Yesterday, the House approved (285-144) a bill that would extend the debt limit for three months. This action, if approved by the Senate and signed by the president, would delay a potential default on U.S. government financial obligations until May 19, 2013. The current debt limit is expected to be breached by the end of February.
Democrat leaders have indicated the Senate will pass the bill next week. The Office of Management and Budget (OMB), in a Statement of Administration Policy (SAP), said the administration “would not oppose a short-term solution to the debt limit,” indicating that the president would sign the bill if it is approved by the Senate. However, the SAP cautioned that this is only a short-term fix and underscored the president’s preference for a long-term solution.
The House bill (H.R. 325) in effect would ignore the debt ceiling of $16.4 trillion through May 18, 2013. During the intervening time, the government would continue to incur obligations and borrow funds to cover spending to meet these obligations. On May 19, the debt limit would be reset at a level that reflects the amount of borrowing above $16.4 trillion.
The House bill, called the “No Budget, No Pay Act of 2013,” would also place in escrow the pay of House Members or Senators if either the House or Senate does not pass a budget resolution by April 15, 2013. Pay would continue to be withheld and would remain in escrow until the affected chamber passes a budget resolution or until the 113th Congress ends. House Republicans have strongly criticized the Senate for not having passed a budget resolution since FY2010 and this is seen as a prod to get the Senate to act. Senate Budget Committee chair Sen. Murray (D-WA) has stated that the Senate would move on a FY2014 budget resolution.
If passed by the Senate and signed by the president, the bill would avoid a near-term financial crisis and buy time for Congress and the president to reach a longer-term agreement. But, clearly this action does not represent actual progress toward a long-term solution.
More importantly, delaying the debt limit crisis merely “rearranges the deck chairs” of a series of events (debt ceiling crisis, sequestration, and the potential for a year-long continuing resolution) that Defense Secretary Panetta has called a “perfect storm” and which could produce potentially devastating economic and budgetary consequences.
The new order of those events is: March 1, sequestration scheduled to go into effect; March 27, FY2013 continuing resolution ends; and 3) May 18, debt ceiling extension ends. So, Congress and the president must now focus their attention on a problem that has plagued them since August of 2011 and for which they have shown little ability to agree on an alternative: $1.2 trillion in automatic, across-the-board cuts over the next 10 years, which would begin in FY2013.