The NCSL Blog

29

By Erlinda Doherty

After protracted negotiations between House leaders and the administration which began this spring, the House mustered enough votes to pass legislation that would raise spending caps for two years, suspend the debt ceiling, and ultimately pave the way for progress on the fiscal year 2020 appropriations process. 

House Republican Leader Kevin McCarthy, D-Calif., speaks to reporters at his weekly news conference at the Capitol, July 25, 2019.The Senate is expected to consider the House-passed Bipartisan Budget Act of 2019 (HR 3877) the first week of August and begin taking up its own appropriations bills shortly after Labor Day in the hopes of avoiding another government shutdown.  

Why is a caps deal necessary?

In order to avoid automatic agency-wide reductions mandated by the 2011 Budget Control Act (BCA), Congress must agree to increase spending levels above what the law dictates. 

Originally sought to reduce the deficit by $2.1 trillion over 10 years, the BCA’s backup mechanism for deficit reduction—called sequestration—imposes these reductions mainly in discretionary spending accounts. Congress quickly considered these restrictions too draconian after the first automatic sequestration was implemented in fiscal year 2013, and has enacted two-year caps deals ever since to allow some semblance of the annual appropriations process to proceed.

With the most recent bipartisan cap agreement expiring at the end of this fiscal year, appropriators again confronted a fiscal cliff. The sequester-reduced caps would have required a defense spending reduction of $71 billion and a non-defense spending reduction of $54 billion. And while President Donald Trump’s budget proposed to leave the caps in place, his proposal increased defense spending in the uncapped Overseas Contingency Operations account. It was a budget strategy decried by leaders in both parties and provided additional motivation for negotiations to increase spending caps.   

If enacted, this agreement represents the fourth time Congress has rolled back BCA-mandated sequester cuts. It would also be the last time such a measure is required, as the BCA is set to expire in fiscal year 2021. HR 3877 would increase total defense discretionary spending from the current spending level of $716 billion to $738 billion in fiscal year 2020 and $740.5 billion in fiscal year 2021. Non-defense spending would increase from $605 billion during fiscal year 2019 to $632 billion and $634 billion in fiscal years 2020 and 2021 respectively.   

Why is the debt ceiling linked to this agreement?

Congress has typically included a suspension of the statutory debt limit with cap agreements to allow for the government to borrow necessary funds to finance government operations. In the original BCA negotiations, Republicans allowed for a $2.1 trillion increase in the debt limit in return for the $2.1 trillion in deficit reduction. 

The Department of Treasury is currently utilizing “extraordinary measures” to remain under the statutory debt limit (currently set at $22 trillion) since its reinstatement in March 2019. Secretary Steven Mnuchin reported those measures could be exhausted before September 2019, sparking additional urgency to link and pass a deal before the government could run out of cash. If enacted, HR 3877 would suspend the limit on public debt through July 31, 2021, and then reestablish the limit to match the increase in federal borrowing that occurred during the suspension period. 

And, finally, what are CHIMPS?

Changes in mandatory programs or “CHIMPS” are provisions in appropriations bills that limit or reduce mandatory spending to offset an increase in discretionary spending. Currently, appropriators are allowed to use CHIMPS even if the limitation on mandatory spending doesn’t produce any actual savings. 

The scoring as an offset has the net effect of allowing additional discretionary spending to be exempt from an appropriations bill’s caps. The use of CHIMPS dramatically increased after the passage of the BCA as a way for appropriators to fund programs that would otherwise have been drastically reduced.  Viewed as a budget tool by some appropriators and a gimmick by others, HR 3877 imposes a Senate limit on CHIMPS of $15 billion for both fiscal yeas 2020 and 2021, down from the current $17 billion.

Stayed tuned for more federal budget action in the coming weeks. 

Erlinda Doherty is director of NCSL's Budgets and Revenue Committee.

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This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.