OMB & CBO Release Memos on FY 2024 Discretionary Spending Limits

The Office of Management and Budget (OMB) recently released a Frequently Asked Questions document and the Congressional Budget Office (CBO) published a letter on the Fiscal Year (FY) 2024 discretionary spending caps put in place by the Fiscal Responsibility Act (FRA). The FRA sets caps on defense and nondefense discretionary spending but specifies different amounts based on whether or not all full-year appropriations are enacted. Both OMB and CBO attempt to clear up some confusion around the current status of the FRA's caps. 

The FRA, under Section 101 of the bill, initially limited base discretionary spending to $1,590 billion for FY 2024, including $886 billion on the defense side and $704 billion on the nondefense side. However, the FRA set those caps to change on January 1, 2024 under Section 102 of the bill, if any part of the federal government was operating under a short-term continuing resolution (CR). Since that is currently the case, the new caps are set to $1,586 billion, including $850 billion for defense and $736 billion for nondefense both 1 percent below official FY 2023 levels. In other words, the defense caps dropped by 4 percent and the nondefense caps increased by 5 percent. 

To further complicate matters, the caps will revert to the pre-January 1 Section 101 levels if full-year appropriations are enacted by April 30 and reports suggest that OMB will consider a full-year CR to be a form of full-year appropriations.

Discretionary Spending Levels Under Current CR and the Fiscal Responsibility Act

  Current Levels under CR

Caps As Of 12/31/2023

(Section 101)

Caps As Of 1/1/2024

(Section 102)

Caps Upon Enactment of Full-Year Appropriations
Defense $860 billion $886 billion $850 billion $886 billion
Nondefense $777 billion $704 billion $736 billion $704 billion
Total $1,637 billion  $1,590 billion $1,586 billion $1,590 billion

Sources: Congressional Budget Office and Office of Management and Budget. 

The CR currently in effect would violate either the Section 101 or the Section 102 caps. Enforcing the 101 caps against a further (year-long) continuation of this CR would require cutting nondefense spending by 9 percent, or by $73 billion, according to CBO. Enforcing the 102 caps against continued temporary extensions of the current CR would require cutting nondefense spending by 5 percent, or $41 billion, and cutting defense spending by an additional 1 percent, or $10 billion. 

Source: Congressional Budget Office. 

Importantly, this enforcement would not happen until the sooner of April 30 or 15 days after full-year appropriations are enacted. At that point, OMB would be required to apply an across-the-board sequester to nearly all discretionary spending. This includes funding not subject to the FRA caps such as emergency spending and advanced bipartisan infrastructure law funding. 

The size of the necessary cut would be larger relative to the current CR than a stricter interpretation of last year's funding, mainly because of "advanced appropriations" for the Department of Veterans Affairs and Indian Health Services and because of a decline in offsetting collections from the Federal Housing Administration. If lawmakers adjusted the final CR to account for these advanced appropriations, the cut would be smaller than outlined above. It would be smaller still if they incorporated certain "side deals" into future CRs.

Rather than accept across-the-board cuts through sequestration or allow a government shutdown, lawmakers should enact appropriations that abide by the FRA caps. With debt approaching record levels, it's important to abide by and build upon recent deficit reduction efforts, not evade and undermine them.

The current CR is slated to expire on January 19 for four appropriations bills and February 2 for the remaining eight bills, leaving little time left for lawmakers to act. With FY 2024 well underway and appropriations for the full fiscal year still in flux, lawmakers should work to abide by the original spending limits set in the FRA and fund the government with certainty for the remainder of the fiscal year.