On October 16, after weeks of stalemate and false starts, the U.S. Senate and House both passed legislation, signed by President Obama, to increase the U.S. debt-ceiling and continue to fund U.S. Government operations through January 15, 2014. Though efforts had been made over the past two weeks — in both houses and by both parties — to include provisions relating to the Affordable Care Act (ACA), entitlement spending, tax reforms, and sequestration, among other issues, the final legislation signed into law dealt with almost none of these issues, with the exception of a provision requiring income verification for subsidies under the ACA.

The primary provisions of the agreement include:

  • Authority to the U.S. Treasury to issue as much debt as necessary (i.e. raise the debt-ceiling) through February 7, 2014. Speculation is that even without additional borrowing authority beyond this date, Treasury would be able to use “extraordinary measures” to pay all obligations until as late as mid-April.
  • A “McConnell Rule” provision, allowing Congress to object (by majority vote of each house) to any debt-ceiling increase, which may be vetoed by the president, subject to a two-thirds vote of Congress to override the veto. Any motion to make such an objection, made by Congress between now and February 7, 2014, would likely pass the House, but not the Senate.
  • A Continuing Resolution providing appropriations for discretionary programs, at sequestered levels, through January 15, 2014.
  • An income verification requirement for individuals to receive subsidies under the ACA.
  • The Senate and House appointed conferees to a budget conference and included instructions that conferees report a budget by December 13, 2013.

On the morning of October 17, House and Senate budget committee leaders (Reps. Ryan and Van Hollen, and Senators Murray and Sessions) met to begin conference negotiations to reconcile very different budget bills passed by the respective houses earlier in 2013. Although expectations for this conference are not high, it is always possible that some meaningful agreement will be reached. Looking forward three months from today and beyond, we will be faced before we know it with yet another potential Government shutdown (in January) and risk of Government default (likely in April). Our guess, however, is that the Congress — Republicans in particular — will not want to repeat the suffering of the last few weeks. Rather, Republicans are likely to shift their focus and use of leverage, to sequestration, which continues to exact a significant toll on U.S. discretionary programs. And by allowing some relief from sequestration cuts, the Republicans may be able to barter for concessions from Democrats, including in areas such as entitlement spending and, potentially, tax reform.