Congress Is Playing a Dangerous Game of…

Kick the can

Late last evening, the House and Senate approved and sent to the President legislation ending the government shut-down that has been in effect since October 1st.  The President signed the law late last night.

The legislation extends the current Fiscal Year 2013 spending levels through January 15, 2014.  In addition, the legislation extends the authority of the federal government to borrow money sufficient to cover expenses in excess of revenue through February 7, 2014.  The legislation also grants the Treasury Department additional “special” authority that could delay the need to raise the Debt Ceiling until approximately mid-March.

Because this is only a temporary extension of the spending authority, Congress and the President must again resolve their differences with regard to discretionary spending between now and mid-January. Discretionary spending is a spending category through which the government can spend through an appropriations bill. This spending is optional as part of fiscal policy, in contrast to entitlement programs for which funding is mandatory.  If Congress and the President fail to reach an agreement on appropriations before mid-January, we could be looking at another government shutdown and or additional sequestration in early 2014.

There are two other aspects of this “resolution” that cannot be overlooked:  Sequestration and Budget Negotiations.

Break Away from the Static

Sequester
Under the Sequester process authorized by the Budget Control Act of 2011, a total cap on spending was set for Fiscal Years 2013 and 2014 of approximately $986 billion and $967 billion respectively.  Because the legislation signed last night effectively extends the Fiscal Year 2013 spending levels, the government is spending at a rate consistent with total spending of $986 billion and will, if it were to continue through the 2014 Fiscal Year, exceed the $967 billion mandated by the Budget Control Act (BCA).

By law, if federal discretionary spending approved by Congress exceeds the $967 billion cap, across the board cuts in discretionary spending sufficient to lower total spending to the authorized level must commence.  This means that prior to January 15th, Congress and the President will have to agree on new spending levels consistent with the $967 billion cap OR there will have to be a sequestration of approximately $20 billion.  The sequestration amount in 2013 was approximately $85 billion.

Budget Negotiations 
As part of the agreement to end the budget/spending stalemate, the House and Senate agreed to convene a formal budget Conference with an expectation that the Conference will yield recommendations by Mid-December. A similar process last year resulted in a stalemate and sequestration was implemented.  The hope is that the Conferees will come up with bi-partisan recommendations for changing or modifying the existing sequestration process mandated by the BCA.  However, there is no requirement that the Conferees reach an agreement nor is there any consequence, other than maintenance of current sequester law, for failure to reach an agreement.

Many insiders feel that the Conferees may agree to change the discretionary caps in a way that would not result in a higher deficit.  In other words, the Conferees could restore some of the mandatory cuts in discretionary spending that is off-set with additional cuts in Medicare and/or Medicaid or through higher taxes.  Accordingly, these budget negotiations create vulnerability for health care providers who could see additional cuts in Medicare spending.

Conclusion
After shutting down the federal government in an attempt to defund or delay Obamacare, the Republicans ultimately did not win any substantial changes to the health care reform law as part of the agreement to reopen the government and raise the debt ceiling. However, this is only a temporary resolution of the budget problems and the proverbial “can has just been kicked down the road – AGAIN!”

ADVOCATE will continue to provide information on this topic and others as they arise.

Best regards,
Kirk Reinitz, CPA
President/CEO