05.08.2011.

Budget Control Act of 2011

Jack Quinn, Quinn Gillespie & Associates Co-Founder, courtesy to East West Bridge

The President quietly signed the Budget Control Act of 2011 into law on Tuesday. This brought about a close to this summer's biggest political spectacle, though the sigh of relief was not heard on the exchanges around the world. Their focus shifted quickly to the increasingly bleak data suggesting the potential of a second recession.  Still, the debt ceiling vote prevented default and maintained the AAA rating of U.S. Government obligations.

 

At the end, Congressional leaders in both chambers largely dominated the negotiations. You can expect to see these same leaders at the center of the ongoing discussion of deficit reduction measures, given the central role of the soon-to-be-appointed Joint Committee that is mandated with the task of identifying further areas of spending cuts and, perhaps, revenue enhancements. The bi-cameral, bi-partisan panel of 12 members of Congress will be made up of individuals committed to the positions of their leaders in the respective chambers, and the possibility of a division within either political party is, at best, exceedingly slim. In that event, of course, automatic triggers will be pulled to set in motion measures that will be painful to both parties and their core constituencies.  In the coming weeks and months, a host of industries will be assessing the relative merit (and feasibility) of a compromise solution among the members of the panel, on the one hand, and the implementation of the triggers on the other.

 

Bear in mind that, if the triggers are pulled, the resultant spending cuts will not occur until 2013.  And, in 2012, Congress would be free to modify or roll back any of those cuts through the ordinary legislative processes. Many questions linger after Tuesday’s vote on the debt ceiling legislation. Following is an explanation of the deal, a breakdown of the mechanics of the Joint Committee, and a reference timeline:

 

The Debt Deal Breakdown

The Budget Control Act of 2011, PL 112-25, was signed into law by the President on August 2, 2011.

 

The bipartisan debt deal, which included three debt ceiling increases, an immediate $400B raise to $14.7T and two subsequent—$500B and $1.5T—raises totaling $2.4T through the end of 2012. The deal identifies nearly $1T in initial cuts over 10 years and forms a special joint committee to identify additional $1.5T in future spending cuts over 10 years. The appointment of certain members to this Committee may signal the direction of any future cuts or possible tax code changes. However, the process may largely resemble the negotiation for the debt deal, which was largely dominated by the Leadership in each chamber.

 

Stage One.

 

1. Initial Spending Caps.  On October 1, 2011, the initial spending caps, totaling $917B over 10 years, come into effect. Of this amount, $350B is estimated to be savings from cuts to military spending alone and the rest from non-defense discretionary spending.

 

1. Immediate Increase.  Guaranteed immediate $400B increase in the debt ceiling, which the Treasury projects will last through the end of September.  Another $500B debt ceiling will be added to the limit, once the country is within $100B of its debt-issuing authority. This increase is subject to congressional disapproval, which can, in turn, be vetoed by the President.

 

Stage Two.

 

1. Joint Committee.  Joint Committee is responsible for identifying an additional $1.5T in deficit reduction. If the committee is successful and legislation passes in Congress, the debt limit will increase by $1.5T. If the committee only recommends a package that reduces the deficit less than $1.2T, the debt ceiling will only increase by $1.2T. Any increase in the debt limit is subject to a resolution of disapproval, which could be ultimately vetoed by the President.

 

1. Sequestration.  If the committee fails to report legislation or Congress fails to enact the recommendations, the process of sequestration will be triggered. Sequestration will make up the difference between any deficit reduction, achieved by the joint committee’s recommendations and subsequent enactment in Congress, and $1.2T in deficit reduction over 10 years. Sequestration is similar to the 1985 Gramm-Rudman-Hollings trigger and will be split 50% for defense spending cuts and 50% for non-defense spending.

 

• Defense. Under the sequestration process, the defense budget could face over $800B in additional cuts over 10 years.
• Non-defense. Everything is subject to sequestration with the exception of the following payments to beneficiaries: Social Security, Medicaid, veteran benefits and pensions, federal retirement fund government contributions, military salaries, for child nutrition and other payments to women and children.
• Medicare savings are capped at 2% and limited to providers, payments to beneficiaries will remain untouched.
• Starting on January 2, 2013, Sequestration will be equally divided between each FY between 2013 and 2021. The final sequestration level would not be known until FY2012 spending levels are set. Projected cuts (from the estimated FY2012 budget) would be 8.4% for defense spending and 6.7% for non-defense spending (excluding Medicare cuts).

 

1. Balanced Budget Constitutional Amendment.  Under the agreement, the House and Senate will each vote on a balanced budget amendment to the Constitution before the end of the year. None of the cuts or other aspects of the agreement are contingent on the adoption of such an amendment.

The Joint Select Committee on Deficit Reduction

The Budget Control Act of 2011 establishes a joint select committee of Congress that has a goal to reduce the deficit by at least $1.5T over 10 years.

 

Once formed, a simple majority is needed to report the recommendations and legislation out of the committee and send them to the President, the House and the Senate. Debate on this bill is limited and no amendments are allowed, so there is a clear path to an up-or-down vote in each chamber.  If the Joint Committee fails to report legislation, a $1.2T across the board cut (50% discretionary non-defense/50% defense) will be triggered under the same “sequestration” process created under the 1997 Balanced Budget Agreement.

 

Duties. The joint committee will:

 

• Provide recommendations and report legislative language to improve the short-term and long-term fiscal imbalance by November 23, 2011.

 

Report & Legislation.  The joint committee must:

 

1. Consider any recommendations made by each committee of jurisdiction in the House and Senate submitted by October 14 regarding changes in law to reduce the deficit.

 

1. Prepare a report that contains a detailed statement of the findings, conclusions, and recommendations of the joint committee and estimate by CBO.

• Rule changes.  Included in the report will be considered advisory to the House or Senate.
• Additional Views.  A joint committee member may give notice of an intention to file supplementary, minority or additional views at the time of final vote on the approval of report and legislative language and will be entitled to 3 days to file.

 

1. Draft and report out legislative language to carry out such recommendations.

 

• Submission.  The report and legislative language reported by committee must be submitted by December 2 to the President, the Vice President, the Speaker of the House of Representatives and the Majority and Minority Leaders of each House of Congress.
• Publicly Available.  At the time of submission, the report and legislative language will also be made available to the public.

Membership.

 

• Twelve Members.  The joint committee will be composed of 12 Members of Congress.
• Co-Chairs.  There will be two Co-Chairs appointed by the Speaker of the House and the Majority Leader in the Senate.
• Members.  The Speaker of the House, majority and minority Leaders in the Senate and minority Leader in the House will each be able to appoint 3 members total.
• Staff Director.  The Co-Chairs will appoint and hire a staff director.
• Deadline.  All appointments must be made 14 days after enactment, August 16.
• Vacancies.  Shall be filled within 14 days under the same process as the original appointment.

 

Structure.

 

• Voting and Quorum. A simple majority is required to report out the legislative language and final report.  Seven members constitute a quorum for the purposes of voting, meeting and holding hearings. No proxy voting is allowed. A CBO score must be provided 48 hours before a vote.
• First Meeting.  The first meeting must occur 45 days after enactment, September 16.
• Agendas & Hearing Announcements.  Co-Chairs will provide agendas to members 48 hours before a meeting. Co-Chairs must make a public announcement of the date, place, time and subject matter for hearings 7 days in advance.
• Hearings & Written Statements.  The joint committee may hold hearings and require the attendance of witnesses and production of books, papers and documents, and testimony. Written statements by witnesses will be provided 2 days in advance.
• Termination.  The joint committee will dissolve on January 31, 2012.

 

Expedited Procedure.

 

House of Representatives.

• Introduction.  Legislative language reported from committee must be introduced by the Majority Leader of the House or by his designee on the legislative day after the joint committee reports its bill.
• Committee Referral.  The bill shall be referred to the standing committees of jurisdiction and those committees are required to report the bill to full House by December 9. No amendments by the committees are in order.
• Failure to Report.  If the committee fails to report, a motion to discharge the committee is in order in the House and debate on that motion is limited to 20 minutes, equally divided.
• Consideration.  The motion to proceed to the bill is not debatable. Debate on the bill is limited to two hours, equally divided and all points of order against the bill are waived.

 

Senate.

• Introduction.  The Majority Leader of the Senate or his designee is required to introduce the committee reported legislation on the next day the Senate is in session after the joint committee reports its bill.
• Committee Referral. The bill reported by the joint committee shall be referred to the committees of jurisdiction in the Senate.  Those committees must report the bill back to the full House by December 9 and may not propose amendments.  Committees which fail to report will automatically be discharged.
• Motion to Proceed.  The motion to proceed is not debatable.  Notwithstanding the pendency of other business, the Majority Leader of the Senate or his designee may move to proceed to the bill within two days of session after the bill is report or discharged from committee. After those two days of session, the motion can be made by any Member of the Senate.
• Amendments & Motions.  Amendments or motions to postpone, proceed to other business or recommit this bill to the joint committee are not in order. All points of order are waived against the bill.
• Limits on Debate.  Consideration of the bill and all debatable motions and appeals is limited to 30 hours and that time is divided equally between the leaders and their designees. A motion to further limit debate is in order and requires an affirmative three-fifths vote. Debate on any motion or appeal is limited to one hour equally divided between opponents and proponents.

 

Final Passage.

 

• If the Senate fails to introduce or consider the bill, a bill passed by the House will be accorded expedited floor procedures in the Senate.
• Once received from the other chamber, the bill may not be referred to a committee. The final vote on passage in each chamber must not occur later than December 23.

If the President vetoes the bill, the debate in the Senate on the veto message is limited to one hour equally divided.

Timeline of Key Dates

August 1, 2011           House passes debt deal 269-161 votes.

August 2, 2011           Senate passes debt deal 74-26 votes. President signed the deal into law.

August 16, 2011         Reps. Boehner and Pelosi and Sens. Reid and McConnell must appoint 3 members each to the bipartisan Joint Committee. Co-Chairs and joint staff director must also be chosen.

September 16, 2011    Joint Committee must hold its first meeting within 45 days of enactment.

September 22, 2011    Deadline that Congress must approve of a resolution of disapproval for $500B of the first tranche of the debt ceiling increase.

October 1, 2011          Initial $917B spending caps take effect.

October 14, 2011        Deadline for each committee of the House and Senate to submit their legislative recommendations to the Joint Committee.

November 23, 2011    Joint Committee must vote on a report and legislation.

December 2, 2011       Joint Committee must send its report and legislative language to the Executive and Legislative Branches.

December 9, 2011       Bill must be reported from any congressional committees or it will be discharged automatically.

December 23, 2011     Congress must take an up-or-down vote on the recommendations or the sequestration process will be triggered.

January 15, 2012         Date by which sequestration process is triggered starts to take effect.

January 31, 2012         Joint Committee dissolves.

February 6, 2012         First Monday in February, President may report budget proposal. Delays are possible.

April 15, 2012             Senate Budget Committee chairman will report FY2012 and FY2013 allocations to the Appropriations Committee based on the spending caps in the debt deal.

January 1, 2013           If Congress fails to adopt the Joint Committee’s report, sequestration will be triggered and $1.2T in cuts over 10 years will be equally divided between defense and non-exempt discretionary spending.