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Congress Passes Legislation to Avoid Government Debt Default, Adopts Federal Budget Spending Limits
June 8, 2023 by NBCC Government Affairs

Congress passed the Fiscal Responsibility Act of 2023, and it was signed by President Biden on June 3 before the U.S. Treasury Department would have run out of sufficient funds to pay the nation’s obligations on time and in full. The deal came together over the Memorial Day weekend, but passage was not guaranteed because it contained provisions that Republicans and Democrats did not support.

The legislation contains these key federal budget provisions:

It addresses the debt ceiling: The legislation suspends the nation’s $31.4 trillion debt limit through Jan. 1, 2025, removing it as a potential issue in the 2024 presidential election.

It caps non-defense spending: The package keeps non-defense discretionary spending in the 2024 budget roughly steady at 2023 levels and caps growth in the 2025 budget at 1%, but codifies the Biden Administration's request for $886 billion for the Pentagon, a roughly 3% increase. Non-defense discretionary spending for fiscal 2024 will be capped at about $704 billion, of which $121 billion will be for veterans’ medical care and $583 billion will be for other areas, according to a source familiar with the legislation. Non-defense discretionary spending accounts for only 15% of federal spending, and part of that amount goes to health programs including the National Institutes of Health, the Centers for Disease Control and Prevention, and the Food and Drug Administration.

It expands food-assistance work requirements: The package calls for temporarily broadening of work requirements for certain adults who receive food stamps. Currently, childless, able-bodied adults ages 18 to 49 are only eligible to receive food stamps for 3 months out of every 3 years unless they are employed at least 20 hours a week or meet other criteria. The legislation will increase the limit to age 55 in phases but exempts the homeless, veterans, and some former foster youth. 

It claws back some COVID-19 relief funds: The legislation will rescind roughly $28 billion in unobligated funds from the COVID-19 relief packages that Congress passed to respond to the pandemic.

It cuts Internal Revenue Service funding: The package will repurpose $10 billion from fiscal 2024 and another $10 billion from fiscal 2025 appropriations to be used in non-defense areas, according to the White House source.

It restarts student loan repayments: Under the package, borrowers will have to begin paying back their student loans at the end of the summer. 

It permits reform: The legislation streamlines the environmental review process to speed up approval for new energy projects.

It maintains climate and clean-energy measures: The legislation will not make any changes to the Inflation Reduction Act’s climate and clean-energy provisions.

The bill would reduce budget deficits by $1 trillion over the next 10 years.

More on Health-Related Provisions

Besides the spending limits, the main health-related provision in the law is the clawback of about $27 billion in unspent money appropriated for COVID-related programs. Only a portion of the money being reclaimed from COVID programs is specifically health-related; money is also being returned to the federal government from programs related to housing and transportation.

Of the unspent COVID funds, the biggest single rescission is nearly $10 billion from the Public Health and Social Services Emergency Fund. The CDC would have to give back $1.5 billion. Exempted from those health-related givebacks are “priority” efforts such as funding for research into next-generation COVID vaccines, long COVID research, and efforts to improve the pharmaceutical supply chain.

The initial Republican bill would have imposed nationwide work requirements on the Medicaid health program. Democrats argued that such requirements would not increase work but would separate eligible people from their health insurance for failing to complete required paperwork. That is already happening as states begin to trim rolls after the end of the COVID public health emergency.

The final legislation does not affect the major federal health programs—Medicare, Medicaid, and Social Security. The deal includes no new work requirements for Medicaid, freezes other health spending at its current level for the coming fiscal year, and allows for a 1% increase the next year. 

Next Steps

It will be up to the House and Senate Appropriations Committees to determine later this fall how to distribute the funds among the discretionary programs whose spending levels they oversee. 

As for debt ceiling issues, the U.S. Treasury Department will be able to issue debt such as bonds to pay the federal government’s spending obligations already authorized by Congress until early 2025, thus avoiding default. 

Passage of the Fiscal Responsibility Act allows the nation to avoid a default that would have had catastrophic consequences for the economy. 

Read the full text of the legislation here.

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