US Congress agrees debt deal, freezing agency spend but reducing shutdown threat

By on 06/06/2023 | Updated on 06/06/2023
President Joe Biden sits behind his desk at the Oval Office at the White House.
Official White House Photo by Adam Schultz

President Joe Biden has signed into law the lifting of the USA’s borrowing limit, just days before the government was due to default on its debt, which could have had catastrophic economic consequences.

The deal reached by Congress prior to formal sign-off by the president, means spending at most agencies will be frozen next fiscal year – which in the federal government runs from October 2023 to September 2024 – but removes the risk of delays to feds’ paychecks.

The 2023 Fiscal Responsibility Act passed the Senate – which is only narrowly controlled by the Democrats – by a vote of 63-36 last Thursday, a day after it was approved by a clear margin in the Republican-led House of Representatives. It needed 60 votes in the 100-seat Senate to pass.

“Passing this budget agreement was critical. The stakes could not have been higher,” Biden said during a speech from the Oval Office. He hailed colleagues for working across the political divide and compromising to solve national problems.

Read more: ‘Focus on the customer is the rallying point’: US federal CIO Clare Martorana on how to drive transformation in government

The deal came after weeks of tense negotiations between the White House and Republicans. Senate Republicans had agreed to consider 11 amendments to the bill, all of which were rejected. If even one of the amendments has passed, the whole bill would have had to be sent back to the House, leaving little time to ensure final passage of the measure before the 5 June deadline to avoid the first default in US history.

Biden said defaulting on its debt would have thrown the country into recession, resulted in the loss of eight million jobs and “decimated” retirement accounts. The nation’s credit rating would have been “destroyed” and its international standing as a “trusted and reliable financial partner” would have been “shattered”, he said. Such an outcome would have sent ripples around the world, affecting prices and mortgage rates in other countries.

“America can breathe a sigh of relief,” Senate majority leader Chuck Schumer said.

The bipartisan bill suspends the debt ceiling – the spending limit set by Congress that determines how much money the government can borrow – until 1 January 2025, after the next presidential election.  

Discretionary agency spending to remain flat

In last November’s midterm elections, the Republican party secured a majority in the House. It has focused on limiting government spending, and claimed it would only consider spending bills for fiscal 2024 that would cut domestic agency funding across the board by more than 20%.

However, the budget agreement avoids such drastic cuts, which the Biden administration had warned would force agencies to furlough employees. The deal means discretionary spending at non-defence agencies will remain flat in fiscal 2024. Funding previously allocated to the defence department and Veterans Affairs will not change.

The bill caps both defence and non-defence spending at 1% growth for fiscal 2025.

Read more: US revitalises federal employee support programmes to boost wellness and productivity

To avoid deeper cuts, the government will take back not-yet-spent funding allocated for COVID recovery and US$20bn of the US$80bn provided to the Internal Revenue Service (IRS) as part of the Inflation Reduction Act.  

According to Government Executive, White House officials said the provision does not “fundamentally change” IRS’ short and medium-term plans – which involve hiring 30,000 employees to improve enforcement and customer service – but that the agency could require additional cash in years to come.

Avoiding shutdown

The deal seeks to limit the threat of a shutdown for the next two years. In the US, a shutdown occurs when Congress fails to agree funding legislation to finance the government for its next fiscal year or to a temporary funding measure.

The last US government shutdown ran for nearly a month between December 2018 and January 2019. According to a government survey, during that time nearly half of federal employees said either that there had been delays to their pay or that their work had been undermined. One in 10 said the shutdown had prompted them to look for another job.

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Current funding is set to expire on 30 September, meaning a shutdown could still occur in the autumn. But if by 1 January 2024, Congress has not passed all 12 annual appropriations bills, a resolution would kick in that cuts discretionary spending for all agencies by 1% until such bills are passed. The same provision would apply to 2025.

The 2023 Fiscal Responsibility Act also includes a requirement for the Biden administration to offset the cost of the regulatory rules it implements, and reforms the National Environmental Policy Act in order to hasten the federal permitting process for energy projects.

Read more: Democrats propose 8.7% pay hike for US feds

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About Mia Hunt

Mia is a journalist and editor with a background in covering commercial property, having been market reports and supplements editor at trade title Property Week and deputy editor of Shopping Centre magazine, now known as Retail Destination. She has also undertaken freelance work for several publications including the preview magazine of international trade show, MAPIC, and TES Global (formerly the Times Educational Supplement) and has produced a white paper on energy efficiency in business for E.ON. Between 2014 and 2016, she was a member of the Revo Customer Experience Committee and an ACE Awards judge. Mia graduated from Kingston University with a first-class degree in journalism and was part of the team that produced The River newspaper, which won Publication of the Year at the Guardian Student Media Awards in 2010.

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