United States Capitol Building

Budget deal will raise spending caps for next two years

Congressional leaders and the White House reached a two-year budget deal this week. The deal raises the budget caps that would have resulted in severe cuts across the government, including affordable housing programs. The deal also suspends the debt ceiling until after the presidential elections. If the House and Senate approve the measure, it would allow funding increases for affordable housing and community development programs over the next two years. President Trump has signaled he will support the deal.

Speaker of the House of Representatives Nancy Pelosi (D-CA).

The budget deal was worked out over the last couple of weeks in talks between House Speaker Nancy Pelosi (D-CA) and Treasury Secretary Steven Mnuchin. The deal will raise spending limits for both defense and domestic programs by $320 billion over the next two years. Domestic spending, which includes HUD and USDA affordable housing programs, totaled $620 billion for FY 2019. The budget deal will raise that total to $632 billion in FY 2020 and $634.5 billion in 2021. Defense spending will increase to $740 billion by 2021.

Secretary of the Treasury, Steven Mnuchin

Congress has raised the spending caps before, most recently in the budget agreement covering FY 2018 and FY 2019.

Without this deal, federal funding faces severe reductions over the next two years. The 2011 Budget Control Act sets annual spending limits. If Congress cannot approve budgets within those limits it triggers mandatory funding cuts. Called sequestration, the cuts would affect all defense and domestic programs. In terms of affordable housing, HUD programs would be facing a devastating 10% across-the-board reduction.

The deal will also suspend the debt ceiling until July 31, 2021. Without raising the debt ceiling, the U.S. Treasury will not be able to pay the government’s bills starting in September. Congress goes on August recess soon, and will not reconvene in time to avert a U.S. credit default. This adds pressure for lawmakers to reach an agreement quickly.

The budget deal also includes some controversial provisions. The parties would agree not to include any “poison pill” policy riders in spending legislation through 2021. It will speed up the appropriations process, but make it harder for Democrats to restrict President Trump from shifting funds to build his wall on the southern border.

On the other hand, Republicans are upset at the lack of spending offsets. The deal identifies only $77 billion in cuts to offset the new spending. This is far less than the $150 billion in offsets sought by the White House. These Republicans are concerned about adding more to the growing budget deficit, which recently reached $22 trillion.

Official White House Photo by Joyce N. Boghosian

What happens next? The plan is for the House to pass the measure this week before adjourning for the August Recess. The Senate would pass it next week before going on break, and President should sign it once the Senate approves.

The bill is likely to pass, but it is not a guarantee. Democrats like the increase in domestic spending, but dislike the restriction on policy riders. Republicans like the defense increases, but dislike the lack of spending offsets. Both sides like that it assures the U.S. will not default on its debt. It also makes the appropriations process more streamlined and reduces the chances of a government shutdown in an election year.

When Congress reconvenes in September, attention will turn to the Senate as it works to pass its FY 2020 spending bills. The appropriations must be passed by the Senate, reconciled with the House version and signed by the President by September 30 or there could still be a government shutdown.

The House has already approved FY 2020 appropriations for both HUD and USDA affordable housing programs. The House bill provided $13.4 billion more for HUD than the Trump administration requested for FY 2020. Affordable housing advocates will be urging senators to support the generous funding levels already approved by the House.