Rumors

“Rumors” is a bar in Washington, D.C.  (Never been there.)  Rumors are also all we have to go on in anticipating a deal coming out of the budget-resolution negotiations this month.

The rumor is that a deal is relatively close, but still not in hand.  That makes life a bit tricky for those outside the room.  Virtually the entire purpose of this negotiation is to settle upon a number for the total annual appropriations – a so-called “302(a) allocation” – for the ongoing fiscal year (2014).  This is small ball, not a grand bargain.  By the ideal-world calendar, the appropriators would have received that total number on April 15, and that entire process would have been finished on September 30,.  So now, instead of the appropriators receiving their target five and one half months before the fiscal year, they are waiting for the number two and one half months into the fiscal year.  (No pressure, guys.)

Why is that a problem?  The toughest annual appropriations decisions are those over the last few dollars.  And it is virtually impossible even to prepare for those decisions if you do not know even to a close-enough-for-jazz tolerance how many last few dollars there are going to be.

But beyond that point, the appropriators’ ambition this year was to do legislation a little more tailored than a last-year-plus-or-minus-X-percent across-the-board full-year continuing resolution (CR), which has been the highly unfortunate recent pattern.  Even those most viscerally opposed to government as an institution should reject that approach, and instead want appropriations laws that dig much deeper – that perform “oversight” to weed out and disproportionately cut or repeal the least-cost-effective programs.

At least to take a crack at such meaningful legislation, the appropriators asked for their 302(a) allocation to be determined by about a week ago.  Without that number in hand, and with the current CR expiring on January 15, the chances of further short-term CRs and still-later final appropriations legislation are increasing by the minute.  And the shorter the duration of any real appropriations legislation, the less the potential beneficial impact of any well-chosen adjustments, the harder for well-meaning executive branch managers to do their jobs, and the more-abrupt any changes of appropriations levels need to be to hit an annual total much different from the annual rate of the initial part-year CR.

But it is not dreadfully surprising that the budget-resolution negotiators are having a hard time delivering their final numbers.  The substantive preferences of the House and the Senate have little in common.  And especially in the House, but even in the Senate, there is considerable diversity of opinion within the majority.  A deal cut by the House majority’s negotiator could be rejected by his own caucus and so rendered null, void, and an enormous waste of time and loss of face.  Therefore, the negotiation entails frequent consultations with the leaderships and at least indirectly with the full caucuses, which itself takes a lot of time.

The rumored considerations on the two sides are also somewhat baroque.  There are those in both parties (probably a majority even of Republicans) who want to vacate the additional sequester cuts, but most often for different reasons; Republicans (by and large) care more about defense, while Democrats care more about domestic programs.  By coincidence rather than design, it turns out that the remaining FY 2014 sequester cuts that will be imposed on January 15, absent a deal, fall almost exclusively on defense.  Therefore, Republicans, the majority in the House, have more motivation to try to avoid the FY 2014 sequester.

But the two parties have reached an apparent consensus to maintain the overall budget savings in the sequester.  In one sense that would seem inexplicable, given that the sequester was created to force a grand (or at least a baby grand) bargain between the two parties through the “Supercommittee” – and in that mission it clearly failed.  So one might think that the sequester could be given an honorable burial, and the two parties could weep over it for a few moments, and then move on.  However, that has not happened; the two sides seem to accept that every dollar of relief from the sequester, in whatever form, must be “paid for” – to maintain the full deficit reduction that the accidental sequester would obtain.

So if Republicans are to achieve relief on the defense side, they must ask the Democrats in the Senate to provide spending cuts elsewhere in the budget to do so.  (Democrats would be happy to increase taxes – at a price in terms of spending for the programs that Democrats favor – but don’t expect Republicans to ask.)  So Democrats will want something in return if they are to approve spending cuts in non-defense programs.  And thus in return, Republicans have to accept some additional non-defense appropriations to get the greater defense appropriations that they want.  None of the contract theory that I studied some decades ago tells me what the terms of trade between Republicans’ defense spending and Democrats’ non-defense spending ultimately will turn out to be.

And then the players must find the “offsets” or “pay-fors” to justify the sequester relief.  Those offsets can span the spectrum (pardon the pun; expanded auctions of the rights to use bands of the electromagnetic spectrum are on the list) from real to unreal.  Among the items that upset the purists are taking credit for already expected future winding down of military operations in Afghanistan, or merely postponing future sequester savings.

Given that straightforward revenue increases and straightforward cuts in major entitlement programs have been ruled off the table by the two sides, the remaining options seem a list of rather mangy cats and dogs.  There is the proposal to increase federal employee retirement contributions, which is decried by Members (not all Democrats) who have large concentrations of federal workers in their districts, and who argue that years of pay and hiring freezes were enough contribution to deficit reduction by those, well, voters.  And there are various fees on, for example, air travel, which would serve double duty by both offsetting safety and security spending and reducing the deficit.  (Are those dollars being counted twice?  It depend on what your counterfactual is…)

And speaking of fees, some of those would fall into a category that is being called “non-tax revenues.”  Only two Georges – Washington (D.C.) and Orwell – could produce such terminology.  Republicans reportedly are willing to accept such non-tax revenues, but only to reduce the deficit – not to serve as offsets for increased spending.  So which budget savings are for deficit reduction, and which to offset additional spending?  Experience indicates that many Members of Congress do not understand the concept that petroleum is fungible; it therefore should not be surprising that some miss the fact that money is fungible, too.

But there is some actual substance in this debate that is apparently restricted to form.  The sequester, whose budget savings we are struggling to replace and maintain, does not solve our long-term budget problem.  Those interests whose programs are cut in this exercise will be given “I GAVE TO PROTECT THE SEQUESTER!” stickers, which they can mount next to their front doors and point to when the deficit-reduction collector inevitably comes around again.  And if the next collection should be the one that really is intended to solve the problem, it will be that much harder to find all of the volunteer contributors needed to hit the target.

Which brings us to the last truly troubling rumor about the current negotiation: that it will not include any steps to defuse the debt-limit bomb, which will be armed next on February 7. The Treasury Secretary will be able to resort to his “extraordinary measures” beginning on that date, but by all indications the flexibility that those authorities will afford will be quite limited.  Meanwhile, this deal is rumored to provide two years of appropriations numbers, thus giving ample room for complacency on prospective government shutdowns.  So it appears that the current negotiation will buy only limited relief on fiscal health, and only with respect to shutdowns, not against potential defaults or similar.