(Updates with details on Senate agreement starting in fifth paragraph. For more on the fiscal impasse, see EXT2.)
Oct. 15 (Bloomberg) -- Senate leaders are resuming talks aimed at avoiding a U.S. default and ending the 15-day-old government shutdown after the Republican-controlled House scrapped a vote on its plan.
Majority Leader Harry Reid, a Democrat, and Minority Leader Mitch McConnell, a Republican, had suspended their talks earlier today while the House was considering its own bill.
“Senator Reid and Senator McConnell have re-engaged in negotiations and are optimistic that an agreement is within reach,” Adam Jentleson, Reid’s spokesman, said in a statement tonight.
The Reid-McConnell talks represent the clearest path to prevent U.S. borrowing authority from lapsing Oct. 17. They must reach a final agreement, get all 100 senators to permit an expedited vote and persuade House Speaker John Boehner to allow a vote that would pass largely with Democratic support.
The emerging Senate agreement would fund the government through Jan. 15, 2014, and suspend the debt ceiling through Feb. 7, 2014. The Treasury Department could use so-called extraordinary measures to delay default for about another month beyond that, said a Senate Democratic aide who spoke on condition of anonymity to discuss the plan.
Senate passage of a bill could be delayed into late next week if a single senator objects, the aide said. Then that bill would have to go to the House. Procedurally, the Senate would have been able to act by Oct. 18 if the House had passed a bill tonight.
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 proposal that was scrapped tonight contained almost none of Republicans’ initial conditions for ending the 15-day-old government shutdown and raising the debt ceiling.
Boehner has tried several times over the past month to construct a debt-limit bill that House Republicans could support, and he hasn’t brought any proposals to a vote. Republicans didn’t have enough votes for the measure, said a leadership aide who spoke on condition of anonymity to discuss vote counting.
“We’re going to be prepared tomorrow to make some decisions,” Representative Pete Sessions, a Texas Republican, told reporters in the Capitol today.
Unlike previous stopgap spending legislation, the House bill wouldn’t have made major changes to the 2010 health-care law, and it contains none of the cuts to entitlement programs Republicans sought to add to a debt-limit increase.
House Republicans have a 232-200 majority and would have needed all but 15 members to support a plan. Democratic Leader Nancy Pelosi of California said the proposal is a path to default and urged Boehner to support a bipartisan agreement emerging in the Senate.
“We’re at the 11th hour here,” said Senator Charles Schumer, a New York Democrat. “The train to avoid default was smoothly heading down the tracks and picking up speed, and all of a sudden at the last minute, Speaker Boehner decides to throw a log on those tracks. Enough already.”
Fitch Ratings put the U.S. AAA credit grade on ratings watch negative, citing the government’s inability to raise the debt ceiling in a timely manner, according to a statement after New York markets closed today.
The House plan would have kept the government open through Dec. 15 and suspended the debt limit until Feb. 7, 2014. It would have prevented the government from making any contribution toward the health insurance of members of Congress and their staff, the president, the vice president and high-ranking administration officials.
In contrast, the emerging Senate agreement would keep the government open through Jan. 15, and suspend the debt limit through Feb. 7. It contains no major changes to the health law. 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.
U.S. stocks dropped after Senate leaders suspended their talks. The Standard & Poor’s 500 Index fell 0.7 percent to 1,698.06 and the Dow Jones Industrial Average declined 0.9 percent to 15,168.01 at 4 p.m. in New York. Futures on the Standard & Poor’s 500 Index climbed 0.5 percent by 8:45 a.m. in Tokyo, after statements from Reid’s and McConnell’s offices.
Benchmark Treasury 10-year yields rose four basis points, or 0.04 percentage point, to 2.73 percent at 5 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 Oct. 24 rose 20 basis points to 0.46 percent after touching 0.51 percent, the highest since the bills were sold. The rate was negative as recently as Sept. 27.
Democrats were furious with Boehner during their private caucus meeting, Senator Chris Murphy, a Connecticut Democrat, told reporters.
“I don’t think I’ve seen that room as mad as it was today all year,” Murphy said. “People are absolutely shocked that John Boehner would singlehandedly kill the momentum that had developed all day long yesterday.”
President Barack 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. The White House has encouraged the Senate negotiations and rejected the House’s approach.
Unless Congress acts, the U.S. will be operating only on cash and incoming revenues starting Oct. 17. It will begin missing promised payments between Oct. 22 and Oct. 31, according to the Congressional Budget Office.
Senator Lindsey Graham, a South Carolina Republican who is close with Boehner and spoke to him by telephone earlier today, said he’s concerned that the speaker could become a “victim” of a failed Republican strategy to use a government shutdown as leverage to try to force changes to the health-care law.
Graham also said he is “getting to the point of disgust” with Democrats including Reid for refusing to help Republicans devise a way to extricate themselves from an impossible negotiating position.
“Instead of trying to help us find a way out of a bad spot -- we won’t be the last political party to overplay our hand, it may happen one day on the Democratic watch,” he said. “And if it did, would Republicans, for the good of the country, kind of give a little?” Graham said, adding that Republicans went “too far” and “screwed up.”
Pelosi said there’s a “bipartisan path” to preventing the lapse in borrowing authority. She urged Boehner to allow a vote on the Senate deal.
“Perhaps the speaker just needs to humor his troops so they can sow their oats,” the California Democrat said today on Bloomberg Television. “They’ve hijacked the Republican name. Republicans are not for jeopardizing our full faith and credit.”
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.
--With assistance from Michael C. Bender, James Rowley, Chris Strohm, Julianna Goldman, Phil Mattingly, Laura Litvan, Peter Cook and Julie Hirschfeld Davis in Washington and Inyoung Hwang in London. Editors: Jodi Schneider, Robin Meszoly