U.S. Government Shutdown Avoided Amidst Prolonged Budget Battle

By Shaun McDougall, Military Markets Analyst, Forecast International.

U.S. Capitol Source: Forecast International
U.S. Capitol
Source: Forecast International

U.S. lawmakers have avoided a government shutdown with the passage of a continuing resolution that funds the government at FY15 levels through December 11. The 2016 fiscal year began on October 1; however, lawmakers have not finalized the Pentagon’s FY16 spending bill. The Senate passed the continuing resolution on September 30 by a vote of 78 to 20, and the House passed the measure by a vote of 227 to 151. President Obama signed the legislation into law later that night.

The clock is now ticking for lawmakers to work out an FY16 spending bill, which is easier said than done. House and Senate appropriations markups passed earlier this year recommend funneling billions of dollars of Pentagon spending into an Overseas Contingency Operations account in order to bypass mandatory base budget spending limits put in place by the Budget Control Act. Democrats have threatened to block such legislation unless domestic programs receive similar relief from the budget caps. The White House and Pentagon also oppose the idea of shifting funding to the OCO account, as such a move fails to provide the Department of Defense with long-term budget stability.

When Congress was in this situation two years ago, lawmakers reached an agreement that raised budget caps for FY14 and FY15. A similar short-term agreement is one possible outcome this time around. If lawmakers are unable to reach an agreement on how to handle the spending caps, however, then Congress may be forced to fall back on a continuing resolution that locks spending at FY15 levels for the entire year. The Pentagon would lose about $35 billion under this scenario.

Lawmakers also released a conference defense authorization bill at the end of September, but the White House has said Obama would veto the legislation if it passes Congress because it contains the OCO funding loophole as well. Defense Secretary Ashton Carter supports a veto of the legislation.

For now, the Pentagon must work within the confines of the continuing resolution, which has become standard practice for the first quarter in recent years. By locking spending at FY15 levels, the Pentagon must seek approval to adjust program funding through reprogramming requests, and wade through a complicated waiver agreement process to launch new programs.

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