CR deal collapses, federal funding at risk

The continuing resolution deal to keep the government open until March 14 collapsed Wednesday as President-elect Trump and Elon Musk railed against its content, spelling trouble for states and municipalities that rely on federal funding.

"We hope that there will be some kind of resolution that Speaker Johnson can find between the wider variety of parties that are now entering the conversation of funding the federal government," said Emily Brock, director of the federal liaison center at the Government Finance Officers Association.

States and municipalities rely on federal money for infrastructure funding and Medicaid support. Infrastructure funding is typically sent to the states as a reimbursement for funds already spent. Congress has until Friday at midnight to execute Plan B and avoid a shutdown.

The $110.4 billion package now in jeopardy included additional riders sending disaster relief money to the Federal Emergency Management Agency, the Department of Agriculture, and the Department of Transportation, while also providing a cost of living pay raise for lawmakers.

Trump and Vice President-elect Vance slammed the agreement in a statement saying, "Republicans want to support our farmers, pay for disaster relief, and set our country up for success in 2025. The only way to do that is with a temporary funding bill without Democrat giveaways combined with an increase in the debt ceiling."

The debt ceiling limit remains a reliable political football by restricting how much the federal government can borrow to pay its bills by issuing Treasury bonds.

Policy experts have already pointed to the bond market as a guardrail for risky fiscal policy moves by the incoming administration.

Billionaire and future Department of Government Efficiency Chief Elon Musk led the charge at defeating the CR via his posts on X by targeting riders of interest to the muni-community including using federal money to repair the Francis Scott Key Bridge, a tolled state highway that crosses Baltimore's inner harbor.

Deciding who would pay for the repairs came up in Congressional hearings earlier in the year pitting the state of Maryland against the federal government representing taxpayers.

The scuttled CR also provided the framework for swapping control of the RFK stadium site for transferring control of an Air National Guard squadron from Washington D.C. to Maryland. Renovating RFK would likely be accomplished by a bond issuance.

Trump's pre-inaugural foray into the budget fight may telegraph what's ahead as his Tax Cuts and Jobs Act comes up for renewal and the deficit spirals up.

"It should be a wake-up call to the municipal market that is not the same as 2017 and it is not the same as 2024," said Brock. "We need to make sure that we understand the Republican Party's priorities as a whole and understand where there may be points of disconnect."

Brock thinks a shutdown could serve as a teachable event for the incoming Congress especially if the financial markets react to the uncertainty caused by a shutdown.

Any new deal hammered out in the House will likely need help from the Democrats and will then need to be approved by the Democratic- controlled Senate.