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What’s next for government funding

Welcome back. The Senate is back today and the House returns tomorrow. Washington will jolt into action on a whole host of legislative and political priorities.

First off, some internal business: We have a new website design, a new newsletter design and the inaugural edition of The Sunday Vault — our Washington x Wall Street lookahead — came out last night. We’re making our news more readable and accessible. All of these changes were made with our most loyal readers in mind.

Now onto the news: Speaker Mike Johnson and Senate Majority Leader Chuck Schumer came to an agreement on FY2024 spending. As we’ve been reporting for a week or so, the deal makes minor tweaks to the Fiscal Responsibility Act, last spring’s debt-limit agreement between former Speaker Kevin McCarthy and President Joe Biden. That deal, of course, was the beginning of the end for McCarthy.

Here’s Johnson’s “Dear Colleague” and Schumer’s statement with House Minority Leader Hakeem Jeffries. We sent both out to Premium members Sunday afternoon.

The details: The Schumer-Johnson deal, hashed out mostly by aides, keeps the FRA nearly completely intact. Most importantly, a roughly $69 billion “side deal” by Biden and McCarthy remains in place.

Johnson was able to score two policy victories of note — both of which we scooped last week. Congress will accelerate a $10 billion IRS funding cut from FY2025 to FY2024. The new agreement also rescinds $6.1 billion in Covid-relief funds.

Overall spending comes in at $1.659 trillion. There’s $773 billion for non-defense discretionary spending and $886 billion for defense.

In sum, Johnson was able to secure $16 billion in additional savings for FY2024. But he got very little else. He’s already facing sharp criticism from the right.

Now onto the politics and substance. Remember that four appropriations bills — Agriculture, Energy and Water, MilCon-VA and Transportation-HUD — expire in 11 days. The rest of federal spending expires Feb. 2. So Congress is working on an extremely compressed schedule.

The big question over the coming days is how lawmakers will be able to pass funding legislation that codifies this budget agreement while averting a partial or total government shutdown.

Let’s get into it:

1) Both sides claim a win.

Johnson can point to the IRS and Covid-related cuts as he tries to sell the deal to conservatives. More on that below.

For his part, Schumer ensured that even with these cuts, the non-defense topline remained in line with the FRA and the “side deal” stayed in place at $773 billion. “It’s a good deal for Democrats and the country,” Schumer told his colleagues on a Sunday night call.

2) Johnson will have big problems with conservatives.

Let’s be clear here: Johnson is the only Republican majority leader in town. The White House and Senate are controlled by Democrats. And House Republicans will be down to a two-vote margin soon. So Johnson’s leverage is minuscule.

But conservatives didn’t elect Johnson to be McCarthy. They elected him to be the conservative firebreather he was as chair of the Republican Study Committee.

That Johnson — the one that existed from 2017 until the fall of 2023 — would’ve probably rejected this agreement. The House Freedom Caucus said the deal was “even worse than we thought.”

Now how about all of those red-meat “culture war” provisions that are included in the House’s GOP-only spending bills?

Johnson noted in his “Dear Colleague” letter that the agreement allows House Republicans to “fight for the important policy riders included in our” FY2024 bills. That means Johnson will still push for poison-pill provisions that will never pass muster with the Democratic-controlled Senate.

Already, Democrats are vowing to resist these efforts. Schumer and Jeffries said they “made clear” to the speaker that “Democrats will not support including poison pill policy changes in any of the twelve appropriations bills.” Senate Republicans are likely to back this too.

One other thing is clear too: House Republicans will never pass a rule for any of the spending bills. Everything will need to move on suspension, meaning House GOP leaders need Democratic support.

3) This reduces the chances of a shutdown.

Could there still be a shutdown? Sure. There are less than two weeks until the first tranche of spending bills expires. So much can happen in that timeframe.

A partial shutdown — covering the four Jan. 19 spending bills — is much more likely than a full government shutdown. Everything depends on how fast the House and Senate can process the bills after sorting out the “poison pill” issue. That remains to be seen, including which chamber goes first, when and how. Will party leaders sync the two deadlines together? Will they pass a CR? Stay tuned.

4) It leaves the border standoff — and Ukraine — unresolved.

Importantly, this agreement is silent on the ongoing negotiations surrounding a border-security package to ride alongside Biden’s supplemental funding request for Ukraine and Israel.

Sen. James Lankford (R-Okla.), the lead GOP negotiator, said on “Fox News Sunday” that the bipartisan Senate group will “hopefully” be able to release legislative text for the border component this week. The negotiators’ goal is to brief senators on Tuesday about the tightly-held talks.

Lankford also had a tacit message for Johnson: Don’t reject our agreement out-of-hand. Lankford said the House can “work to improve it” or acknowledge that it “makes real progress on the border… and then keep going for more.” Lankford will meet with the House Republican Study Committee on the issue.

— Jake Sherman, Andrew Desiderio and John Bresnahan

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Editorial photos provided by Getty Images. Political ads courtesy of AdImpact.