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Senate Talks on Impasse on Hold as House Considers Plan

Oct. 15 (Bloomberg) -- House Minority Leader Nancy Pelosi, a Democrat from California, talks about the outlook for an agreement avoiding a U.S. debt default and ending the partial government shutdown. Pelosi speaks with Peter Cook on Bloomberg Television's "Money Moves." Deirdre Bolton also speaks. (Source: Bloomberg)

Senate talks aimed at ending the government shutdown and preventing a default are on hold and haven’t broken down while the House considers its competing plan, said the chamber’s top leaders in the U.S. Senate.

“We just need to wait and see what the House does,” said Adam Jentleson, a spokesman for Majority Leader Harry Reid. “We expect them to fail and then the Senate deal will re-emerge.” Michael Brumas, a spokesman for Minority Leader Mitch McConnell, said the Kentucky Republican hasn’t walked away from talks.

Senate Democrats leaving a party meeting today blamed House Speaker John Boehner for undercutting the talks between Reid and McConnell. Boehner’s plan, which he is still developing, contains policy conditions Democrats have rejected. The federal government shutdown is in its 15th day and U.S. borrowing authority will lapse Oct. 17.

“No balanced, bipartisan, reasonable, outcome in the Senate is safe from the House Republicans,” said Senator Chris Coons, a Delaware Democrat. “This is a reckless, stunning reversal.”

U.S. stocks fell after three senators said the talks had broken down, then pared the losses. The Standard & Poor’s 500 Index slipped 0.4 percent to 1,703.56 at 3:17 p.m.

Photographer: Julia Schmalz/Bloomberg

A federal employee holds up a sign on the House side of the United States Capitol building on the fifteenth day of the partial government shutdown in Washington D.C., on Oct. 15, 2013. Close

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Photographer: Julia Schmalz/Bloomberg

A federal employee holds up a sign on the House side of the United States Capitol building on the fifteenth day of the partial government shutdown in Washington D.C., on Oct. 15, 2013.

Reid, McConnell

Reid and McConnell had been closing in on an agreement earlier today. Reid had already rejected the House bill in an attempt to pressure Boehner to fold by showing that a Republican House proposal won’t succeed even if Boehner can get his party behind it.

The House and Senate plans would both fund the government through Jan. 15, 2014, and suspend the U.S. debt limit until Feb. 7. As the differences narrow between the parties, a House vote as soon as tonight would test whether Republicans are willing to raise borrowing authority and end the shutdown without major changes to the 2010 health-care law.

Nancy Pelosi, the House Democratic leader, said there’s a “bipartisan path” to preventing the lapse in borrowing authority. She urged Boehner to allow a vote on the Senate deal.

‘Humor’ Troops

“Perhaps the speaker just needs to humor his troops so they can sow their oats,” the California Democrat said on Bloomberg Television. “They’ve hijacked the Republican name. Republicans are not for jeopardizing our full faith and credit.”

Boehner didn’t say that the House would move ahead with the plan Republican aides and lawmakers described today. Senator Charles Schumer, a New York Democrat, said he hoped Boehner’s plan would “collapse relatively soon” so the Senate proposal can proceed as the primary path.

Photographer: Win McNamee/Getty Images

Speaker of the House Rep. John Boehner (R-OH) leaves a meeting of House Republicans at the Capitol on October 15, 2013. Close

Speaker of the House Rep. John Boehner (R-OH) leaves a meeting of House Republicans at... Read More

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Speaker of the House Rep. John Boehner (R-OH) leaves a meeting of House Republicans at the Capitol on October 15, 2013.

“My sense is they have control of this issue on the House side for the next move and the Senate will wait and see what the House sends,” said Senator Roy Blunt, a Missouri Republican.

Reid said on the Senate floor today that credit-rating companies could downgrade the U.S. as soon as tonight. The ratings companies haven’t made statements signaling an imminent downgrade.

Moody’s Investors Service and Standard & Poor’s have stable outlooks on their U.S. ratings. John Piecuch, a spokesman for S&P, reiterated yesterday in an e-mail that the firm’s AA+ ranking already “incorporates the current level of discord” in Washington. Fitch Ratings, which has a negative outlook on the U.S.’s AAA grade, has said that it’s considering the budget impasse in its review of the ranking.

10-Year Yields

Benchmark Treasury 10-year yields rose four basis points, or 0.04 percentage point, to 2.73 percent at 1:52 p.m. New York time, according to Bloomberg Bond Trader prices. The rate touched 2.74 percent, the highest since Sept. 23. The rate on bills due Feb. 20 rose eight basis points, more than tripling to 0.12 percent. It touched zero on Oct. 2.

The House proposal goes beyond the Senate with two smaller changes to the health-care law. It would delay for two years a medical-device tax and prevent the government from contributing to the health insurance of members of Congress, the president, the vice president and the Cabinet. It would also include language requiring the government to verify the income of people receiving health insurance subsidies.

Health Law

The plan falls far short of Republican efforts last month to defund or delay major pieces of the 2010 health law. Boehner told Republicans the approach was the chamber’s only possible strategy to respond to the emerging Senate deal that he described as a hand grenade being lobbed at the House, said Representative John Fleming, a Louisiana Republican.

White House spokeswoman Amy Brundage in a statement today said President Barack Obama has repeatedly said that lawmakers “don’t get to demand ransom for fulfilling their basic responsibilities to pass a budget and pay the nation’s bills,” saying that’s what the House Republican proposal does.

There are obstacles, including the disagreements between the Senate and the House. Furthermore, senators opposed to the deal may stall a final vote.

Also, some House Republicans may oppose Boehner’s plan because it doesn’t go far enough in changing the health law.

“Both plans are financially irresponsible,” said Representative Mo Brooks, an Alabama Republican. “Both kick the can down the road. Both force America to deal with a debt crisis where we’re weaker because we incur more debt.”

Republican Votes

Given objections from the White House and House Democratic leaders, Boehner may need to find all the votes for the plan in his own party, meaning that he can lose the support of no more than 15 Republicans. Or, he may need to change the plan to attract more Republicans.

“For the most part we’re on board,” Fleming said, “There are a number of us that want to see more.”

The emerging contours of an agreement in the Senate would stave off a potential default, open shuttered federal services and change the immediate deadlines in favor of three new ones over the next four months, including a Dec. 13 target date for a budget conference between the House and Senate.

There is a potential obstacle to turning a Senate agreement into law quickly. A single senator would be able to use procedural tactics to push a final vote past the Oct. 17 lapse in borrowing authority.

If the House votes tonight, the Senate would be able to pass its plan no later than Oct. 18, before the government starts missing promised payments. The U.S. will have enough cash and income revenue to avoid missing payments until Oct. 22 at the earliest, according to the Congressional Budget Office.

Cruz Filibuster

Texas Republican Senator Ted Cruz, who spoke for more than 21 hours during a budget debate last month, wouldn’t rule out stalling maneuvers, saying he wants to see the details of the plan.

The House Republican alternative would prevent the government from making any employer-side contributions to the health insurance of members of Congress, the president, the vice president and the cabinet.

Obama has insisted that Congress raise the $16.7 trillion U.S. debt limit without add-ons and that stopgap spending bills be free of policy conditions.

House Democratic leaders are scheduled to meet at the White House with Obama at 3:15 p.m. today.

Possible sticking points to a Senate deal late yesterday included whether Democrats would agree to Republican demands that the Treasury Department be barred from using so-called extraordinary measures to extend the debt-limit deadline after Feb. 7. Such maneuvers pushed forward the deadline for five months this year, though it’s not clear how much time they would buy in 2014.

Treasury Flexibility

Obama spoke with McConnell yesterday and said the administration wants flexibility for the Treasury Department’s borrowing, according to a person familiar with the conversation who requested anonymity to describe private discussions.

The House proposal would bar the extraordinary measures and Reid cited that as one of his major objections.

Yesterday’s version of the Senate plan would postpone a reinsurance fee the government is levying on health plans for the first three years of the health-care exchanges -- amounting to $63 a worker next year, said the person familiar with the talks. Labor unions, aligned politically with Democrats, have asked for the delay.

That provision and one sought by Senate Republicans on verifying the income of those receiving subsidies may both be dropped, said a person familiar with the Senate talks, speaking on condition of anonymity to discuss the private conversations.

The Senate agreement also would give federal agencies flexibility to manage the across-the-board spending cuts known as sequestration if they occur in 2014.

The partial government shutdown began Oct. 1 after Republicans insisted on changes to the 2010 Patient Protection and Affordable Care Act. Backed by Cruz, they started with a plan to defund the law and ended up seeking a one-year delay of the requirement for individuals to purchase health insurance.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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