As reported in the May 25 edition of NASBP Focal Point, the U.S. House of Representatives and White House negotiators were in the final stages of reaching an agreement in order to avoid the U.S. government defaulting on its payment obligations. As we all learned, Congress and the Administration, after weeks of tense negotiations, on May 27 reached a bipartisan agreement to raise the debt limit to avoid a potential economic disaster.

On June 3, President Biden signed into law the Fiscal Responsibility Act (FRA) of 2023. In the House, 314 members voted for the measure, while in the Senate, the measure garnered the support of 63 Senators. House Speaker Kevin McCarthy (R-CA), who was often criticized by members of his own party during the negotiations, was able to secure the support of 149 Republican House members. The same can be said for the President, as several progressive Democrats opposed spending cuts or the elimination of important social programs, such as ending student loan repayments and imposing stricter work requirements, with some exceptions, for the SNAP Program (food stamps/healthcare); but in the end, 165 Democrats voted for the bill.

The FRA suspends the federal debt limit through January 1, 2025, while producing roughly $250 billion of direct savings, mainly through establishing caps on nondefense discretionary spending for Fiscal Years (FY) 2024 and 2025. As a result, the Congressional Budget Office estimates a reduction in federal deficits by $1.5 billion over the next decade.

Notable highlights in the FRA include: caps on discretionary spending for non-defense agencies just below the current levels for FY2024, while increasing defense spending by 3.3% in FY 2024, which is less than the current inflation rate; rescinds unused COVID-19 relief funds, estimated between $50 billion and $70 billion; a 25% reduction ($21.4 billion) of the $80 billion appropriated to the Internal Revenue Service (IRS) dedicated to bolster tax enforcement and the hiring of IRS agents as prescribed in the Inflation Reduction Act; requires revenue and spending to be offset by savings, aka “PAYGO” (“pay as you go”) (however, the Office of Management and Budget has authority to waive “PAYGO” requirements for spending over $100 million); and an issue that is critically important to the contracting community, amends the environmental review process by streamlining the application and documentation process and sets time limits for agency environmental review to two years (currently, average review is 4.5 years). Finally, the FRA mandates that Congress pass all 12 FY2024 appropriation spending bills by January 1, 2024, or funding levels for FY2024 are capped at 1% below FY2023.