Congress returns to Washington this week in a dash to avoid yet another government shutdown threat, and potentially pass a long-brewing foreign military aid package to support allies in Ukraine, Israel, and the Indo-Pacific. While both packages show signs of life, partisan divisions could once again derail both with significant effects for the U.S. economy and national security.

Everything old is new: Most federal agencies are still running on extensions of fiscal year (FY) 2023 funding, despite FY 2024 starting last October. These extensions delay “new start” federal contracts as well as annual appropriations-driven programs like grants. Once these extensions expire, large parts of the federal government may shut down for lack of funds. Congress, unable to agree on a funding package for months, split its most recent extension to expire to two different dates: funding for agencies including the Departments of Energy, Agriculture, Transportation, Housing and Urban Development (HUD), and the Food and Drug Administration (FDA) expires on January 19. Support for remaining agencies expires on February 2.

Late last year, House Speaker Mike Johnson (R-LA) warned the GOP-controlled House would not back more short-term extensions. Without a better plan, the House would re-extend FY 2023 levels all the way until FY 2025 starts on September 30, 2024. This longer extension would erase a year’s worth of work already completed on FY 2024 draft funding bills. The Department of Defense warned another extension would leave the Pentagon ill-equipped to respond to growing worldwide threats. Perhaps most crucially, a longer extension could trigger a new government-wide 1% cut (“sequestration”) adopted in last year’s Fiscal Responsibility Act if the extension goes past April 30.Rather than face all the drawbacks of a longer extension, appropriators worked over the holidays on a FY 2024 funding agreement.

First step: On January 7, Speaker Johnson announced an agreement to spend $1.59 trillion across FY 2024, including $886 billion for defense and $704 billion for domestic priorities. This agreement shows compromise between House Republican hardliners who previously demanded to slash $160 billion from domestic agencies, and bipartisan Senate leaders who wanted to increase both domestic and defense spending. The $886 billion for defense also aligns with the National Defense Authorization Act (NDAA) policy law Congress passed in December.

Speaker Johnson touted the new agreement's $6.1 billion in cuts to unspent COVID-era “slush funds,” without elaborating. Previous agreements to revoke unspent COVID funds withdrew money from federal public health agencies. Johnson added the deal cuts a further $10 billion from the Internal Revenue Service, on top of an earlier $10 billion cut last year. Despite Johnson’s victories, he still has not convinced all Republicans. Rep. Chip Roy (R-TX), a prominent conservative, quickly dismissed the plan as “terrible.” Prominent Democrats don’t appear pleased either: Rep. Rosa DeLauro (D-CT), lead Democrat on the House Appropriations Committee, said on Sunday: “I am infuriated that [this agreement] includes cuts to the Internal Revenue Service that only benefit tax cheats and cuts to COVID and public health funds.”

With this topline agreement in hand, House and Senate Appropriations Committee staffers will quickly develop new FY 2024 funding bills intended to last until October 1. However, partisan tensions linger: conservative Republicans will demand policy “riders” blocking Biden Administration social policies as well as environmental and financial regulations. Speaker Johnson has also hinted that Republicans could demand new immigration restrictions in return for a FY 2024 deal, reflecting their demands for a new foreign ally aid bill [see below]. Democratic leaders have already dismissed these demands as “poison pills.” In this delicate process, negotiations could fail resulting in a longer extension or even a government shutdown.  

Ally aid back in play? On January 7, Sen. James Lankford (R-OK) announced a bipartisan Senate working group will soon release a potential compromise to send billions in new aid to foreign allies including Ukraine, Israel, and Taiwan. The White House last month renewed its request to Congress for $106 billion to support these allies through weapons transfers and humanitarian aid over the next 12 months. Congressional Republicans maintain they will only support new Ukraine aid in exchange for permanent immigration restrictions and new spending for southern border security infrastructure. Immigration is a third rail in American politics: even with buy-in from both parties, major reform bills consistently fail. Nonetheless, for several weeks, Lankford and a bipartisan Senate negotiating committee including Sen. Chris Murphy (D-CT) and Sen. Kyrsten Sinema (I-AZ) have worked on a potential bipartisan solution, now releasing this week.

However, the new compromise may not go far. House Republicans last week announced they would insist on the House-passed Secure the Border Act (H.R. 2), which Democrats have already rejected. This bill would, among other policies, require all U.S. employers to ensure new hires are permitted to work in the U.S., restrict migrants’ ability to remain in the U.S. while claiming asylum from violence or persecution, increase required detentions and deportations, and resume construction on a southern border wall. Many Democrats have their own concerns: the Congressional Hispanic Caucus outlined many policy concerns and noted the Senate working group lacks any Hispanic representation, including subject matter experts like Senate Judiciary Immigration Subcommittee Chair Alex Padilla (D-CA). Fractures between the working group and White House with the CHC and other diverse Democratic groups are likely to siphon even more support from any new agreement.

Despite these challenges, the White House urges quick new support as previously-approved aid is totally exhausted.

Back to the start: Even as Congress is still completing FY 2024 funding, the FY 2025 cycle is already beginning.  Congressional offices will begin accepting requests for annual priorities including the NDAA and a new cycle of government funding bills this month. The White House is likely to release its FY 2025 President’s Budget in February, with bill introductions and markups to follow early this spring. Stakeholders who hope to add language to these new bills should not delay in contacting their congressional representatives.

The Michael Best team continues to monitor and report on annual government funding. To learn more and develop your own outreach strategy, contact the Michael Best servicing team.