Tense Meetings, Stalled Talks Led to a ‘Painful’ Agreement on U.S. Budget

President Barack Obama had finally reached his breaking point.

For more than an hour in an Oval Office meeting on April 7, House Speaker John Boehner had insisted that any compromise on the government’s budget include a prohibition on federal funding for Planned Parenthood.

Obama already had reluctantly agreed to a provision banning the District of Columbia from spending funds on abortion services -- and that was as far as he would go.

“Nope, zero,” he told Boehner, according to a senior Democratic aide. “John, this is it.” The room went silent.

The tense negotiations culminating in a last-minute deal the next night to avert a government shutdown underscored the challenges facing both Boehner and Obama as they tackle the fiscal issues that will dominate the debate during the next two years in Washington.

“This will be a tough fight,” David Plouffe, senior White House adviser, said in an interview with ABC’s “This Week” program yesterday. “If we can strive to find common ground, and I’m not suggesting this is going to be easy, we will be able to get this done.”

Looming struggles to raise the $14.3 trillion debt ceiling and craft next year’s budget will help shape the country’s economic future and define the 2012 presidential race. The fight to fund the government through the Sept. 30 close of the fiscal year resulted in what Obama said were some “painful” spending cuts. Yet it was only the initial test of how both leaders will navigate the dangers of divided government.

‘A Good Exercise’

“It’s the first time we all worked under these new parameters we are in, so we’ve had to learn each other,” said House Appropriations Committee Chairman Hal Rogers, a Kentucky Republican, who participated in the talks. “It was a good exercise in that respect because we will know next time -- and there will be many times -- we will know next time more how to handle these kinds of things.”

“Things got heated,” Plouffe said on NBC’s “Meet the Press” yesterday. “The president’s approach was to try and engage all the parties to come together. Going forward this can be a model.”

The deal averted the furlough of 800,000 federal employees, the closure of federal facilities such as national parks and the Smithsonian Institution in Washington and a delay in processing tax returns.

While officials warned of economic consequences from a shutdown, financial markets have shown little concern about U.S. fiscal health. The benchmark 10-year Treasury note yield was at 3.58 percent on April 8, below the average of 7 percent since 1980, reflecting expectations a deal would be reached, said John Lonski, chief economist at Moody’s Capital Markets Group.

Obama Draws Complaints

For weeks, Obama, 49, stayed out of direct negotiations over the budget accord, sparking complaints from lawmakers in both parties on Capitol Hill that he waited too long to get involved. He spoke to Boehner, 61, directly just twice between Feb. 19, when the House passed its budget bill, and April 2, according to Republican aides.

Serious negotiations only began after Republicans passed the sixth stopgap spending measure on March 15, funding the government through April 8. Fifty-four Republicans voted against the bill, forcing Boehner to rely on Democrats to pass the measure and making it clear that another short-term extension wouldn’t be tolerated by the Tea Party-wing of his conference, which is pressing hardest for deficit reduction.

Heated Meeting

The two sides struggled even to agree on a baseline for how much spending to cut. Formal talks stalled after a heated March 22 meeting, at which a Republican Appropriations aide insisted on using as a starting point the House bill that included $61 billion in spending cuts, said one of the people familiar with the talks. Democrats offered to cut $10 billion.

Six days later, White House Chief of Staff William Daley reinvigorated discussions when he suggested that Democrats could accept another $20 billion in cuts. The staffs began working on a deal that would slash $33 billion in spending, according to aides.

Negotiations suffered another setback on March 30, however, when Vice President Joe Biden announced the $33 billion number to reporters after a meeting on Capitol Hill. That fueled reports of a tentative deal and angered Republican negotiators, who feared a Tea Party backlash.

Tea Party Protest

As Tea Party activists protested outside the Capitol, chanting “shut it down” in a chilly drizzle, Boehner disputed the reports of a deal.

“There is no agreement on a set of numbers, and nothing will be agreed to until everything’s agreed to,” he told reporters.

Behind closed doors, however, he began selling the idea of a compromise to his caucus, reminding the 87 new Republican House members that his party controls only that chamber and lacks the influence to impose its will on the Democratic- controlled Senate and White House.

In private meetings, Boehner argued that a shutdown could have catastrophic effects for the party by handing Democrats a political “win.”

“He put it in context,” said Representative Dan Lungren, of California. “He said, ‘Look, nobody is going to get 100 percent of what they want,’ including him.”

Ryan’s Plan

The release of House Budget Committee Chairman Paul Ryan’s 2012 budget plan on April 5 helped convince some lawmakers to back a compromise, said House Republican aides. While party leaders debated whether releasing the Ryan proposal would complicate the talks, the Wisconsin Republican’s ambitious plan calling for an overhaul of Medicare and Medicaid and deep cuts reassured some members they would get additional opportunities to spotlight their efforts to slash spending.

“We’ve got a few months left in this fiscal year; let’s reduce the size of government, and let’s focus on 2012,” said Representative Adam Kinzinger, a freshman from Illinois.

Republicans also introduced a weeklong funding bill that would cut $12 billion in spending and fund the Defense Department through the end of the year. The White House vowed to veto such a proposal, called the “troop funding bill” by Republicans.

Still, Republican aides say the measure put additional pressure on Democrats to agree to cuts by positioning them between funding soldiers and shutting down the government.

Policy Riders

On April 6, Obama, Senate Majority Leader Harry Reid, Daley, Biden, Boehner, White House budget director Jacob Lew and top aides convened in the White House to try to design a framework for the deal. Boehner said he wouldn’t propose a bottom or top-line number, because the spending cuts depended on the number of so-called policy riders that Democrats would agree to include in the final deal.

Democrats tried to force Boehner to accept $33 billion, according to Republican aides familiar with the negotiations. He refused, and Democrats left the meeting doubtful they would reach a deal, though the lawmakers agreed to reconvene.

The next night, the parties reached agreement on the broad composition of a bill that included $38 billion in cuts. Yet the sticking point remained the Planned Parenthood funding ban, which Republicans said was non-negotiable.

Democrats were adamant that it not be in the bill, knowing the provision would inflame their base and could alienate the independent voters whose support Obama will need to win a second term.

Frustration

Toward the end of the meeting, after repeated efforts to insert the family planning rider, an exasperated Biden said the administration was prepared to “take it to the American people” and allow a shutdown over an issue unrelated to government spending.

Aides headed back to the Capitol around 11:45 p.m. and by 3 a.m., talks had stalled. Republican aides were asking for more than $40 billion in cuts and standing firm on the abortion provisions.

The following morning, after not hearing from Boehner, Obama called the speaker and relayed his frustrations that the current state of negotiations didn’t reflect their talks from the night before.

The breakthrough came on the morning of April 8, when Republicans embraced an idea originally proposed by Senator Dick Durbin, of Illinois, to hold an up-or-down vote on the most contentious policy amendments.

As aides hammered out the final language, the lawmakers stayed in constant contact. Obama and Boehner spoke four times on April 8, and the president called Reid repeatedly, with a few calls just minutes apart.

Boehner called his conference together at noon and again at 9:45 p.m. to present an almost-final version of the deal, rattling off a list of items including health-care and abortion votes to Republican applause.

'Item by Item'

“He went through item by item and said, ‘This isn’t all, this isn’t all,’” said Representative Darrell Issa, a California Republican.

Boehner told members he had gotten the best deal he could, given that Republicans control only the House, and that they had changed the debate to focus on cutting spending rather than approving new programs.

“We control one half of one third of the government,” Issa told reporters as he left the meeting. “We don’t mandate anything.”

Forty-five minutes later, aides shook hands on a final deal and Daley, Obama’s chief of staff, called the president in his residence to tell him a deal had been reached. At 11:04 p.m., Obama addressed the American people from the White House Blue Room, with the Washington Monument lit behind him.

“Tomorrow, I’m pleased to announce that the Washington Monument, as well as the entire federal government, will be open for business.”

To contact the reporters on this story: Lisa Lerer in Washington at llerer@bloomberg.net;

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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