The prospect of a government shutdown in less than two weeks inched closer Friday when the Senate failed to pass a short-term funding extension and lawmakers headed home until Sept. 29.
Funding runs out at midnight Sept. 30.
The U.S. House of Representatives Friday morning narrowly passed a continuing resolution, which would have kept federal agencies operating through Nov. 21 at current fiscal year funding levels with a few exceptions.
But in back-to-back votes, the House-passed measure failed to clear the Senate's 60-vote threshold, as did a Democrat-sponsored measure that would have funded the government through Oct. 31 with additional $1 trillion in spending.
House Speaker Mike Johnson, R-La., later canceled votes for Sept. 29-30, which is when lawmakers would need to return to take up the measure again. That makes an Oct. 1 shutdown more likely.
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For the municipal bond market, government shutdowns threaten the loss of federal funds in key sectors like transportation, energy, healthcare and for cities and states. It creates uncertainty around infrastructure projects and market access, and can impact direct-pay bonds, which are subject to cuts under sequestration.
The two parties Friday blamed each other for the looming shutdown.
The contrast between the two parties' bills is "glaring," said Senate Majority Leader John Thune, R-S.D.
"The Republican bill is clean, nonpartisan, short-term continuing resolution to fund the government to give us time to do the full appropriations process. And the Democrat bill is the opposite," Thune said. "It's what you might call not a clean CR; a dirty CR laden down with partisan policies and appeals to the Democrats' leftist base."
The Democrat bill would have extended expiring health insurance subsidies set to expire in December, rolled back roughly $1 trillion in Medicaid cuts in the One Big Beautiful Bill Act and restored funds "impounded" by the Trump administration.
Senate Minority Leader Chuck Schumer, D-N.Y., said Republicans refused to negotiate despite needing their votes. "When they don't talk to us, there's no hope of getting a good proposal. And that makes no sense," Schumer said.
"Today we have a rare moment in the Senate where two bills come to the floor that truly crystallize the contrast between the two parties," Schumer said later on the floor. "Our Republican colleagues seem to think Americans are happy with the direction of this country."
The Congressional Budget Office has estimated the cost of extending the Affordable Care Act subsidies at $350 billion over the next decade. The move would provide coverage to 3.5 million more Americans. Thune has previously said that Republicans are open to extending the subsidies, but not as part of a stop-gap funding measure.
Johnson, in comments to reporters after the House vote, warned of a stubborn impasse if the government shuts down.
"I don't see an easy route out of that," Johnson said. "There's going to be a lot of pain."
