Potential FY26 Government Funding Scenarios

Over the last few weeks, Congress has gotten over two major hurdles that have an influence on FY26 appropriations negotiations and possible legislation: the passage of the Big Beautiful Bill, the work on which was sucking the air out of everything else on Capitol Hill, and the $9 billion rescissions package for foreign assistance programs and the Corporation for Public Broadcasting. With these two markers in the rearview mirror, it’s a good time to game out some FY26 funding predictions. 

From the top, it’s important to make clear that there’s a high likelihood a short-term Continuing Resolution (CR) will be passed at the end of September. Neither party will have their full appropriations bills passed, or even written, and if nothing else, the chambers will need more time to find agreement.  

There are two major political dynamics that will play a major role in if and how the government is funded come October:  

• Whether Democrats make good on their threat to walk away from FY26 negotiations in response to rescissions (and the timing of that).   

• How long Republicans are willing to continue funding the government at “Biden-era levels” via a CR, or if this fall will be the moment they cut a deal. More on these dynamics later. 

Where things stand
This week, the House National Security, Department of State, and Other Programs (formerly SFOPS) released its FY26 appropriations bill, which was marked up on July 15 with little fanfare. The bill represents a 22% overall cut to the Department, and Democrats voted unanimously against it. 

Despite this concerning top-line number, the Alliance was pleased to see the Educational and Cultural Exchanges (ECE) line for ECA, which came in at $700.946 million; a far cry from the President’s requested $50 million for FY26.  

In addition to this robust ECA funding proposal, there is also language in the bill requiring OMB to apportion funds to ECA within a set period of 60 days after the bill’s passage. This signals that there is bipartisan awareness of the current hold OMB has on FY25 awards across the government, and they want to use the appropriations process to put in statute some guardrails. The Senate Appropriations Committee is still working on their bill, but the word is that they are pursuing similar funding levels and language to the House. 

Whether either of these bills make it out of committee and to the House or Senate floor remains a big question mark. But the House’s mark signals that there is still strong bipartisan support for ECA and its programs, which we can work with. 

The politics of it all
As mentioned above, there are two important political dynamics playing out that will have an outsized impact on if and how the government is funded in FY26. 

First, both Senate Minority Leader Chuck Schumer and Appropriations Vice Chair Patty Murray have said publicly that if the rescissions package passes, Democrats might walk away from FY26 negotiations. Now that rescissions have passed, it remains unclear if they are going to double down on that threat, or if they are going to wait and see what the Administration’s next move is.  

This is a big decision for Schumer, given the fiasco that was the CR fight in March that resulted in major backlash from the Democratic base. Does it make sense for Democrats to stop the appropriations process now, two months before the deadline, over this relatively small package, or should they hold their cards and wait for the Administration’s next play? 

Next week, Senator Thune is going to send up a test balloon by teeing up a vote on the Military Construction-Veterans Affairs (MilCon-VA) appropriations bill on the floor, which was voted out of committee with a large bipartisan margin. Between now and that vote, Minority Leader Schumer has to decide whether his caucus is going to hold strong on their threat to shut down the FY26 process. All of this comes as OMB Director Russ Vought said yesterday that appropriations should become less bipartisan, a sentiment that is strongly opposed in the Senate. If I were Senator Schumer, I’d allow my vulnerable members who need to vote against appropriations bills to vote against MilCon-VA next week, but I would make sure there are 7 votes to get it through the chamber. It doesn’t make sense for the Democrats to start their fight now; there are two months left until the funding deadline, and still a strong possibility that more rescissions packages are sent to the Hill. 

Second, there is frustration among Republicans in Congress that the government remains funded by a CR representing the previous Administration’s spending priorities and levels. The conundrum that they are faced with is that any attempt to break away from those levels require bipartisan agreement and 60 votes in the Senate. This would require negotiating with Democrats, which would buck the President’s desires for massive, across-the-board spending cuts. 

It seems very likely that any future rescissions package will be much larger than $9 billion, and very likely include FY25 funds from ECA. 

Consequences of a shutdown
Generally, shutdowns are bad for the government, its employees, and its critical day-to-day functions. The current climate on Capitol Hill makes it feel like – right now at least – there might be a real possibility of a shutdown in the fall. That chance only increases if the Administration sends the Hill more and larger rescissions requests, and it only increases further the later in the calendar those requests are made.  

Rescissions packages have a 45-day clock for passage once they go to the Hill, and if they don’t clear both chambers, the Administration is required to spend the funds as appropriated. The tactic OMB could take is sending huge rescissions packages to the Hill in mid-August – while Members of Congress are on recess – with a deadline pushing up against the end of the Fiscal Year (and expiration date of those funds). This would be a “pocket rescission,” and certainly add fuel to the fire of the Democrats’ threat to shut down FY26 talks. 

In this climate, however, a shutdown would be even more risky than in a typical year, a factor Democrats are surely considering. This Administration’s goal is to gut the federal workforce and agency programs, and a shutdown could give them carte blanche to do exactly that. In a government shutdown, the executive has broad authority to declare what is deemed “essential” and “non-essential” in government. A shutdown could provide this Administration with the opening it needs to run the parts of the government it wants to run without consideration for Congress or the courts. 

So what will happen?
With midterm elections approaching, it would be in Congress’ interest to work together on government funding for FY26 and reach an agreement between the chambers and bridge the cavernous differences between the parties.  

Longer term, the politics of a shutdown are bad, and the potential reality of a shutdown could be much worse. Many see the politics of ongoing government funding via CR as bad, but it would be less bad for ECA and its programs than a shutdown. While extremely unlikely, at least immediately at the start of the fiscal year, an omnibus or set of minibuses outlining new FY26 spending would send a strong message from the Hill to the Administration about Congress’ power of the purse, especially if whatever they agree upon looks like the House mark for ECA. Even with the Big Beautiful Bill and the first rescissions package behind us, there is still a lot that needs to happen before we can make better predictions about how the government will get funded in FY26.