Sequestration, shutdowns or increased spending? Anything is possible in 2017

More standoffs are likely, experts warn, and the only certainty is that the regular rules are unlikely to apply.

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The federal budget process has been broken for some time, but this year agencies and industry alike should prepare for the possibility that none of the rules will apply.

That was the message at the Professional Services Council's Feb. 24 discussion on this year's budget outlook. PSC CEO David Berteau and budget expert Stan Collender both warned that government shutdowns, debt ceiling crises and dramatic cuts in federal spending all were possible.  

On the other hand, they said, efforts to repeal the Affordable Care Act and reform the tax code could easily stall. (ACA repeal in particular would have far-reaching effects on operations in the Department of Health and Human Services, IRS and other agencies.)

The Trump administration might choose not to spend what Congress appropriates, they suggested, or the Budget Control Act's caps on spending could be disregarded entirely.

"You look troubled by this," Collender -- a former House and Senate Budget Committee staffer who is now executive vice president for Qorvis MSLGROUP -- told a questioner in the audience.  "You should be. This is not the way [the federal government] should budget.

Part of the problem, Collender and Berteau said, is that federal deficits are rising even before any of the health care, infrastructure, defense or tax-cut proposals are taken into account. While "no one is talking about the debt anymore," Collender said, that will likely change as growing interest payments put new pressures on the budget.

Berteau, who before joining PSC served as the Defense Department's assistant secretary for logistics and materiel readiness, noted that "the markets are not waiting for the Fed to increase [short-term interest rates]," and that there has been a "substantial increase" in the rates for both short- and long-term Treasury bills since election day. "You're already seeing the impact," he said.

Several fast-approaching fiscal deadlines, meanwhile, could force the administration and congressional Republicans into some uncomfortable choices.

The suspension of the debt ceiling expires March 15, Collender noted, while the continuing resolution currently funding government runs out on April 28. Additionally, the GOP plan to use budget reconciliation (to avoid the Senate filibuster) to repeal the Affordable Care Act and to pass tax cuts runs into trouble if the first reconciliation can't be completed by mid-April, he said. Other legislation pushed by the administration could further add to the logjam, and Senate Democrats are unlikely to help speed any of these efforts along.

Taken altogether, Collender said, there is precious little time for real appropriations work -- and plenty of opportunities for agency funding to be suspended or scrambled.  

At PSC, Berteau said, "we are brushing off our shutdown government procedures guidance" on what the implications are for contractors. "I don't expect any advance notice from Congress on what they're going to do" to avoid a shutdown on April 29.

There could be an escape hatch, the speakers said, albeit one that would bring even more uncertainty to the process: What happens if Congress changes the rules -- or the administration chooses to ignore existing statutes?

The Budget Control Act's spending caps and threat of sequestration are a prime example.  If congressional appropriations fail to come in under statutorily set limits (as happened in 2013), the task of across-the-board cuts falls to the Office of Management and Budget.  But "what happens if ... the president orders [newly confirmed OMB Director] Mick Mulvaney not to enforce the caps?" Collender asked.

"The sequester is not automatic," Berteau agreed. "Last time I checked, there are no enforcement penalties in there."  Collender added, "It's not clear that anyone would have standing to sue."

Similarly, the speakers said, the Senate could change its rules to remove obstacles. (Multiple committees suspended quorum rules earlier this year to push through cabinet secretary nominees without Senate Democrats' participation.) The Senate parliamentarian could be pressured to reinterpret the Byrd Rule's restrictions on reconciliation, Collender predicted, or Senate Majority Leader Mitch McConnell (R-Ky.) could take the "ultra-extreme" step of abolishing the filibuster entirely.

McConnell has made clear he's reluctant to change Senate rules, Berteau noted, and Mulvaney has been one of Congress' most aggressive opponents of government spending. But he and Collender agreed that the pressure on Republicans to advance their agenda will be intense.

"Just because we have precedents doesn't mean they can't be dispensed with," Collender said.

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