Administration prepares agencies in case funding runs out after Sept. 30, but Democratic leaders expect to pass a new spending bill

WASHINGTON—House Speaker Nancy Pelosi said Congress wouldn’t let government funding expire next week, the first hint that Democratic leaders might decouple the government’s funding from a contentious increase in the debt limit, on the same day that the Biden administration began preparing for a possible partial shutdown.

The Biden administration said Thursday that federal agencies are reviewing contingency plans in the event that funding runs out at 12:01 a.m. on Oct. 1. The White House said it expects Congress to take action to fund the government after its current funding expires and is preparing out of an abundance of caution.

The House on Tuesday passed a stopgap spending measure that funds the government through Dec. 3, 2021, and suspends the debt limit through Dec. 16, 2022, but it is expected to be blocked by Republicans in the Senate early next week.

“We will keep our government open by Sept. 30, which is our date, and continue the conversation about the debt ceiling, but not for long,” Mrs. Pelosi (D., Calif.) told reporters Thursday. “We will have a CR that passes both houses by Sept. 30,” she said, referring to the continuing resolution.

Senate Republicans have said they oppose the measure because Democratic leaders opted to combine the bipartisan spending plan with a suspension of the debt limit earlier this week. GOP lawmakers have said Democrats should be forced to increase the debt limit on their own after they opted to pass a $1.9 trillion Covid-19 relief bill earlier this year without GOP support and are currently planning to advance a roughly $3.5 trillion social-welfare and climate package without GOP votes.

Mrs. Pelosi noted that the spending bill itself was the product of bipartisan negotiations among lawmakers and would likely pass on its own, although Democratic leaders haven’t explicitly said they planned another vote just on the spending patch.

“We put this bill together in a very bipartisan way and when we added the debt ceiling is when” it became contentious, Mrs. Pelosi said. “We don’t think it will really be any problem to pass the [spending] legislation.”

Democratic leaders have been tight-lipped about what their backup plan would be if the combined measure fails in the Senate, which is currently expected to vote on it Monday. But Mrs. Pelosi implied that the spending bill could get another vote in the House next week, presumably without the debt-limit suspension.

“We’ll keep government open. We’ll have the votes to do that and then we’ll go to the Senate again,” she said.

White House officials remained optimistic that lawmakers would avoid a shutdown.

There “is enough time for Congress to prevent a lapse in appropriations, and we are confident they will do so,” White House Office of Management and Budget spokesman Abdullah Hasan said.

“In the meantime,” he added, “prudent management requires that the government plan for the possibility of a lapse in funding.”

OMB guidance requires agencies to step up efforts to prepare for a shutdown one week before a funding lapse.

A brief partial government shutdown next weekend, when many federal workers are off the job, would have limited effects. But an extended shutdown could result in hundreds of thousands of workers being furloughed and the interruption of nonessential government services—from national-park maintenance to passport and visa processing. The coronavirus pandemic could make a shutdown more problematic than usual.

“Large parts of the federal government coming to a screeching halt would certainly not be beneficial to a pandemic response, but we are doing everything we can to mitigate,” White House press secretary Jen Psaki said Thursday, adding that many public-health efforts can proceed during a shutdown.

Keeping the government open wouldn’t resolve the lingering partisan dispute over how to increase the debt limit, which GOP leaders have said is Democrats’ responsibility.

“This may be inconvenient for them, but it is totally possible. And this Democratic government must not manufacture an avoidable crisis for the sake of their own convenience,” Senate Minority Leader Mitch McConnell (R., Ky.) said on the Senate floor Thursday. “The party-line authors of this reckless taxing and spending spree will be the party-line owners of raising the debt limit.”

Democrats have said they don’t plan to increase the debt limit as part of their roughly $3.5 trillion social-welfare and climate package, but that does remain a procedural option available to them. They also note that they voted to raise the debt limit on a bipartisan basis multiple times under former President Donald Trump’s administration.

“The truth is we will be voting to pay for the debt accrued under presidents of both parties—including the nearly $8 trillion added to the debt under President Trump. Both sides incurred the debt, both sides should pay it,” Senate Majority Leader Chuck Schumer (D., N.Y.) said on the Senate floor Thursday.

Democrats could decide to revise their current budget resolution either to increase the debt limit as a stand-alone bill or fold it into the broader budget package they are currently writing. That would allow them to move a bill through the 50-50 Senate with just a simple majority, rather than the 60 votes required of most legislation. However, it would be a complicated process, and it isn’t entirely clear it could be completed in time.

Republicans would also have to show up for a vote of the Senate Budget Committee, which they could block by preventing the panel from having a quorum.

William Hoagland, a former Republican budget aide and senior vice president at the Bipartisan Policy Center, said he thinks Democrats could likely revise their budget resolution to include the debt-limit increase and get it to the president’s desk within 15 days. But they need to decide within the next few days to avoid risking an accidental default.

“They called McConnell’s bluff; I think some of them still think he’s bluffing,” Mr. Hoagland said. “They just have to see reality, the fact that they don’t have 60 votes” in the Senate.

A vote to raise the debt limit doesn’t authorize new spending, instead essentially allowing the Treasury Department to raise money to pay for expenses the government has already authorized. About one-third of federal spending is discretionary, which Congress approves through annual appropriations bills. The rest is automatic spending on programs such as Medicare, Medicaid and Social Security.

Although Democrats are aiming to raise revenues to pay for their economic agenda over the next decade, their plans would still add to deficits in the first few years as new spending programs ramp up before tax increases fully kick in. Those near-term shortfalls could necessitate a bigger debt-limit increase than would otherwise be necessary to cover new spending over the next several years.

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