Third Disaster Relief Bill Could Be a “Christmas Tree”

Congress still faces an ambitious agenda and precious few legislative days before members leave town for the holidays. While it remains unclear when Congress will wrap up in December, especially with the GOP serious about completing a tax package by year’s end, there are a number of issues that must be addressed before adjournment. With so much to do and so little time, it’s likely a single bill turns into a Christmas tree, loaded up with outstanding business. With action on a “Christmas tree bill” – potentially a third supplemental appropriations package – anticipated in November, could Christmas come early?

While many are focused on the December 8th expiration of the continuing resolution (CR) funding the government, senior appropriations and tax staffers agree recent action on the budget resolution could bring talks on spending and other hot button issues sooner. By way of background, the Senate narrowly passed its Fiscal Year (FY)18 budget resolution on October 19th. The House just passed the Senate-passed bill today.

While it is notable that the budget resolution will allow Congress to do tax reform with just 51 votes in the Senate, the FY18 budget resolution also allows an increase in the defense budget to $640 billion without offsets, but only if lawmakers reach a deal to raise the Budget Control Act (BCA) spending caps. This would represent roughly a $90 billion increase for defense, up from the $549 billion defense cap. Since the president and defense hawks really want an increase in defense spending, this potentially sets the stage for an agreement similar to the 2015 Murray-Ryan budget deal to come together sometime in November. Such an agreement would need to move before an FY18 omnibus and may need to be attached to some other moving vehicle.

We foresee a scenario where the budget deal rides on a third supplemental appropriations bill. For those keeping track, Congress has already passed two supplemental appropriations bills for disaster relief. The first, signed by President Trump on September 8th, provided just over $15 billion for initial Hurricane Harvey response efforts in Texas. On October 24th, the Senate passed a second disaster relief bill that would provide an additional $36.5 billion in emergency aid for the communities impacted by Hurricanes Harvey, Irma, and Maria, as well as recent wildfires out West, sending it to the president’s desk. The final Senate vote on the second supplemental appropriations bill was 82-17. All 17 votes against the bill were cast by Republicans, primarily budget/deficit hawks who are opposed to passage of even emergency spending bills without offsets.

While Congress has now provided $52 billion in emergency appropriations, these first two streams of funding are expected to only cover the initial “relief” phase of response efforts in Texas, Florida, and Puerto Rico. This means that we should expect a third supplemental appropriations bill that is focused on “rebuilding.” The White House has indicated it will ask Congress for “tens of billions” in more disaster relief funding in mid-November, with Office of Management and Budget (OMB) Director Mick Mulvaney appealing to Republican congressional leaders to offset at least some of the emergency funding.

While policy changes to the National Flood Insurance Program could be on the table in another disaster aid package, offsets could increase bipartisan support for a third supplemental appropriations bill. It will also be difficult for members of the Texas and Florida delegations to vote against additional funding appropriated for response efforts in their states. Outside of the House Freedom Caucus, the potential political ramifications of voting against such legislation makes the third disaster funding bill an ideal vehicle for carrying not only the budget deal, but also potentially other unrelated, but expiring or otherwise pressing items.

Our assessment is that the GOP is focused on achieving three things: (1) tax reform by 51 votes; (2) increased defense spending; and (3) funding for the border wall. Assuming tax reform moves separately and Republicans get increased defense spending and border wall money in a budget deal, this begs the question: What will Democrats get in exchange?

Democrats’ top priority for the budget deal will be to achieve parity in sequestration relief for both defense and non-defense spending. As mentioned above, the FY18 budget resolution envisions a $90 billion increase for defense spending, but no increase in non-defense spending. While negotiations on a budget deal have yet to begin in earnest, our prediction is that Democrats will insist that both defense and non-defense spending increase above the BCA caps. While the increase is unlikely to be as much as $90 billion, it could be significant, perhaps in the range of a $70-$72 billion increase for both defense and non-defense spending.

In addition to increasing spending levels, the budget deal could also become a vehicle for the Children’s Health Insurance Program (CHIP), Deferred Action for Childhood Arrivals (DACA), community health centers, and cost sharing reductions (CSRs) (perhaps the Alexander-Murray bill). Some of these provisions will need to be paid for. Potential pay-fors could include additional spectrum auctions, some of the entitlement cuts previously proposed by President Barack Obama, and potentially reductions to federal employee benefits. In other words, the third disaster supplemental could light up like a Christmas tree.

Once a budget deal is reached, it will likely take appropriators 4-5 weeks to prepare an FY18 omnibus. With government funding on track to expire on December 8th, this means that we are likely to see at least one, if not more than one CR. Further, if GOP leadership keeps Congress in session until Christmas negotiating on a tax measure, from a timing perspective, this may also track with work on an FY18 omnibus appropriations package.