Last week, both houses of Congress passed the Ryan-Murray budget deal put forth by the Budget Conference Committee.  The House passed the measure on Thursday night Dec. 12th by a 332-94 vote, and the Senate followed suit by passing the deal the following Thursday Dec. 19th by a vote of 64-36, and the final measure was to be signed into law by President Obama before he leaves on holiday travels to Hawaii.  The two year deal provides for $1.012 trillion in discretionary spending in FY2014, with a slight increase to $1.014 trillion for FY2015.   The compromise deal sits essentially half-way between the $1.058 trillion passed by the Democratically controlled Senate in their budget bill this past spring and the $967 billion sequester level spending Republicans sought to continue.

The deal allocates $520.5 billion in military spending and $491.8 billion for domestic programs in 2014.  The across the board spending cuts of sequestration have been lifted, with the moderately increased spending to be split evenly between military and domestic spending, which restores military funding nearly to pre-sequestration levels.  However, Congress will still face tough decisions in allocating domestic spending through the appropriations process, but the impact on popular programs such as education and Head Start will be less severe. The compromise deal does not continue unemployment benefits for the long-term unemployed which are set to expire three days after Christmas, as Democrats had wanted, and it removes the across the board spending cuts of sequestration in exchange for future savings, disappointing Republicans.  In favor of reaching a deal in time to meet the January 15, 2014 deadline, the larger and more ideological issues of tax reform to raise more revenue and containing growing Medicare and Social Security entitlement spending were left largely unresolved.

Among other specific provisions, the deal raises airline fees, presumably to be dedicated towards costs of airport security, and extends the 2% reduction in Medicare payments under the Budget Control Act of 2011 for an additional two years through 2023.  However, the largest impact will be felt by government employees and military veterans.  Although federal workers will receive a 1% pay increase, that is below the 1.2% inflation rate recently published by the Bureau of Labor Statistics, and does not extend to the lowest paid tiers of wage grade federal employees.  New federal employees will be required to contribute 4.4% of their income towards their government pension program, a continued increase from the .8% required pre-sequestration.  Also contentious is the reduction of the cost-of-living adjustments by 1% for military retirees under age 62.  Despite the increased spending, domestic programs may still face staff reductions through layoffs and early retirement or buyout offers.

Recognizing the challenging timetable to complete the appropriations process before the current stop-gap measure that ended the October federal shut down expires on January 15, 2014, the allocation levels for the twelve individual appropriations bills, known as 302(b) spending caps, were not made public as is customary.  Each subcommittee was privately told it’s cap and given until January 2, 2014 to make detailed appropriations and policy changes.  Negotiators will convene the following week with the goal of getting passage through the House by January 10, allowing the Senate to begin deliberations on January 13, in time to send a final bill to President Obama for his signature by the January 15 deadline. Assuming this two-year budget deal can be finalized in time to meet the January 15 deadline, Congress still faces revisiting the debt-ceiling issue as that short-term measure is set to lapse as early as March 2014.