If you were flummoxed over the federal budget battles and government shutdown of 2013, take heart: it should be a little better in 2014 - but not much.
Part of the shutdown-ending agreement last fall was to create a committee to try and find a bipartisan budget blueprint for 2014. The committee chairmen claim they are making progress, perhaps on a two-year budget deal, but even it that's true, there are multiple hurdles ahead.
The biggest issue is what's known as the "sequester cuts" that were part of the Budget Control Act of 2011. The law requires Congress to cut spending by $109 billion a year for the next nine years. Those cuts are off projected spending that was set to grow every year, so the actual cut would reduce discretionary spending (i.e., not mandatory expenses such as Social Security) from $986 billion in 2013 to $967 billion for 2014.
Republicans - many of whom are reluctant to make changes to the sequester because it's been the most effective, albeit blunt, tool they have to control federal spending - have proposed keeping the 2014 budget at the 2013 level, $986 billion. News reports say Democrats have suggested $1.058 trillion and are increasingly hinting they won't support any budget that keeps the sequester cuts in place.
So we are looking at a possible deadlock - yet again. Only this time, Republicans may have the stronger hand because they support current law (i.e., the sequester), and change is harder than keeping the status quo.
What are the possible scenarios?
Least likely is a government shutdown. Speaker of the House John Boehner said after the last shutdown there would be no more. He'll try hard to deliver on that promise because he (correctly) thinks a shutdown would hurt Republicans. It's possible that the negotiators agree to a budget framework that would pass the respective committees and then the House and Senate and be signed by President Obama by the deadline, January 15. Many Republicans, as well as Democrats, oppose the disproportionately large sequester cuts on defense programs, so there is bipartisan support to reduce their impact. That could be good news for middle market companies that sell to the defense industry.
All of the issues, however, that bedeviled the October budget breakdown remain and are just as contentious, making a doable deal an uphill challenge.
The most likely scenario is yet another continuing resolution (CR) that keeps the government funded at current levels, perhaps with some adjustments. Though a CR doesn't solve any disagreements, it at least lets Congress fund the government.
How long a temporary CR would last is anyone's guess. The normal budget process begins in February when the president is constitutionally mandated to submit a budget. The 2014 fiscal year ends next September 30, so members may decide to pass a CR through September - again - and promise to do better next year. But it would almost surely be an empty promise; 2014 is an election year and Republicans smell blood in the polling booth because of Obamacare. They have little desire to be in a bipartisan frame of mind.
For middle market companies with government contracts, a CR could be good or bad. If agencies they deal with have been well funded, they would likely see that funding continued, even when it makes little sense. For example, I'm told the existing CR carried over the Federal Elections Committee's 2012 election-year funding bump into 2013 when there was no federal election.
Companies dealing with one or more agencies that have had very tight budgets, however, will likely remain tight. Some of those agencies have been able to shuffle money from one department to another to cover expenses, but those wells will soon run dry. This could mean delayed reimbursements for middle market company invoices - which can strain their budget because many do not have deep pockets to reach into.
Of course, the worst part of the current budget smack down is that it perpetuates the climate of uncertainty. As NCMM's 3Q 2013 Middle Market Indicator shows, 84 percent of middle market respondents - the same level as a year ago - say that uncertainty from government actions create real challenges for them. Those challenges will likely remain for the foreseeable future.
Merrill Matthews is an NCMM contributor and a resident scholar at the Institute for Policy Innovation in Dallas, Texas. Follow him at https://twitter.com/MerrillMatthews.