Washington's budget stalemate deepens

The threat of a government shutdown — and its ensuing headaches for cities, states and bondholders — rose Monday as conservative House members warned they would oppose any short-term spending measure that does not meet their terms.

The demands from the House Freedom Caucus include keeping spending levels flat to fiscal 2022, boosting border spending and ending "woke" military policies and the "weaponization" of the Department of Justice and FBI. The mandates have next to no chance of passing the Democrat-controlled Senate.

Congress returns to Washington in mid-September with only a handful of legislative days before discretionary government funding ends on Sept. 30. Neither chamber has made substantial progress on passing the 12 appropriation bills needed for the fiscal 2024 budget, so a short-term continuing resolution is the most likely outcome.

Bloomberg

House Speaker Kevin McCarthy said in mid-August that a continuing resolution would likely be necessary in September to avoid a shutdown, but the Freedom Caucus demands jeopardize the option. Before the August recess, the House only passed one funding bill, with a narrow margin that signaled trouble.

If Congress fails to pass any spending measures, it would mean the fourth government shutdown since 2013.

A government shutdown interrupts the flow of federal funds to cities, states and local entities like transit agencies, potentially forcing them to dip into their own cash reserves and eroding credit quality. A shutdown may delay infrastructure projects and disrupt federal research funds and financial aid to colleges and universities. It may also halt monthly subsidy payments on direct-pay tools like Build America Bonds.

Prior shutdowns have occurred if the parties disagree on the level or distribution of spending or spending in a particular area, all of which are present this year, noted Goldman Sachs analysts in an Aug. 20 note that said a shutdown "looks more likely than not" later this year "in light of the thin House majority and disagreement on spending levels."

Congress has not completed the 12 appropriations bills by Sept. 30 since 1997. There have been 47 continuing resolutions between fiscal years 2010 through November 2022, according to the Government Accountability Office. On three occasions, in 2014, 2018 and 2019, no continuing resolution was approved, resulting in a government shutdown.

Meanwhile, in the Senate, Sen. James Lankford, R-Okla., introduced bipartisan legislation called the Prevent Government Shutdowns Act of 2023 that would implement 14-day rolling continuing resolutions and would prohibit lawmakers from leaving Washington – or taking up any other measures on the floor – until a funding bill is passed.

"Forcing Congress to stay in D.C. until the budget work is done is the most effective way to get Congress to actually get the government funded on time," Lankford said in a statement. "This is a commonsense non-partisan solution to put the pressure on lawmakers instead of hurting federal families and services during a shutdown."