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New White House, Congressional Spending Fights on the Horizon

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02/16/2019 | 11:14am EST

By Kate Davidson and Kristina Peterson

The protracted spending impasse that ended Friday, following the longest government shutdown in U.S. history, was just a prelude to other fiscal fights looming for the White House and Congress this year.

Lawmakers must once again raise the federal borrowing limit by late summer or early fall, and reach a new budget deal by the end of September to avert another government shutdown and the return of spending caps enacted in 2011.

The path may be bumpy, but the ultimate outcome appears to be a foregone conclusion: Lawmakers will likely agree to increase government spending again.

The first phase begins next month when the White House releases the president's fiscal year 2020 budget, which is expected to propose aggressive cuts to nondefense discretionary spending similar to his first two budget proposals. The administration expects to release an overview March 11 followed by a more detailed document March 18.

President Trump last year asked his cabinet members to find ways to cut their department budgets by 5%, following news that the $1.5 trillion tax cut had contributed to a 17% increase in the federal budget deficit in fiscal year 2018, which ended Sept. 30.

Republicans, however, weren't able to advance Mr. Trump's proposed cuts even though they controlled both chambers of Congress. Last year, they agreed to a bipartisan deal to boost government spending by $300 billion over two years above the limits set in 2011.

That deal expires in October, and congressional leaders will now have to negotiate new overall spending levels for fiscal year 2020, which starts Oct. 1. If they don't reach an agreement, automatic spending cuts known as the sequester will kick in, lowering discretionary spending by $125 billion in fiscal year 2020, a 10% reduction from 2019.

Congress passed two-year deals in 2013 and 2015 to prevent the sequester from taking effect, and is likely to reach an agreement again. But the recent government shutdown and fight over border security portend difficult negotiations.

"This battle's nothing compared to what's about to come," said Rep. Mario Diaz-Balart (R., Fla.), a senior member of the House Appropriations Committee. Mr. Diaz-Balart said Democrats' takeover of the House in January could add more friction to an already tumultuous budget process.

House Budget Committee Chairman John Yarmuth (D., Ky.) said Democrats would be seeking parity between military and nonmilitary spending, a point of contention in previous budget negotiations. Democrats view the most recent two-year budget deal, struck when they were in the minority of both chambers, as the starting point for the next negotiations, he said.

"It would be pretty crazy for Republicans to think they could get a better deal from their perspective and it would be stupid for us, now in the [House] majority, to think we can't get at least as good a deal as that," Mr. Yarmuth said.

The negotiations will take place this year against a backdrop of rising government deficits that are set to top $1 trillion a year by 2022, according to the Congressional Budget Office.

Federal outlays rose 4.4% in the 2018 calendar year and government receipts declined 0.4%, the Treasury Department said Wednesday, reflecting last year's spending deal and tax cut. The gross national debt this week also hit a new milestone, at $22 trillion.

"Is it a moment for a grand bargain?" asked Maya MacGuineas, president of the Center for a Responsible Federal Budget, referring to a bipartisan deficit-reduction agreement. "In terms of the fiscal situation, yes. In terms of the political environment, no."

Also on the fiscal calendar this spring: raising the federal borrowing limit, also known as the debt ceiling.

Congress in 2018 voted to suspend the limit through March 1. After that, it takes effect again and the Treasury will begin using so-called extraordinary measures to manage its cash flow so it can make on-time payments to bondholders, Social Security beneficiaries, government employees and others.

The Bipartisan Policy Center has estimated those measures will last at least though midsummer, while others have said they could last into the fall. But at some point, they won't be able to prevent the government from bumping into the debt ceiling, meaning it will have to be raised or Treasury will be unable to pay all its bills.

In recent years, down-to-the wire debt-limit negotiations have raised concerns that the U.S. could default on its debt, alarming investors.

Mr. Trump and Treasury Secretary Steven Mnuchin have said they were open to eliminating the limit, but the president has shown he can be unpredictable in his negotiations with Congress.

"The ramifications of not acting on the debt limit on time would be much, much more serious than a government shutdown," said Shai Akabas, BPC's director of economic policy. "If we are still in this state of loggerheads between the two parties as we've seen over the last [two months] on fiscal issues, and the debt limit enters into the arena at that point, we will get a lot of statements and tweets that make the market quite uncomfortable."

Write to Kate Davidson at kate.davidson@wsj.com and Kristina Peterson at kristina.peterson@wsj.com

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