Debt Limit Increased with Expected Impacts on Non-Defense Programming

Last week, the House and Senate passed, and on June 3, 2023, the President signed, the “2023 Fiscal Responsibility Act,” an agreement to raise the nation’s debt ceiling while enacting concessions on current and future spending.

With the debt limit reached on January 19, 2023, the Treasury Department has used “extraordinary measures” since then to temporarily delay a default on the nation’s debt. In May, Treasury Secretary Janet Yellen estimated that the Treasury would run out of these measures on June 5, 2023, which would have resulted in significant economic turmoil and a downgrading of the U.S. credit rating.

While it’s still unclear what the topline numbers will be for appropriators relating to National Institues of Health (NIH) and Department of Defense  (DOD) medical research funding in Fiscal Year (FY) 2024, some of the impacts of the debt ceiling agreement are known already and it is expected to continue to be a difficult environment for research funding.

The agreement ultimately extends the borrowing limit for two years which gets the nation past the 2024 elections while effectively freezing domestic spending on non-defense programs for the next two years. The agreement also rescinds $30 billion in unspent COVID-19 money that was intended for the COVID-19 response and to prepare for future pandemics, and several billion dollars from the IRS that was included as part of the Inflation Reduction Act to increase enforcement and customer service.

The effective non-defense spending freeze represents an effective cut in real dollars when accounting for inflation over the next two years and falls well short of the 7.3% increase the Biden Administration had sought for FY2024.

The agreement also seeks to limit the threat of a government shutdown for the next two years by requiring Congress to pass all twelve annual appropriations bills prior to January 1, 2024. If this is not achieved, the agreement stipulates that a continuing resolution would kick in that would cut discretionary spending for both defense and non-defense agencies by 1% until all the bills are passed. This provision is intended to incentivize lawmakers to pass each appropriations bill independently instead of in an omnibus, as both Democrats and Republicans want to avoid a cut to their key priorities. The same contingency would be in effect for 2025.

With appropriators in the House and Senate expected to meet in the coming weeks to begin markups on each of their respective bills, additional information about budget allocations and funding for FY2024 will be forthcoming.