February 22, 2024Client Alert

Crunch time for Congress as latest shutdown deadline approaches

Yet another federal shutdown threat is approaching on March 1 and March 8, 2024. Congress must immediately introduce and consider a solution to set federal funding for the rest of fiscal year (FY) 2024 lasting through October 1. If Congress fails to pass this final agreement, then contractors as well as essential federal programs could be forced into new levels of uncertainty. Below, we recap the latest and examine potential paths ahead.

Deadlines: Federal agencies are still running on FY 2023 funding levels, even though a new fiscal year started on October 1. Sharp partisan divides prevented Congress from even drafting a FY 2024 funding deal, let alone voting on such a plan. Along the way, Congress split expiration dates for several federal agencies across two deadlines. If these agencies don’t have replenished funding by their deadlines, then these agencies will restrict their activity to those necessary to protect human life and the national defense:

Expiring on March 1:

Appropriations bills covering:

  • Agriculture, Food and Drug Administration (FDA)
  • Energy and Water Development
  • Military Construction and Veterans Affairs (MilCon-VA)
  • Transportation, Housing and Urban Development (T-HUD)

Expiring on March 8:

These appropriations bills would also be extended until March 8:

  • Commerce-Justice-Science
  • Defense
  • Financial Services and General Government
  • Homeland Security
  • Interior, Environment
  • Labor, Health and Human Services, Education
  • Legislative Branch
  • State, Foreign Operations

Congress also extended until March 8 federal funding for community health centers, child welfare programs, certain authorities within Medicaid and Medicaid, the Department of Homeland Security’s counter-drone programs, and the U.S.’s compacts of free association with Micronesia and the Marshall Islands.

What to watch: Bipartisan leaders of the House and Senate Appropriations Committee say they are on-track to draft and deliver a final FY 2024 funding agreement in the coming days. Such an agreement would need to be introduced by late this week or early next to allow both chambers time to vote on a new agreement before shutdown deadlines hit starting on March 1.

However, there are still opportunities for the effort to derail. Some of the most bitter partisan debates that dogged earlier appropriations talks will flare in final negotiations as more Democratic and Republican leaders get involved. For example, House Republicans said earlier this year they would insist on policy provisions to defund the Biden Administration’s environmental regulations and federal diversity initiatives. In another example, Democrats have objected to Republicans’ proposed cuts to various domestic agencies. Members of both parties may also object to a new agreement if they feel rushed into a vote.

If, for whatever reason, appropriators fail to pass a final FY 2024 agreement, then leaders will be forced to consider yet another extension of FY 2023 funding. This extension could last a few weeks or until the end of the current fiscal year on October 1. The Department of Defense has repeatedly warned that this long-term extension will threaten U.S. readiness, especially after emerging conflicts in the Middle East forced the Pentagon to spend unplanned billions. On the home front, a long-term extension can delay “new start” federal contracts and annual federal grant awards.

Extending FY 2023 funding past April 30 could trigger an automatic 1% government-wide spending cut hitting both defense and domestic priorities. Again, this cut would be most harmful to the Department of Defense which had been set to receive an 8% increase in a previous agreement. Importantly for observers: Congress could vote to “turn off” these spending cuts, making this worst-case scenario less likely.

What about foreign military aid? Separate from FY 2024 drama, the Senate earlier this month passed a bipartisan foreign military aid package to manufacture more weapons and military equipment plus send humanitarian aid to U.S. allies in Ukraine, Israel, and the Indo-Pacific. The package aligns with the Biden Administration’s requests and is intended to last until at least October 1. Supporters pointed out that most of the funding would not flow directly to allied nations, but instead would support U.S companies’ manufacturing of new equipment, stimulating the U.S. economy while delivering aid to allies.  

The Senate-approved foreign aid bill now awaits further consideration in the House, where House Speaker Mike Johnson (R-LA) has already rejected it. Johnson, as well as former U.S. President Donald Trump, argue that the U.S. has already sent enough to Ukraine. However, House Democrats are evaluating whether they can outflank Johnson and force a vote anyway. Expect more debate on the bill’s fate in the House in early to mid-March.

Don’t forget FY 2025: Congress is still wrapping FY 2024 bills while the FY 2025 (October 1, 2024 – September 30, 2025) process begins, setting a traffic jam for lawmakers, their constituents, and lobbyists.

On March 11, the White House will release its funding plans for the next fiscal year in the President’s Budget for FY 2025, with President Biden pitching the plan to the public during the State of the Union Address on March 7. Many members of Congress are already accepting requests for FY 2025 with firm deadlines falling in early March, despite the later-than-usual start to the season. In March – June, Congress will work from request to develop another round of government-wide funding bills as well as the annual National Defense Authorization Act (NDAA), among other vehicles. The next fiscal cycle will be just as chaotic as this one as we enter an election year, and final agreements are unlikely until the post-election “lame duck” session in late 2024.

Despite all this strife, stakeholders must move in early 2024 to build ties with Congress and continue to push for their priorities in future funding and policy laws to have the best chance of incorporating their priorities into future laws. To learn more about how to succeed in this tricky environment, contact your Michael Best servicing team. 

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