additional time for completion of the appropriations process. If Congress has passed some, but not all, of the 12 appropriations bills, a partial government shutdown can occur.

What is a continuing resolution?

A continuing resolution, often referred to as a CR, is a temporary bill that continues funding for all programs based on a fixed formula, usually prior year funding levels. Congress can pass a CR for all or just some of the appropriations bills. CRs can increase or decrease funding and can include “anomalies,” which adjust spending in certain accounts to avoid technical or administrative problems caused by continuing funding at current levels, or for other reasons.

What happens during a government shutdown?

A shutdown represents a lapse in available funding, and during a shutdown the government stops most non-essential activities related to the discretionary budget. To learn more see Q&A: Everything You Should Know About Government Shutdowns.

Do agencies have any discretion in how they use funds from appropriators?

Executive branch agencies must spend funds provided by Congress in the manner directed by Congress in the text of the appropriations bills. Appropriations bills often contain accompanying report language with additional directions, which are not legally binding but are generally followed by agencies. Congress often provides broad authority, which gives agencies more control in allocating spending.  However, in some instances, Congress will provide for very narrow authority or can use funding limitation clauses to tell agencies what they cannot spend the money on. Agencies have some authority to reprogram funds between accounts after notifying (and in some cases getting approval from) the Appropriations Committees.

What is the difference between appropriations and authorizations?

Authorization bills create, extend, or make changes to the law and specific programs and specify the amount of money that appropriators may “spend” on a specific program, in other cases leaving the amount open ended. Appropriations bills then provide the discretionary funding available to agencies and programs that have already been authorized. For example, an authorization measure may create a food inspection program and set a funding limit for the next five years. However, that program is not funded by Congress until an appropriations measure is signed into law. The authorization bill designs the rules and sets out the details for the program, while the appropriations bill provides the actual resources to execute the program. In the case of mandatory spending, an authorization bill both authorizes and appropriates the funding for a specific program, without requiring a subsequent appropriations law.

Where are the House and Senate in the current appropriations process?

Both the Senate and House have deemed their 302(a) allocations at $1.014 trillion for regular appropriations pursuant to the Bipartisan Budget Act of 2013. Currently, both chambers are working on writing and passing individual appropriations bills. To follow the progress of individual appropriations bills throughout the process, see our Appropriations Watch: FY2015.

Report: Analysis of the Tax Reform Act of 2014

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More resources and blog posts about the Tax Reform Act of 2014 are available on our tax reform resource page.

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

Attention is turning towards raising the federal debt ceiling, which will be reinstated after February 7th. At that point, the limit will be about $17.3 trillion, according to estimates from the Bipartisan Policy Center. At that time, the Treasury Department would have to begin use of a limited amount of accounting tools at their disposal, called extraordinary measures, to avoid defaulting on their obligations. However, even with such measures, the Treasury Department estimates that they will only be able to continue paying the nation’s bills until late February, by which point the debt ceiling would need to be raised. 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, like the Social Security and Medicare 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 trust fund surpluses, which are invested in Treasury bills.

The agreement that ended the government shutdown in October 2013 also suspended the debt limit through February 7th. After that, the statutory debt limit will be reinstated at the amount necessary to encompass all federal borrowing to that date – around $17.3 trillion, according to the Bipartisan Policy Center.  That amount will be composed of roughly $12.3 trillion in debt held by the public and $5 trillion in debt held by government accounts. Most economists, however, feel debt held by public is the more relevant measure of the economic impact of government debt.

When was the debt ceiling established?

The first iteration of the debt ceiling was established in 1917 and set at $11.5 billion under the Second Liberty Bond Act. Prior to this, Congress was required to approve each issuance of debt separately. The ceiling was enacted to simplify the process and enhance borrowing flexibility. In 1939, Congress created the first aggregate limit covering nearly all government debt and set it at $45 billion, about 10 percent above the total debt at that time.

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 again doubled to 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 by an additional $1.2 trillion to $16.394 trillion. In February of 2013, lawmakers temporarily suspended the debt ceiling through May, resulting in a de facto increase of about $305 billion and bringing the debt ceiling to its current level of $16.699 trillion. In October, lawmakers again suspended the debt ceiling until February 7, 2014, which will result in a de facto increase around $600 billion and bring the current debt limit up to $17.3 trillion.

Fig. 1: Statutory Debt Limit and Federal Debt Subject to Limit


Sources: Office of Management and Budget

Why is Congress debating this now?

The president signed the Default Prevention Act of 2013 into law on October 17, 2013, which temporarily suspended the statutory debt limit through February 7, 2014. At that point, the debt ceiling will automatically be raised to roughly $17.3 trillion to cover new borrowing since suspension. If the debt limit is not raised further to cover additional borrowing after February 7th, the Treasury will have to employ “extraordinary measures” to avoid breaching the debt ceiling (see more about this below). According to Treasury Secretary Jack Lew, all borrowing authority, including the amount freed up through extraordinary measures, will be exhausted by late February, at which time they would have to rely only on remaining cash on hand and incoming receipts to pay obligations, and a formal debt limit increase or suspension would soon be necessary to avoid default. The Bipartisan Policy Center independently estimates that extraordinary measures and cash on hand will run out between February 28th and March 25th. After this “X Date”, the U.S. could only pay obligations with incoming receipts, forcing the Treasury to delay and/or miss many payments since the federal government currently runs substantial deficits in February and March.

Can hitting 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 accounts (and replace them later plus interest), halt contributions to certain government pension funds, or borrow from money set aside to manage exchange rate fluctuations. 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 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 hit?

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.

Traditionally, February is the month with the highest deficit-spending in the year, because the Internal Revenue Service (IRS) sends out many tax refund checks. If this February follows a similar pattern as last year, more than half of the government’s obligations would have to go unpaid once the government is forced to rely on incoming receipts alone to pay bills. If an impasse continued into March, roughly 25 percent of that month’s bills would go unpaid. In addition to failing to meet its regular obligations, the government could also potentially default on interest payments on the debt.

A default, or even the perceived threat of a default, could have serious negative economic implications. An actual default would roil global financial markets and create chaos, 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 perfectly safe investment. Even the threat of default can raise borrowing costs: 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 cost the federal budget $1.3 billion that year and an estimated $19 billion over a decade, according to extrapolations from the Bipartisan Policy Center.  An actual default would have a far greater and longer-lasting effect on interest rates than the potential default during the 2011 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 holdings 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 the bills, any of its payments are at risk, including all government spending, mandatory payments, interest on our debt, and payments to U.S. bondholders. Whereas a government shutdown would be disruptive, a government default could be disastrous. 

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, and in other instances, Congress has tacked on debt ceiling increases to deficit-reduction efforts.

Notably, in nearly 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.

What should policymakers do?

Failing to raise the debt ceiling would be disastrous. It would result in severe 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 cost burden on future generations. But political advantage 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 risks, Congress and the President must raise the debt ceiling – and they should do so as soon as possible. Yet they should also continue to work toward putting our debt on a sustainable long-term path. Specifically, policymakers should observe strict adherence to pay-as-you-go rules, reform the tax code to encourage growth and raise more revenue, and slow the growth of entitlement programs so they are affordable for future generations.

Although the need to raise the debt ceiling can serve as a useful moment for taking stock of our fiscal state, lawmakers must not jeopardize 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 to have a balanced budget by 1991, with across-the-board cuts in spending by sequestration designed as an enforcement mechanism. Although the deficit-reduction goals under GRH were not fully 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 deficit reduction over the next five years and created 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, was enough to cover debt 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 an 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 of 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).

Default Prevention Act of 2013: The Default Prevention Act of 2013 ended a 16-day partial shutdown of the federal government by funding the government through January 15, 2014 and suspending the debt ceiling until February 7, 2014. This agreement set up a bicameral budget conference to reconcile budgets for Fiscal Year 2014, and provided for an automatic “catch up” on February 7th. On that date, the debt ceiling would be reinstated at the current level of borrowing, resulting in a de facto increase of about $600 billion and bringing the debt ceiling to $17.3 trillion.

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).

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