Congress Reaches Deal to Avoid Default, Reopen Federal Government

Two weeks and a day after the federal government shut down, and the day before a default on the national debt, Senate leadership reached a deal to reopen the government and avoid default. The shutdown was lengthy and, had the government defaulted on its debt, it would have been the first time in history—except for a technical, computer-glitch-inspired default in 1979.

Ultimately, the deal required the cooperation of Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell agreeing to a bipartisan, but not bicameral, solution. The agreement will fund the federal government via Continuing Resolution through Jan. 15 and raise the debt ceiling through Feb. 7, under three conditions.

First, the agreement will require the House and Senate to formally begin hammering out details for a full, long-term budget resolution. Congress, which has not passed budget resolutions or long-term funding bills for more than five years, has kept the government operating under stop-gap Continuing Resolutions, or CRs. The constant use of CRs has been part of what led to the funding standoffs over the past few years, and the first step to ending the standoffs and the consistent state of funding uncertainty is to pass a budget resolution. Members of Congress are expected to begin this process right away.

Second, the compromise operates under the premise that sequestration will remain in place. Sequestration is the ultimate result of the Budget Control Act of 2011, which itself was the compromise reached the last time the federal government almost defaulted on the debt. The Budget Control Act required Congress to take certain steps to pass a budget resolution, and if it did not, triggered automatic federal spending cuts known as sequestration. Congress failed to take the steps to avoid sequestration and the automatic cuts have been in place ever since. Members of Congress on both sides of the aisle have criticized sequestration as sloppy budgeting and some in leadership called for an end to the cuts as part of this week’s deal. Reid and McConnell, however, announced the sequester is here to stay, at least for now.

Third, the agreement will require income verification to obtain certain subsidies under the Patient Protection and Affordable Care Act. Back in 2010, during Congress’ nearly yearlong debate over the Affordable Care Act, one point of contention was whether low-income Americans would need to prove their income level to be eligible for federal subsidies to buy insurance on the act’s new health insurance exchanges. Eventually, the U.S. Department of Health and Human Services announced that income would be verified based on certain triggers after the fact, but not required by all applicants up front. This week’s agreement would call for an up-front verification before subsidies can be secured.

After taking several shots in the dark to get more out of the deal, the House of Representatives eventually voted on the Senate’s bipartisan deal. While this means the narrow aversion of a crisis once again, state leaders should closely monitor the impending budget process. A path toward long-term budgeting certainly makes it easier for states to plan and reduces the risk of a snowball effect from default, but a federal budget that is much different in scope could lead to much different challenges for states.