Highlights from the Proposed Debt Ceiling Legislation

For months, the Department of Treasury has been warning that the U.S. government could default on its obligations should the debt ceiling fail to be suspended or raised. Accordingly, the Fiscal Responsibility Act of 2023 (H.R. 3746) suspends the debt limit, restricts federal spending with statutory caps, withdraws unobligated funds from pandemic-related legislation, and amends requirements under certain federal assistance programs. Over the weekend, the measure gained support from the White House and passed the House of Representatives Rules Committee on Tuesday. The House is expected to vote on the bill on Wednesday, with predictions of a Senate passage as well.

In summary, the legislation suspends the U.S. debt limit through January 1, 2025, sets new budget caps and rescinds some unspent COVID funding. Budgetary caps on base discretionary funding for FY 2024 would total $1.59T, including $886B for defense and $704M for nondefense spending. Caps in FY 2025 would total $1.60T, equating to $895B for defense and $711B for nondefense. Emergency funding, overseas contingency operations, and other certain funding are excluded from the caps, bringing Congressional Budget Office (CBO) projections for total discretionary funding to $1.79T in FY 2024 and $1.81T in FY 2025. Below are the discretionary caps estimated by the CBO through FY 2029 (although the White House characterizes FY 2026-2029 caps as “unenforceable”):

Source: H.R. 3746

The legislation also averts a shutdown in the next two years and incentivizes Congress to pass appropriations by proposing a continuing resolution with 1% cuts in discretionary spending for defense and nondefense agencies if funding fails to pass by January 1, 2024, and January 1, 2025.

Additional provisions from the bill to curb federal spending and bolster funding for hot-button topics include:  

• Rescinds certain IRS funds for enforcement and related activities totaling $1.4B under the Inflation Reduction Act of 2022.
• Rescinds unobligated COVID-related funds, primarily in budget accounts supporting HHS, HUD, Justice (JIST), SBA, DOT, GSA, DHS (CISA), and State. Exact figures for rescinded funds were not provided. Unobligated funds will be withdrawn from the following laws:   
  • Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020
  • Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020
  • Families First Coronavirus Response Act, 2020
  • Paycheck Protection Program and Health Care Enhancement Act, 2020
  • Consolidated Appropriations Act, 2021
  • American Rescue Plan Act of 2021
• Appropriates $45B to the Cost of War Toxic Exposure Fund to bolster delivery of veteran’s health care related to exposure to environmental hazards.
• Appropriates $22B to Commerce’s Nonrecurring Expenses Fund for modernization of information and business technology systems and improved infrastructure activities in FY 2024 and 2025.
• Terminates current suspensions of the federal student loan payment program 60 days after June 30, 2023.
• Amends provisions of the National Environmental Policy Act to expedite permitting of certain proposed energy-related projects.
• Amends work requirements under the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF)
• Requires the Executive Branch to follow pay-as-you-go procedures before finalizing administrative actions.

CBO Savings Estimations

Should H.R. 3746 be enacted, the Congressional Budget Office (CBO) estimates that budget deficits would be reduced by $1.5T over the 2023 to 2033 period. Moreover, mandatory spending would decrease by $10B (net) and revenues would decrease by $2B (net) over the 2023-2033 period. Overall interest on public debt would decrease by $188B.

The CBO estimates that the recission of unobligated funds would reduce $27B in budget authority, with many of the reductions stemming from the Public Health and Social Service Emergency Funds and certain infrastructure and disaster relief programs.

Overall, the legislation is a double-edged sword, with one side sharper than the other. It eliminates some funding and caps budget growth, but it also adds more certainty around budget appropriations and a surprisingly healthy boost for Commerce. Capping budget growth harkens back to the Budget Control Act and sequestration, a time contractors would like to forget.