The President’s budget request was released on March 9th and features spending of more than $6.9 trillion (1), compared to last year’s request of $5.8 trillion (2) for FY23. The traditional annual budget process is complex and occurs in planned steps throughout the calendar year that are often adjusted for political purposes. The standard process for the budget approval occurs in 5 steps (3): 1) Federal agencies create their budget requests and send them to the Office of Management and Budget (OMB), which is part of the White House. The current administration then reviews and adjusts administration requests and submits the requested budgets to Congress. The budget request is sent to Capitol Hill in February, the year before the budget year begins. 2) Congress then creates a budget resolution. The resolution outlines overall budgetary goals and priorities for the upcoming fiscal year. This budget resolution sets targets for spending, revenue, and deficits. 3) Congress then must pass appropriations bills reconciling the President’s recommendation and congressional priorities. 4) The House and Senate reconcile the difference between their bills in a Conference committee and produce a compromised version that can be passed in both chambers. 5) Once both the House and Senate have passed an appropriations bill, it is sent to the President for signature. The President can sign the bill into law, veto it, or allow it to become law without his or her signature. While leadership in both houses of Congress can change every 2 years, the budget process is performed annually regardless of which party is in power.
This process is typically how the budget approval is supposed to play out but rarely does. Congress has only completed this process before the beginning of the fiscal year 3 times in the last 47 years, most recently for FY1997(4). More often, a continuing resolution (4) (CR) is passed. A CR is used when both the Congress and the White House do not reach an agreement on spending levels. Per the GAO (4), “CRs generally continue the level of funding from the prior year’s appropriations or the previously approved CR from the current year. Full-year CRs provide appropriations for the remainder of the fiscal year and are functionally similar to final appropriations. There have been 47 CRs between FY 2010-2022. These ranged from 1 to 176 days (just under 6 months). In the worst cases, —in FYs 2014, 2018, and 2019—no CR was approved, resulting in a government shutdown.” The federal government is currently under a CR for FY 2023 that expires September 30. Given the country’s status of divided government, a continuing resolution for fiscal year 2024 seems likely compared to passing a spending budget.
While the White House released ambitious budget figures of their own, it is not expected to pass as is. Preliminary budget figures released by the White House in early March are seeing increases across the board, with the budget projecting to create roughly $2.6 trillion in new spending (5). Federal agencies are expected to see drastic increases (6) across the board. Agencies like the Environmental Protection Agency (19%), National Science Foundation (18.60%), and Education (13.60%), which all saw funding cuts under the previous administration, are seeing some of the largest growth. On the flip side, agencies like Defense (3.20%), Justice (5.90%), and Homeland Security (-1%) only saw modest to no growth, as national security was a high priority under the previous administration. While there are many new listed priorities in the President’s budget, many of these line items are likely dead-on arrival and see no path forward through the Republican controlled House. As it stands, the Republicans in Congress are expected to continue advocating for reduced government spending and lowering taxes for the American people.
Source: 2024 OMB Budget request
In addition to navigating through the budget process, the White House is tasked with an even more difficult process in raising the debt ceiling. On January 19, 2023, the United States reached the current debt limit cap of $31.4 trillion. The limit caps the total amount of allowable outstanding U.S. Federal Debt. The Treasury Department has taken temporary measures so that the limit will not bind, but these measures are only expected to be sufficient through June 2023. Ideally, the preferred outcome would be passing an agreement to raise or suspend the debt ceiling. If this solution is not feasible, the White House and Congress could temporarily suspend the debt limit for a later date, effectively kicking the can down the road. If Congress does not pass a debt ceiling increase before June, the government may have to delay certain payments, such as social security benefits, Medicare, or future interest payments.
Members of the Boyd Watterson team will continue monitoring the progress on both the budget for fiscal year 2024 and the on-going debt-ceiling fight.
- (1) Biden unveils his budget plan in a campaign-style speech. Here’s what is in it
- (2) Biden’s Budget Proposal for 2024: What to Know
- (3) A guide to the federal budget process
- (4) What is a Continuing Resolution and How Does It Impact Government Operations?
- (5) Here’s what Biden’s budget would do — if Congress supports it
- (6) President’s Budget
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Research Analyst
Boyd Watterson Asset Management, LLC