BCA Spending Caps and FY 2020 and 2021

With the Congress and the President having finally agreed on funding for FY 2019, many policymakers in the legislative and executive branches have turned their thoughts to the caps on discretionary spending for the next two fiscal years, especially now that the President’s budget was submitted today. First, it must be noted that these will be the last two years of discretionary caps as set by the “Budget Control Act of 2011” (P.L. 112-25) (BCA) that has served to constrain most of the funding provided under annual appropriations acts even though these caps have been revised multiple times to increase the amount of funding Congress could appropriate. One of these deals, the “Bipartisan Budget Act of 2018” (P.L. 115-123) cleared the way for appropriations over the last two fiscal years as neither Republicans nor Democrats could live with the severe reductions called for to the programs near and dear to them. Generally speaking Republicans want more defense funding and less non-defense funding, and Democrats the opposite.

The BCA set two sets of caps on funding into statute for fiscal years 2012-2021. The first set was higher and would have been observed if the Joint Select Committee on Deficit Reduction (the so-called Super Committee) had drafted legislation that was subsequently enacted resulting in a net reduction in federal funding of at least $1.2 trillion. The Super Committee failed to do so despite all the grand bargain deficit reduction plans floating around earlier this decade (Bowles-Simpson, anyone? Or perhaps Domenici-Rivlin was more to your taste?) Consequently, the lower set of caps (the so-called revised caps) came into effect that lowered annual defense funding by an average of $54 billion and annual non-defense funding by $35 billion. Absent further Congressional and Presidential action, these are the caps we would have to live under.

Yet, true to human nature, the Obama and Trump Administrations and Congress did not want to eat their budgetary vegetables, and so fiscal diet cheating occurred.  Four such bills have lifted the discretionary caps since the enactment of BCA as detailed by CRS:

Congress may modify or repeal any aspect of the BCA procedures, but such changes require the enactment of legislation. Several pieces of legislation have changed the spending limits or enforcement procedures included in the BCA with respect to each year from FY2013 through FY2017. These include the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240), the Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67, also referred to as the Murray-Ryan agreement), the Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74), and the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123).

Here’s a useful CRS chart mapping out the changes in caps over the years:

There is already clamoring to do the same for fiscal years 2020 and 2021, and there is every reason to expect that Republicans and Democrats will reach a deal that results in increased spending above not only the current statutory caps but also above the enacted funding levels for fiscal year 2019.

As point of review, P.L. 115-123 moved both the defense and non-defense caps upwards in fiscal years 2018 and 2019:

Original FY 2018 and 2019 Caps:

	Defense	Non-Defense
FY 2018	$549 billion	$516 billion
FY 2019	$562 billion	$530 billion

Revised Caps Per P.L. 115-123:

	Defense	Non-Defense
FY 2018	$629 billion	$579 billion
FY 2019	$647 billion	$597 billion

And, also true to human nature, Congress and the President ultimately agreed on spending right up to these caps for fiscal year 2019. Consequently, any likely increases in the fiscal years 2020 and 2021 caps would use the fiscal year 2019 numbers as a floor, meaning actual year-over-year increases are likely for the next two fiscal years regardless of some of the political posturing from the White House about dramatically cutting non-defense funding.

Current FY 2020 and 2021 Caps:

	Defense	Non-Defense
FY 2020	$576 billion	$542 billion
FY 2021	$590 billion	$555 billion

Net Cuts in FY 2020 and 2021 Compared to FY 2019

	Defense	Non-Defense
FY 2020	-$71 billion	-$55 billion
FY 2021	-$57 billion	-$42 billion

So, obviously, without action, there would be dramatic cuts in discretionary funding as compared to fiscal year 2019.

There is an enforcement mechanism in the form of sequestration that the Office of Management and Budget (OMB) must issue if discretionary funding is enacted that exceeds the statutory caps, resulting in a uniform percentage cut of all non-exempt defense and non-defense programs, activities, and accounts. Some accounts are not subject to sequestration such as Medicaid, Social Security, SNAP, CHIP, TANF, others are exempted at the President’s discretion such as the Pentagon’s Personnel accounts, and some are limited to no more than 2% cuts such as Medicare. There has only been one sequestration order issued under the BCA, however.

It also bears note that OMB may adjust the caps to account for discrete categories of funding, notably Overseas Contingency Operations (OCO) accounts, Emergency funding, and certain program integrity spending. Consequently, the year-to-year caps get raised to account for these types of funding, with OCO making the largest impact each year.

Bottom line here is that Congress and the President living within the current caps for the next two fiscal years is unlikely. What is most likely is that a deal is reached towards the end of this calendar year and likely into the next fiscal year, say December, to raise the caps. Some are saying such a deal could be rolled together with a debt limit increase or suspension, meaning there could be some serious white-knuckling into this fall and winter if these two issues get linked. Stay tuned.