House and Senate Republican leaders continue to negotiate the duration of an FY17 continuing resolution (CR). The current CR expires next Friday, December 9. House Republicans had initially planned to fund the government through March 31, 2017, but Republicans in the Senate argued for a later date in order to accommodate their busier schedule, which will include new administration confirmations and a Supreme Court confirmation. Latest indications point to an April 28, 2017 end date for the CR. Rep. Charlie Dent (R-PA), a member of the House Appropriations Committee, said that a CR until next spring effectively guarantees another CR in March/April/May that extends appropriations through the remainder of FY17 (September 30, 2017).

In addition to how long the CR will last, negotiators are discussing whether the CR will have a topline of $1.07T (agreed to in the budget deal) or $1.067T (the FY16 limit) and what “anomalies” will be included in the final package. Under a CR, no new programs may be started, nor can programs increase or decrease their spending. Anomalies are exceptions to this rule.

Earlier this week the Comptroller at the Department of Defense sent a list of the agency’s highest priorities for the CR and FY17 National Defense Authorization Act to House and Senate appropriators and authorizers. The priorities include, in order of importance, programs to: counter the Islamic State in Iraq and Syria, start procuring new Ohio Class ballistic missile subs, build more KC-46 tanker planes and critical munitions (Hellfire, JDAMs, and Small Diameter Bombs), fund Afghan security forces, increase funding for Army O&M to be used both overseas and stateside, provide multiyear procurement authority for the Apache helicopter, reauthorize certain military bonuses and benefits that expire on January 1, 2017, and increase spending for the European Reassurance Initiative.

House Minority Leader Nancy Pelosi (D-CA) said during her weekly news conference today that she understands the text of the CR will be ready on Monday. House Majority Leader Kevin McCarthy (R-CA) said on the floor today that he hopes to finish the CR and all other matters before the House by Thursday, December 8.

After President-Elect Donald Trump weighed in on the FY17 appropriations process telling Republican leaders that he prefers a short-term continuing resolution (CR) extending current funding levels through February or March of next year, Speaker of the House Paul D. Ryan (R-WI) decided to not move ahead on any FY17 appropriations bills during the lame duck session and instead pass another CR. The current CR expires on December 9. House Appropriations Committee Chairman Hal Rogers (R-KY) expressed disappointment in the decision, but was hopeful that the new Congress and new administration would finish the bills in the spring. Senate Majority Leader Mitch McConnell (R-KY) said last week that he would support legislation funding the federal government through the end of the fiscal year, but now appears resigned to follow the House’s lead with a short-term CR. Other Republican senators were less eager to embrace this decision.

Lawmakers did acknowledge the need to account for anomalies as well as emergency funding priorities (hurricane and flood relief, the opioid epidemic, and the lead-contaminated water system in Flint, MI) in a CR. With the conference on the Water Resources Development Act (WRDA) at an impasse, the CR may be a more likely route for aid to Flint, MI.

It is also unclear if the CR will include the recent $11.6B war supplemental submitted by the Administration to Congress, or if that will move in a stand-alone bill. The war supplemental request includes $5.8B for military operations against the Islamic State and in Afghanistan, along with $5.8B for related work by the State Department and the U.S. Agency for International Development. The additional funding would bring President Obama’s total request for war spending needs in FY17 to $85.3B. House Armed Services Committee Chairman Mac Thornberry (R-TX) said he thought the $11.6B request was insufficient, but didn’t say how much he thought was necessary. Sen. Tom Cotton (R-AR) said he plans to introduce a $26B supplemental funding bill that would go toward military readiness as well as overseas operations. Cotton has been rumored to be on Trump’s short list for Secretary of Defense.

Finally, the final appropriations process next spring could be difficult with Congress negotiating with a new president and administration who will be busy preparing the FY18 budge request, and the debt ceiling expiring on March 15.

FY17 Continuing Resolution (CR)

The House and Senate cleared a 10-week continuing resolution (CR) this week averting a shutdown of the federal government at the end of fiscal year 2016. The Senate passed the bill by a vote of 72 to 26 on Wednesday afternoon followed by the House who passed it by a vote of 342 to 85 later that evening. A deal negotiated between House Speaker Paul D. Ryan (R-WI) and House Minority Leader Nancy Pelosi (D-CA) over funding for the water crisis in Flint, MI paved the way for passage of the CR. The President signed the bill into law on Thursday.

The measures funds the government through December 9 and includes the following:

• Maintains FY16 funding levels through December 9, reduced by 0.496%
• $1.1B in supplemental emergency funding to combat the Zika virus (HHS, State Department, and USAID)
  • Funding is subject to the Hyde Amendment
  • Does not include a provision that would have suspended duplicative EPA permitting requirements for mosquito control
• $500M in aid for Louisiana and other states that have experienced natural disasters
• Higher rate of funding for the Department of Justice and the Department of Health and Human Services to begin implementation of the Comprehensive Addiction and Recovery Act (CARA), and directs the Department of Veterans Affairs to implement CARA using FY17 funds
• Higher rate of funding for commodity supplemental food program
• Full year funding for the FY17 Military Construction and Veterans Affairs conference report
  • The bill provides $82.3 billion in FY2017 discretionary funding, $2.5 billion above the FY2016 level
  • $260 million for continued modernization of the VA electronic health record system. The bill includes language restricting the use of this funding until the VA demonstrates functional improvements in the interoperability of a system to seamlessly exchange veterans’ medical data among the VA, DOD and the private sector.
• Additional funding and authorities related to the transition and inauguration of the incoming Presidential administration
• Rescission of $400M in funding
• Prohibition on DOD from starting new programs, entering into multi-year contracts, or increasing production rates
• Authorization for DOD to provide IT services to OPM’s National Background Investigations Bureau
• Provision for DHS to obligate funds in a new account and budget structure pursuant to agreement with the Appropriations Committees
• Funding flexibility for U.S. Customs and Border Protection and Transportation Security Administration to maintain their staffing levels
• Extension of authority needed to obtain leading edge Homeland Security R&D or prototypes using “other transactions” agreements for work with non-traditional government contractors
• Funding to implement new activities required by the Toxic Substance Control Act (offset by fees collected by the agency following a rulemaking)
• Allowance for the continued support of 60 privately-owned, militarily useful, U.S. flag, U.S. crewed, commercial ships in order to provide DOD with military sealift capacity for overseas operations

The measure did not include funding to help repair the lead-contaminated water system of Flint, MI nor a provision from Sen. Ted Cruz (R-TX) preventing the transition of the Internet Corporation for Assigned Names and Numbers (ICANN) to a multi-stakeholder community. While Democrats had held up action on the CR over funding for Flint, they relented on Wednesday after receiving assurances from House and Senate leadership that Flint aid will be part of the final Water Resources Development Act conference bill in the lame duck session. As for ICANN, the Commerce Department is scheduled to officially hand over its oversight of the California nonprofit tomorrow.

Congress will have less than three weeks in session to figure out how to fund the federal government through the rest of FY17 when they return after the election. Eleven FY17 appropriations bills still need to be passed, but there isn’t enough time to take them up individually. Speaker Ryan and Senate Majority Leader Mitch McConnell (R-KY) favor smaller appropriations packages (minibuses) as opposed to one big omnibus for FY17 where conservatives believe that excessive spending can get passed with little scrutiny or notice. The real holdup on any potential minibus or omnibus could be Inclusion of ideological policy riders.

FY17 Continuing Resolution:

http://www.appropriations.senate.gov/download/cr-text

FY17 Continuing Resolution Section-By-Section Summary

http://www.appropriations.senate.gov/imo/media/doc/092216-CR-FY17-Section-By-Section.pdf

FY17 Military Construction-Veterans Affairs Summary:

http://www.appropriations.senate.gov/imo/media/doc/092216-CR-MilConVA-Summary.pdf

Zika Research, Treatment, and Control Funding Summary:

http://www.appropriations.senate.gov/imo/media/doc/092216-CR-Zika%20Supplemental%20Summary.pdf

Explanatory Statement (Front):

http://www.appropriations.senate.gov/imo/media/doc/FRONT.PDF

Explanatory Statement (Division A):

http://www.appropriations.senate.gov/imo/media/doc/DIV%20A.PDF

Explanatory Statement (Divisions B, C, D):

http://www.appropriations.senate.gov/imo/media/doc/DIV%20B-C-D.PDF

FY17 Defense Supplemental Request

The Department of Defense (DOD) is expected to send a supplemental funding request to Congress in November. The request will come in the form of a supplemental request to the FY17 Overseas Contingency Operations (OCO) budget DOD submitted earlier this year. The additional OCO funds will be used to fight ISIL in Iraq and Syria and to pay for additional 3,000 U.S. troops in Afghanistan in 2017. Defense Secretary Ash Carter said that DOD has been planning a supplemental request since the spring.

FY17 Afghanistan Supplemental Request Expected

Senate Defense Appropriations Ranking Democrat Dick Durbin (D-IL) said this week that appropriators expect a supplemental military spending request for Afghanistan of at least $3B. The additional funds would provide for the 8,400 troops the administration announced that it was keeping in Afghanistan in 2017. This is up from the 5,500 troops it had initially budgeted for. Timing on the supplemental request is unclear, however, Republicans have been demanding it ever since the administration announced the increase in troops.

FY17 Continuing Resolution (CR)

Senators’ visions of an early adjournment this week were dashed when leadership was not able to cut a deal. Senate Majority Leader Mitch McConnell (R-KY) originally set a cloture vote on the motion to proceed on HR 5325, the vehicle for the FY17 continuing resolution (CR) for Thursday. He had to postpone the vote until Monday Sept 19 at 5:30 pm after their negotiations failed.

The CR is expected to extend current funding levels through December 9 as well as include a full year of funding for the Military Construction-Veterans Affairs spending bill and funding to combat the Zika virus. The CR may also include emergency funding for the victims of the Louisiana floods and the Flint, MI water contamination crisis, language allowing the Export-Import Bank to function again despite the lack of a quorum, a provision blocking admission of Syrian refugees, language blocking the administration from transferring Internet governance functions from the U.S. to a global nonprofit group beginning October 1, and funding to combat the opioid epidemic.

The procedural vote could get postponed again if a bill isn’t ready by Monday. There are 14 days left until the end of the fiscal year.

Defense Appropriations

For the third time, the Senate was not able to invoke cloture on the FY17 Defense Appropriations bill. The vote failed 55 to 43, falling short of the 60 votes needed to advance the measure. Two Democrats voted for cloture – Sens. Donnelly (D-IN) and Manchin (D-WV). Senate Democrats voted against cloture as part of a political gambit to keep defense funding in play for leverage in negotiations over domestic discretionary spending.

Military Construction-Veterans Affairs Appropriations/Zika Virus Funding

Also for the third time the Senate failed to invoke cloture on the conference report to the FY17 Military Construction Veterans Affairs appropriations bill, which includes emergency funding for the Zika virus. The vote failed 52 to 46 with one Democrat voting for cloture – Sen. Donnelly (D-IN) – and two Republicans voting against cloture – Sens. Lankford (R-OK) and Lee (R-UT). Some Senate Republicans have indicated that they may be open to removing language on Planned Parenthood from the conference report. However, House Speaker Paul D. Ryan (R-WI) is taking a hard stance against including money for Planned Parenthood in legislation to combat the Zika virus. Funding for the Zika virus is now likely to get rolled into a continuing resolution (CR). The conference report to the FY17 Military Construction-Veterans Affairs bill may also be attached to a CR.

Continuing Resolution (CR)

While there was no action this week on a CR, there was a lot of talk and posturing on the length of a CR and what might be included in it. Senate Majority Leader Mitch McConnell (R-KY) engaged in talks with the White House this week discussing a CR that would last until December 9. The House Freedom Caucus is targeting the CR as a potential bargaining chip for language stopping the Administration’s Syrian refugee program in return for agreeing to a short-term CR. They have been pushing for a longer-term CR that would push off any final spending decisions until a new President and new Congress take office next year. Senate Minority Leader Harry Reid (D-NV) warned Republicans this week against any attempt to attach “ideological riders” to a CR. House Appropriations Committee Chairman Hal Rogers (R-KY) said that he is okay with Dec. 9 but would prefer the CR go through Dec. 16, the last day Congress is scheduled to be in session. The House Republican Conference was scheduled to meet this morning to discuss their CR strategy. They may also discuss a strategy of passing multiple small appropriations packages in the lame duck session instead of an all-inclusive omnibus bill. The President has invited Speaker Ryan, House Minority Leader Nancy Pelosi (D-CA), Senate Majority Leader McConnell, and Senate Minority Leader Reid to the White House for a Monday afternoon meeting next week for a conversation on a CR.

And as if the CR process wasn’t complicated enough already, the Congressional Budget Office (CBO) now says that a CR written to FY16 levels would exceed the FY17 spending caps (triggering sequestration). CRs typically extend current funding levels into the new fiscal year. However, if the current funding level is simply extended, it would exceed the FY17 discretionary spending cap by $10B. This is due mainly in part to maneuvers that were used in FY16 including changes in mandatory programs (CHIMPS). CHIMPS are provisions in appropriations bills that reduce or constrain mandatory spending allowing for additional funding for discretionary programs. Closing the gap in an FY17 CR could be done through across-the-board cuts or new changes in mandatory spending. The $10B gap assumes that Congress operates under a CR for the full fiscal year.

House Majority Leader Kevin McCarthy (R-CA) sent out a memo to GOP members this week outlining the House’s upcoming agenda for September. The agenda includes:

Iran

• Legislation responding to the Administration’s disclosure that it timed the January release of hostages with a $400M cash payment to Tehran
• HR 5461, the Iranian Leadership Asset Transparency Act, which requires reporting on the financial assets acquired by Iranian leaders

FY17 Appropriations

• Stopgap spending measure/FY2017 continuing resolution (CR)
• “A path forward” for the $1.1B supplemental funding package to address the Zika crisis.

Republican “A Better Way” Agenda

• R. 5063, the Stop Settlement Slush Fund Act (Goodlatte)
• R. 5226, the Regulatory Integrity Act (Walberg)
• A bill to allow Congress to disapprove en bloc unacceptable “Midnight Regulations” issued in an Administration’s lame duck term.
• R. 3438, the Require Evaluation before Implementing Executive Wishlists (REVIEW) Act (Marino)
• R. 5620, the VA Accountability First and Appeals Modernization Act of 2016

Innovation

• R. 5577, the Innovation in Offshore Leasing Act (Garrett, Graves)
• R. 5424, the Investment Advisers Modernization Act (Hurt)
• R. 2357, the Accelerating Access to Capital Act (Wagner)
• R. 4850, the Micro Offering Safe Harbor Act (Emmer)
• R. 4852, the Private Placement Improvement Act (Garrett)

Defense

• The FY17 National Defense Authorization Act

Other

• Reauthorization of career and technical education programs
• Legislation “protecting seniors from a harmful Obamacare tax”

House Republicans are scheduled to meet as a conference next Wednesday morning, where they will discuss overall government funding, a CR, and Zika funding.

Majority Leader McCarthy’s Memo to House GOP Conference:

https://www.vantagepointstrat.com/8-31-16-house-republican-september-agenda/

On the Senate side, Senate Democrats outlined their agenda this week, which included funding the government through December at the latest (no six-month CR), confirming Merrick Garland to the U.S. Supreme Court, addressing the Zika virus, and other issues including student loan debt and campaign finance. Senate Minority Leader Harry Reid (D-NV) also said that Senate Majority Leader Mitch McConnell (R-KY) indicated that he wanted to move the Water Resources Development Act in September.

The House is scheduled to be in session 17 days in September, while the Senate is scheduled to be in session for 23 days through their target adjournment date of October 7.

The Majority staff of the House Budget Committee released a working paper this week aimed at spurring political momentum for an overhaul of the annual federal budget process. The working paper, “Congressional Budgeting: The Need for Fiscal Goals,” urges lawmakers to adopt goals that would guide fiscal decisions on taxing and spending. The primary fiscal growth options include: limiting debt to 60% of gross domestic product (GDP), limiting the rate of increase in overall Federal spending to less than the economy’s growth, and defining the time period over which the goals will be measured and enforced. The secondary fiscal target options proposed by the majority staff in the working paper include: limiting the annual deficit to 3% of GDP, setting additional spending caps with tougher enforcement mechanisms, making authorizing committee spending allocations more effective, and ratifying a constitutional amendment guaranteeing enforcement of primary fiscal targets.

Congressional Budgeting: The Need for Fiscal Goals:

http://budget.house.gov/uploadedfiles/fiscal_goals.pdf

The Department of Defense Chief Information Officer (CIO) released a new outline of its IT modernization priorities in a report it released this week, “Way Forward to Tomorrow’s Strategic Landscape.” DOD said the report is the first edition and is a “living document” whose goals include better coordination with industry and stronger oversight of the $36B DOD spends on IT each year. The eight strategic areas of focus for the DOD IT environment in the report are:

1. Executing capability initiatives toward the Joint Information Environment vision
2. Improving partnerships with mission partners and industry
3. Ensuring successful mission execution in the face of a persistent cyber threat
4. Providing a cloud computing environment
5. Optimizing DoD’s data center infrastructure
6. Exploiting the power of trusted information sharing
7. Providing a resilient communications and network infrastructure
8. Improving transparency of DoD IT investments

Way Forward to Tomorrow’s Strategic Landscape:

http://dodcio.defense.gov/Portals/0/Documents/JIE/DoD%20IT%20Environment%20Way%20Forward%20-%20DISTRO%20(Aug%202016).pdf

FY16 Budget Mid-Session Review

The Office of Management and Budget OMB released its mid-session review today, which projects the 2016 deficit to be $600B. This is $16B lower than OMB’s February projection. As a percentage of gross domestic product (GDP), the projected deficit remains at 3%, same as the February projection.

https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/17msr.pdf

FY17 Appropriations

The House and Senate Appropriations Committees have marked up and reported out of committee all of their FY17 appropriations bills, but with the Congress now in recess for the next 7 ½ weeks and the House and Senate scheduled to only be in session 17 and 19 (respectively) days before the end of the fiscal year talk has now turned to a continuing resolution (CR).

The House Republican Conference was scheduled to hold a planning meeting on Thursday to address issues for the fall term including the length of a CR, but the meeting was cancelled. Conservative House Republicans are pushing for a stopgap spending measure that would fund the government through March 2017 allowing a new Congress and President to complete the budget process. They are concerned that Republican leaders would use the lame-duck session to cut deals on major legislation. In previous presidential election years (2008 and 2012), Congress pushed funding bills into March. March is also when the current suspension of the debt limit is set to expire.

Senate appropriators, on the other hand, prefer a CR funding the government into December allowing them enough time to complete work on separate FY17 spending bills or an omnibus package. They are concerned that making federal agencies operate under a CR for six months keeps them stuck on “autopilot” and could lead to a year-long CR. A CR would likely extend current funding without allowing any money for new programs.

House

Floor

The House passed its fifth FY17 spending bill this week. The $32.095B FY17 Interior appropriations bill passed by a vote of 231 to 196 (3 Democrats voted for the measure and 15 Republicans voted against it). This is the first time since 2009 that this annual spending bill has been passed by the House. The President has threatened to veto the bill over the funding level as well as policy riders that the administration believes would undermine environmental protection.

House FY17 Interior Appropriations Bill Text:

https://www.congress.gov/114/bills/hr5538/BILLS-114hr5538rh.pdf

House FY17 Interior Appropriations Report Language:

https://www.congress.gov/114/crpt/hrpt632/CRPT-114hrpt632.pdf

OMB Statement of Administration Policy on House FY17 Interior Bill:

https://www.whitehouse.gov/sites/default/files/omb/legislative/sap/114/saphr5538r_20160711.pdf

Labor HHS Education

The House Appropriations Committee marked up its $161.6B Labor HHS Education spending bill in full committee this week after debating the bill for two days. The bill is $569M below the FY16 enacted level, $2.8B below the President’s FY17 budget request, and approximately $300M less than the Senate FY17 version. The bill was approved by a vote of 31 to 19. It is the 12^th and final bill to be considered by the House appropriations committee this year.

The following amendments were adopted during full committee consideration of the bill:

• Cole – The amendment makes technical and non-controversial changes to the bill and report. The amendment was adopted on a voice vote.
• Kaptur – The amendment adds report language directing the CDC to coordinate with other agencies and States on the public health effects of algal-blooms. The amendment was adopted on a voice vote.
• Ryan – The amendment adds report language directing the Bureau of Labor Statistics to conduct a study on the impacts of free trade agreements on the U.S. labor market. The amendment was adopted on a voice vote.
• Harris – The amendment specifies that any federal funding provided in any act of law may only be used to provide In Vitro Fertilization (IVF) treatments if such treatments do not result in the destruction of viable human embryos before embryo transfer. The amendment was adopted on a vote of 29-21.
• Lee – The amendment adds report language requesting a Department of Education study on the adverse impacts of school segregation. The amendment was adopted on a voice vote.

Committee members rebuffed Democratic amendments related to family planning, the Zika outbreak, and gun violence. The bill does create for the first time an emergency reserve fund to combat any outbreak of an infectious disease. The bill includes $300M for the fund, but Democrats argue that more funding is needed.

House FY17 Labor HHS Education Bill Text:

http://appropriations.house.gov/uploadedfiles/bills-114hr-fc-ap-fy2017-ap00-laborhhsed.pdf

House FY17 Labor HHS Education Report Language:

http://appropriations.house.gov/uploadedfiles/hrpt-114-hr-fy2017-laborhhsed.pdf

House FY17 Labor HHS Education Summary:

http://appropriations.house.gov/news/documentsingle.aspx?DocumentID=394633

State Foreign Operations

The House Appropriations Committee marked up its $52B FY17 State Foreign Operations spending bill this week. The bill is $595M below the FY16 enacted level, $691M below the President’s FY17 budget request, and roughly $100M below the Senate’s FY17 funding level. Within the overall funding amount, Overseas Contingency Operations (OCO) funding totals $14.9B, which is equal to the FY16 enacted level. The bill was reported out of full committee by voice vote and in addition to a manager’s amendment, the only other amendment adopted was one to modify the quorum requirement for the Export-Import Bank Board through September 30, 2019. This is needed for the Bank to approve certain transactions as three of the five Board positions are currently vacant.

House FY17 State Foreign Operations Bill Text:

http://appropriations.house.gov/uploadedfiles/bills-114hr-fc-ap-fy2017-ap00-stateforop.pdf

House FY17 State Foreign Operations Report Language:

http://appropriations.house.gov/uploadedfiles/hrpt-114-hr-fy2017-stateforop.pdf

House FY17 State Foreign Operations Summary:

http://appropriations.house.gov/news/documentsingle.aspx?DocumentID=394623

Senate

Floor

The Senate voted for the second time this month on a cloture vote on the FY17 Defense Appropriations bill. The vote again failed by a vote of 55 to 42 (60 votes are required under Senate rules). Democrats are objecting to the bill saying that Republicans are not abiding by last year’s bipartisan budget deal, and that they are funding defense at the expense of other non-defense discretionary spending measures.

FY17 Military Construction-Veterans Affairs and Zika Virus Funding Conference Agreement

Once again, Senate Democrats rejected an attempt by Senate Republicans to move forward on the conference agreement to the FY17 Military Construction-Veterans Affairs/Zika Virus appropriations bill. With more than 4,200 people in the U.S. and its territories already infected with the virus (including 649 pregnant women), federal health officials are concerned about the spread of the disease during the summer months.

Republican House and Senate Appropriators sent a letter to President Obama yesterday urging the White House to take action on Zika funding. They wrote that the White House should “aggressively use funds already available to mount a strong defense against the virus” if Senate Democrats continue to block the consideration of Zika legislation. They also questioned why the administration hasn’t already used the $500M that is already available for the Zika virus.

Letter to President Obama:

http://appropriations.house.gov/news/documentsingle.aspx?DocumentID=394655

Subcommittee                     House                                      Senate

FY16 vs. FY17 302(b) Allocations

*Includes Overseas Contingency Operations (OCO) funding.