Scenarios: Messy U.S. budget, spending prospects

Washington, The deeply divided U.S. Congress faces a Friday deadline for sending President Barack Obama legislation to keep the federal government funded and running.

The House of Representatives last weekend passed a bill to fund the government through September 30, the end of fiscal year 2011. But it includes spending cuts of about 14 percent, or $61.5 billion below current levels, and Obama and his fellow Democrats in Congress said they were against it.

Although the two parties still have room to negotiate, the fight over spending could lead to a shutdown of government operations and prompt Congress to refuse to allow the United States to borrow more money.

Here are scenarios for what could happen:

AGREEMENT ON SHORT-TERM FUNDING

The most likely outcome is a short-term funding agreement. Congress is likely to approve a temporary bill known as a "continuing resolution" to fund the government through March 30, giving Republicans and Democrats more time to compromise on spending until the end of the fiscal year in September.

But there's still a major hitch to work out in the continuing resolution, which would be the sixth stopgap funding bill this fiscal year, which began October 1. Democrats want this one to keep government spending at current levels, while House Speaker John Boehner wants some reductions.

It will become apparent this week whether the two parties can agree on a stopgap bill.

IMMEDIATE COMPLETION OF A FISCAL YEAR 2011 BILL:

Although the 2011 fiscal year is nearly half over, its budget has never been approved. Passing one would end fears of an imminent government shutdown and bode well for negotiations on raising the federal debt limit -- but there is little time to accomplish it. While the parties could agree on short-term funding, there are huge differences between Republicans and Democrats on the level of spending cuts for the rest of the fiscal year.

GOVERNMENT SHUTDOWN:

Leaders of both parties say they don't want this to happen and that they are working to avoid it, but there's still plenty of partisan sniping going on.

Boehner said on Sunday the House would pass a short-term bill that would keep the government running with some cuts.

The shutdown scenario holds the most danger, politically. An electorate already annoyed with Washington would become even more angry and no politician is sure whether he or she would escape the public's wrath come election day.

The last time there was a government shutdown was December 16, 1995, to January 6, 1996 and Republicans who controlled the House, just like now, got most of the blame.

Even a partial government shutdown could have a negative impact on global financial markets -- on top of uncertainties over the slow-healing U.S. economy and political upheavals in the Mideast and North Africa.

But the fact remains that if Obama's Democrats and Republicans cannot reach a deal on another stopgap bill or on the bill to fund the government for the rest of the fiscal year, there's only one alternative: the layoff of thousands of federal workers and the disruption of many government services.

Government agencies would have to activate shutdown plans either starting on March 5, or, since that is a Saturday, on March 7.

DEBT LIMIT

Besides fighting over this year's spending, Congress and the White House have another problem to worry about in coming months: U.S. government borrowing authority.

The Treasury Department says it will bump up against its statutory $14.3 trillion borrowing ceiling sometime in April or May.

Without an increase, the U.S. government faces a possible default on loans, many of which are held by China, Britain and other foreign investors. Federal Reserve Chairman Ben Bernanke warned this month that a default would cause "catastrophic" consequences for the U.S. economy and financial system. A default is seen as unlikely but political posturing over the debt limit in the coming weeks could unsettle financial markets.

No more borrowing authority also would mean that the government could not continue operating and may not be able to pay out Social Security and other government benefits.

Some Tea Party conservatives say they are willing to push this alternative unless spending cuts are in place.

A THIRD WAVE OF TURMOIL:

Once the fiscal year 2011 spending and debt limit problems are resolved, attention turns to the fight for the 2012 fiscal year budget and a series of spending bills to fund the government for next year.