Last Wednesday, more than two weeks since the government shutdown began and only hours before a potential default on federal borrowing authority, Congress and the White House reached a short-term agreement to reopen the federal government and extend the debt ceiling.  The measure (H.R. 2275) passed the House and Senate late Wednesday by a vote of 285-144 and 81-18, respectively, and was signed into law by the President shortly after midnight.

The primary features of the agreement, which largely maintains current spending levels while House and Senate negotiators work against the odds to forge an FY14 budget agreement, include:

• A short-term FY14 Continuing Resolution (CR) enacted at FY13 levels ($986 billion) that lasts through January 15;
• The creation of a 29-member (see roster below) FY14 Budget Conference Committee, which must report back to Congress by December 13; and
• The lifting of the debt ceiling until February 7.

Under this temporary CR, International Affairs spending continues at the same amounts as provided at the FY13 post-sequestration levels: $52.2 billion – $41.6 billion in base appropriations and $10.6 billion for Overseas Contingency Operations (OCO). The agreement makes one small adjustment for International Affairs programs: amending the Food for Peace Act to extend the authorization for U.S. international food assistance until January 15, 2014.  This issue would normally be dealt with as part of the Farm Bill but, with continued delays in finalizing that measure, a short-term extension was needed in order to avoid disruptions to USAID global emergency food relief efforts. The budget agreement also includes several adjustments to accommodate immediate domestic needs, such as additional resources for the Colorado floods.

2. Impact on the International Affairs Budget

There are many unknowns for what will be achieved by the budget negotiations and, as a result, how FY14 appropriations will be finalized and what the impact will be on International Affairs programs. Below we analyze the potential scenarios, two that are likely determined by the Budget Conference Committee and two that are likely to be determined by the congressional leaders and appropriators.

Budget Conference Committee

In the immediate term, the 29-member Budget Conference Committee, co-chaired by Senators Patty Murray (D-WA) and Jeff Sessions (R-AL) and Representatives Paul Ryan (R-WI) and Chris Van Hollen (D-MD), is tasked to report back an FY14 budget agreement to the House and Senate by December 13.  Two overarching questions for these budget negotiations, the answers to which will have a significant impact on the International Affairs Budget, are:

• Will a large deficit reduction agreement be reached that will undo or revise the next round of sequestration cuts scheduled to take effect in January?
• Will negotiators come to an agreement on final spending level for FY14 – and what will that level be?

Here are four potential budget scenarios for what could transpire by the end of the year, beginning with the Budget Conference Committee:

1. Sequestration Replaced by New Budget Deal

For the past three years, the vast majority of deficit reduction has occurred through cuts to discretionary spending, including the International Affairs Budget.  Entitlement savings and tax increases have thus far only played a minor role in reducing the debt.  As has happened in the past, agreement on a comprehensive budget deal may be unattainable.  If the Conference Committee (or an alternative set of negotiators) is able to forge a deficit reduction deal that achieves the savings mandated by the Budget Control Act of 2011, sequestration most likely would be terminated.

This could be a very positive development for International Affairs programs, assuming these savings come from changes to entitlements and revenues rather than discretionary spending.  In the Budget Control Act, FY14 discretionary spending cap was slated at $1.058 trillion before sequestration, far higher than current funding levels.  In fact, Senate Appropriators used the Budget Control Act funding level of $1.058 trillion for their FY14 bills, producing a State-Foreign Operations measure that is about $10 billion (20%) higher than the House’s measure, sparing International Affairs programs from cuts and providing slight increases to some programs.

The potential vulnerability in this scenario, however, would be that the conferees negotiate a lower overall spending cap or that the appropriators re-divide the $1.058 trillion among the 12 spending measures in a way that leaves the State-Foreign Operations bill with a lower allocation than it had in the Senate’s State-Foreign Operations bill.

2. Sequestration Remains in Force

If the Budget Conference Committee or other negotiations fail to reach an agreement that would obviate sequestration, $19 billion in additional cuts will go into effect in January in order to bring discretionary spending down to $967 billion. Under current law, however, all of these cuts would be taken from defense spending because, in a little noticed adjustment as part of last January’s fiscal cliff deal, defense spending for FY13 was bumped $20 billion higher than allowed under the Budget Control Act’s sub-caps. As a result, defense accounts are now over their FY14 sub-cap by $20 billion. Thus, provided that the FY14 defense/non-defense sub-caps are not changed, International Affairs, along with other non-defense programs, would not face further cuts under sequestration and would at least maintain current funding levels throughout FY14. The vulnerability under this scenario is that Congress could change the defense/non-defense caps, subjecting International Affairs programs to additional cuts.

Once the Conference Committee presumably determines the top-line spending cap for FY14, the next key decision will be if FY14 appropriations wind up in another CR or in an omnibus appropriations bill.

3. FY14 Omnibus

Assuming the Conference Committee agrees on an FY14 discretionary spending level, the range will likely be between $1.058 trillion (the non-sequestered amount set in the Budget Control Act and preferred by the Senate) and $967 billion (the sequestered level set in the Budget Control Act that the House has been using for its appropriations bills). Under this scenario, appropriators from the House and Senate could move an omnibus bill to fund the government for the remaining eight months of the year, which would include negotiated spending levels for the 12 spending measures. If the spending cap is closer to the House level, draconian cuts to the International Affairs program are likely since their current proposal is $10 billion lower than the Senate levels.

4. Another FY14 Continuing Resolution

If all else fails, the current CR could be extended for the full year and International Affairs spending would remain flat for FY14 – provided that, as mentioned above, the current sub-caps for defense and non-defense spending are not changes.  However, it is not uncommon to make targeted changes (“anomalies”) in CRs that allow for selected accounts to increase or decrease compared with the prior year.  For example, the FY13 CR included several anomalies for the International Affairs Budget, including funding for increased embassy security and funding for humanitarian programs to cover the crisis in Syria.

Keeping these FY13 anomalies in place in a year-long FY14 CR would be vital, given the humanitarian tragedy continuing in Syria and the neighboring region, strong bipartisan support for enhanced Diplomatic Security operations, and the continuation of U.S. pledges to various multilateral initiatives.

Key Dates to Watch:

• December 13, 2013: FY14 Budget Conference Committee deadline to report to the House & Senate
• January 15, 2014: FY14 CR expires
• January 15, 2014 (est.): OMB issues sequestration order in absence of a budget deal
• February 7, 2014: Debt ceiling limit reached

FY14 Budget Conference Committee Membership

Senate: Patty Murray (D-WA) and Jeff Sessions (R-AL), co-chairs.  Others: Kelly Ayotte (R-NH), Tammy Baldwin (D-WI), Chris Coons (D-DE), Mike Crapo (R-ID), Mike Enzi (R-WY), Lindsey Graham (R-SC), Chuck Grassley (R-IA), Ron Johnson (R-WI), Tim Kaine (D-VA), Angus King (I-ME), Jeff Merkley (D-OR), Bill Nelson (D-FL), Rob Portman (R-OH), Bernie Sanders (I-VT), Debbie Stabenow (D-MI), Pat Toomey (R-PA), Mark Warner (D-VA), Sheldon Whitehouse (D-RI), Roger Wicker (R-MS), and Ron Wyden (D-OR).

House: Paul Ryan (R-WI) and Chris Van Hollen (D-MD), co-chairs. Others: Diane Black (R-TN), James Clyburn (D-SC), Tom Cole (R-OK),  Nita Lowey (D-NY), and Tom Price (R-GA).