Business Groups Intensify Pressure on Lawmakers to Reach Spending Deal

April 8, 2011

CQ

Ben Weyl

As Congress flirts with a possible government shutdown this weekend, lawmakers are feeling pressure from influential business groups to strike a deal and avoid any further shocks to the still-recovering economy.

While business groups are generally not shy about throwing their lot in with one party or another, the current impasse has many of them abandoning typical allegiances and calling for a truce.

“We urge the administration and Congress to agree on a sensible budget solution in time to avoid a government shutdown,” said a statement from the Business Roundtable, an influential association of CEOs. “A shutdown would have negative and unforeseen consequences, including heightening uncertainty and disrupting basic business services to government agencies.”

Thomas J. Donohue, president of the U.S. Chamber of Commerce, has spent the past week encouraging lawmakers from both parties to work out a deal to prevent a shutdown, Chamber spokesman J.P. Fielder said.

The business group, which has been among the Obama administration’s sharpest critics, is concerned about the potential ramifications of a shutdown on the still-fragile economic recovery, and has echoed warnings issued by the administration.

“No one wins if the federal government has to suspend some or all of its services even for a short time,” Fielder said. “The Chamber feels there’s a lot of work to do in Washington to create jobs and keep the economy going.”

For GOP lawmakers — many of whom are traditional business allies — that sets up a potentially difficult dynamic: Stick to their demands for deep spending cuts and controversial policy riders, and risk a shutdown, or compromise with Democrats, in accordance with industry wishes.

The current short-term spending law (PL 112-6) expires Friday night. House Republicans, Senate Democrats and White House officials have been negotiating non-stop in an effort to reach a deal on a way to fund the government through the rest of fiscal 2011.

Conservative lawmakers, including many House freshmen, have been reluctant to agree to a compromise that falls short of the House-passed bill (HR 1) that would cut $61.5 billion. Speaker John A. Boehner, R-Ohio, has consistently said his push for spending cuts is tied to his concern for the economy.

“Our goal is to reduce spending in order to lead to a better environment for job creation in America,” Boehner said Thursday. “I do believe that it’s important that we take this moment and get the largest spending cuts possible that will help our economy and help job creators back to creating jobs.”

President Obama, however, has warned a government shutdown would halt the nation’s economic recovery, harming small businesses in particular.

“When government shuts down, it means that that small-business owner who’s waiting to get a loan, suddenly nobody’s there to process it. He may not get that loan and that business may not open,” Obama said April 6 at an event in Pennsylvania.

Possible Disruptions to Businesses
In the event of a shutdown, the Small Business Administration would not guarantee loans for business working capital, real estate investment or job creation activities, according to an Office of Management and Budget memo.

Also, individuals filing paper tax returns would not receive tax refunds from the IRS.

Small-business groups have seized on these scenarios, and have urged lawmakers to come together and reach a deal.

“With small-business loans and tax refunds stopped dead in their tracks, the small businesses that are so critical to our communities and our nation will be unable to grow or reinvest in their business,” said Kristie Arslan, executive director of the National Association for the Self-Employed.

Sam Graves, R-Mo., chairman of the House Small Business Committee, said he also did not want to see the government shut down, but blamed Senate Democrats for their inaction.

“I’m hearing from small-business groups that they want a long-term federal budget, which is what the House has passed and the Democrat-controlled Senate has not,” Graves said. “The small-business community is looking to Congress for leadership and to help provide some certainty so they can grow and create jobs.”

Meanwhile, the financial services industry is bracing for the consequences of a shutdown on the still-anemic mortgage market.

Effect on Housing
Under a shutdown, the Federal Housing Administration (FHA) would not be able to back any single-family mortgage loans or have staff available to process and approve new multifamily loans. Currently, FHA single-family insurance covers more than 20 percent of overall loan volume.

“Any government shutdown will cause uncertainty in mortgage lending,” said Scott Talbott, a senior vice president at The Financial Services Roundtable.

The National Association of Realtors has sent a memo to its members outlining how the housing market might be affected, though it cautioned the true effect would not be determined until a shutdown actually happens.

At a news conference Thursday, administration officials offered repeated warnings that a government shutdown would cause real harm to the economy.

“I think the effect of FHA on the housing market, people not getting their tax returns, SBA loans — these collectively have a major impact on the economy,” said Jeff Zients, OMB’s deputy director for management. “Overall, if we were to have a shutdown, obviously the shorter the better, but the impact I think will be immediately felt on the economy.”

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