Brace for a Government Shutdown

The likelihood of a government shutdown increased when House Republicans passed a resolution calling for approximately $60 billion in cuts to non-defense spending for the balance of the FY 2011. Approved primarily along party lines just before the president delivered his State of the Union address, the resolution underscores the commitment of House Republicans to reduce federal spending.

The resolution (H. Res. 38) establishes the starting point for Republican negotiations with the White House and Democrats in funding the federal government for the remainder of the current fiscal year. Given the two other fiscal issues to be debated this year – increasing the federal debt limit and passage of a FY 2012 budget – how funding for FY2011 is resolved will impact the debate on the other two issues.

FY 2011

During the lame-duck session, Congress averted a shutdown of the Federal government by passing a short-term continuing resolution (CR) to keep the government functioning until March 4. The short-term CR was a victory for Republicans who wanted to pursue a strategy to reduce non-defense discretionary spending immediately. Republicans are going to insist that funding for the remainder of this fiscal must include deep cuts to programs. Analysts estimate the $60 billion cut proposed in the resolution could mean a 20 percent cut to programs.

Democrats will be hard pressed to prevent the Republicans from approving an appropriations bill with significant cuts to federal spending. Some version of House Republicans’ bill will be approved by that chamber. In the House, it is easier for the majority to approve bills it favors; therefore, a proposed budget for the balance of FY 2011 emanating from that chamber will include deep cuts. However, Senate Democrats will not allow the cuts to be approved in their chamber. They will probably prefer a continuation of the current CR. Once the Senate passes a measure they must negotiate a compromise with the House on a final spending bill for 2011.

The political maneuvering that accompanies this effort to reach a compromise will cause a likely government shutdown. There are too many activists within the Republican Party calling for an aggressive, and if necessary, protracted fight with the president. They are prepared to risk the fall out of a shutdown to leverage deep cuts. There could be another CR passed with modest reductions in funding or a hard commitment to ensure there are deeper cuts in the FY2012 budget. Given the desire to hold the line on spending, there is a real possibility the Federal government will be shut down for a short period of time

FY 2012

When the president submits his FY2012 budget next week it will be dead on arrival in the House before the last copy is submitted to Congress. While the President Barack Obama’s State of the Union speech called for “investments” in infrastructure and education to keep America competitive, Republicans believe he is simply seeking another opportunity to increase federal spending. They, in turn, are determined to prevent that from happening.

The political dynamics of the FY2011 bill will repeat itself for the FY2012 bill. Republicans in the House will simply pass a version of the FY2012 appropriations bill with cuts totaling as much as $100 billion. In that scenario, the Senate will once again need to approve a spending bill that does not include such large cuts. Expect Republicans to become more aggressive in pursuing cuts in FY2012. Another shutdown in October is not out of the question. Anger and frustration over the outcome of negotiations with the White House and Democrats over funding levels could cause Republicans to be willing to risk another shutdown.

Debt Ceiling

The debt ceiling is the biggest issue. Sandwiched between the two funding discussions will be a vote to raise the debt ceiling to allow the government to borrow to pay for its obligations. The limit has been raised every year without fanfare; however, this year Republicans hope to use it as leverage for deep spending cuts. Some Republicans are willing to risk the US defaulting on its’ obligations (which can have dramatic world-wide implications, according to some experts) and shutting down the government.

As bad as a government shut-down would be, it pales in comparison to a national default. The impact on the value of the dollar and other considerations would be spectacular. It is absolutely unthinkable that new members of Congress would play around with this issue. If they want to truly wreck the economy, not just America's but that of much of the western world, failing to increase the U.S. debt limit would do it.

The Seeds of a Shutdown Exist

The seeds of a shutdown are in place. The presidential election of 2012 is the 800 pound gorilla driving everything that goes on in Washington. The desire to win the election at all cost is strong. Each party’s strategic decisions are being weighed with the presidential election in mind. Some events, such as the situation in Egypt, complicate decision-making as it relates to the next election. However, one misstep could damage an individual’s and party’s presidential aspirations.

This group of Republicans is very different from the one which swept into office after the historic election of 1994. That group was unified by a Contract with America which was drafted by the Republican leadership. Its subsequent strategy was orchestrated by the same people. Republicans voted into office in November do not have the allegiance to the leadership but to the Tea Party activists. Some of them have pledged to shut the government down if necessary as part of their campaign and are committed to fulfilling that pledge.

These seeds could germinate and be the cause, individually or in some form of combination, of a shutdown:

1. The recession has heightened fear, anger and frustration causing people to lose faith in the prospects of a secure future. This resulted in voters lashing out at anything that appears to be the cause of these emotions. The current target is the “government”.
2. The Tea Party has created a structure to some of the voices expressing frustration and feelings of being ostracized and unappreciated. This structure is separate from the established Republican Party making it less likely Members of Congress with allegiance to this group will be easily co-opted by the party elders.
3. The Republican victories on the congressional and state levels have deepened the resolve of fiscal conservatives to draw a line in the sand on federal spending.
4. The internet has allowed people to express themselves free from filters and accountability. Coupled with the 24 hour cable news cycle, issues never die a natural death and individuals can be mobilized quickly.
5. It is naïve to think that racism doesn’t play a role in some of the discontent with President Obama. Some of it is masked, some of it is out in the open but the president has been demonized, painted as a Muslim extremist, and viewed as a socialist. The residual effects of ensuring his failure due to his race will play some role in what takes place this year.

Who to watch

As the year progresses, keep an eye on how these individuals react to budget proposals. They could decide what types of funding cuts are approved this year:

Tea Party Faithful: There are many Tea Party faithful who rely on Social Security, Medicaid and Medicare. If Republicans like Ryan are serious and proposed cuts to the benefits of these three programs, it will be interesting to see who among the Tea Party are adversely affected by the cuts and how they react to it.

The business community: Specifically, those who are dependent on government contracts and those who receive subsidies. It is hard to believe they will sit on the sideline and allow their source of money to dry up.

State and local government officials: State and local governments rely on federal funds for a variety of projects meeting a variety of needs from infrastructure to education. They will be the first to bear the brunt of any cuts and will be forced to make harder decisions within their own budgets without federal assistance.


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