As Congress looks to avert a shutdown, sequester cuts and furloughs loom

Lawmakers left Washington for the year without any breakthrough on full-year appropriations for fiscal 2024, leaving open the threat of a shutdown this month and the possibility of drastic cuts in the spring. 

Congress has until Jan. 19 to keep the first handful of agencies funded under the two-tiered stopgap measure it approved in November, and until Feb. 2 to approve spending for the rest. Appropriators have yet to agree on top-line funding levels for the defense and non-defense sides of the budget, preventing them from writing the bills to set line-by-line spending for every federal program.

Lawmakers had hoped to clear the decks so negotiators could focus only on federal funding upon their return to the Capitol in January, but instead punted on several issues—most notably President Biden’s supplemental funding request for foreign aid that is expected to be paired with immigration reform and border spending—that will compete for their attention. 

Once they turn to funding bills, pressure will be even higher than usual to come up with a long-term solution. House Speaker Mike Johnson, R-La., has repeatedly said he will not pass any additional short-term continuing resolutions this year. Due to a new twist on budget law in fiscal 2024, settling for a full-year CR would have devastating impacts for agencies and their employees. 

Across-the-board cuts?

Under a provision of the debt ceiling law President Biden negotiated with House Republicans last year, an automatic 1% cut would hit agencies’ budgets on May 1 if Congress has not yet approved full-year funding. That was designed to disproportionately impact defense spending and therefore incentivize all sides to avoid the automatic reductions, as Republicans typically prioritize that side of the ledger. Due to “anomalies” included in stopgap measures, however, the Congressional Budget Office recently determined domestic agencies would shoulder the impact. 

Assuming a full year of funding for non-defense agencies at the current CR level, a reversion to the May 1 cap established in the debt ceiling deal would result in a $73 billion, or 10% across-the-board, cut. Defense would actually see its spending level increase by more than $25 billion. The Office of Management and Budget has final discretion over exactly how a sequester is implemented, but may have little wiggle room. 

Republicans could use the possibility of cuts to domestic priorities as leverage, knowing Democrats would be desperate to avoid such an outcome. The debt deal set top-line funding for fiscal years 2024 and 2025, but Republicans are insisting an extra $69 billion that was agreed to as part of the deal—but not put in statute—is not added to that figure as originally intended. Biden and then-House Speaker Kevin McCarthy, R-Calif., agreed to generate that money for non-defense discretionary spending by rescinding unused pandemic funds and $20 billion from funding set aside for the Internal Revenue Service as part of the Inflation Reduction Act. 

Johnson made clear he would honor only what was written in the Fiscal Responsibility Act, not the so-called “side deals” that allowed non-defense spending to stay essentially flat in fiscal 2024. 

“I came in as the new speaker and I said again, as the rule-of-law team, we’re going to follow the law,” Johnson recently told reporters. 

Democrats have accused House Republicans of reneging on the deal. In the Senate, the Appropriations Committee has moved spending bills at or above the levels agreed to in the entire debt deal with broad bipartisan support. Only three of those 12 bills have won approval on the Senate floor. The House has pushed funding measures at a far lower top-line level. 

Significant workforce impacts

Rachel Snyderman, director of the Bipartisan Policy Center’s Economic Policy Program and a former Office of Management and Budget official, said lawmakers are walking back the one benefit they provided agencies as a result of the debt ceiling standoff. 

“It’s important to recognize the caps that were set by the Fiscal Responsibility Act provided tremendous amounts of certainty for agencies,” Snyderman said. “For federal workers and federal agencies, we’re injecting back into the budget process exactly what the FRA was intended not to do.” 

As lawmakers look to come to an agreement on spending levels, members of both parties have warned of the impacts a sequester would have. Agencies last experienced an across-the-board rescission in 2013, which led to employee furloughs and severe cuts to programs and services. 

“The Fiscal Responsibility Act would force absolutely devastating, across-the-board cuts on virtually all domestic programs. That could be as much as a nearly 10% cut,” Sen. Patty Murray, D-Wash, who chairs the appropriations panel, said recently on the Senate floor. “Let’s be clear about the damage here: immediate hiring freezes and furloughs at just about every agency.” 

She added millions of low-income women and children could lose benefits, wait times at ports of entry could quadruple and 700,000 households could lose access to federal housing assistance. Among those facing furloughs would be 1,000 food safety inspectors at the Agriculture Department, law enforcement personnel at the Justice Department, agents and officers at Customs and Border Protection, 2,500 National Park Service employees, air traffic controllers at the Federal Aviation Administration and others. 

Biden administration officials earlier this year warned of the impacts their agencies would face if the cuts Republicans are seeking were put into place. They suggested, like Murray, the reductions would force layoffs, furloughs, hiring freezes or other means to trim workforce costs.

CBP said, for example, it would be forced to shed 2,400 front-line agents and officers, while the Justice Department said the FBI would lose 11,000 agents. Agencies said tens of thousands of additional jobs would be lost or at risk, including 2,300 at the Food and Drug Administration, 9,400 at FAA and 3,200 at the Federal Emergency Management Agency.

Sen. Susan Collins, R-Maine, the top Republican on the appropriations committee, recently told Politico sequestration would be disastrous. 

“A full-year CR would be extremely damaging,” Collins said. “It would end up costing taxpayers more money.”

Murray added Republicans going back on their word would set a dangerous precedent. 

“Consider what kind of precedent it sets, if now—months after a spending agreement was negotiated and passed into law, three months into the current fiscal year—House Republicans want to pull the rug out from the rest of us, and go back on their word and the deal that they cut,” Murray said. 

Even if a sequester is avoided, Snyderman said agencies are paying an opportunity cost as they plan for each possibility. 

“Right now, they’re estimating these impacts, but they don’t know if they’ll go into effect," Snyderman said. That process, she added, is "taking them away from day-to-day operations."