The Senate voted to extend the U.S. debt limit as part ofa $15.25 billion bill providing funds for Hurricane Harveyvictims under a deal struck by President Donald Trump andDemocratic leaders that roiled Republican lawmakers.

The 80-17 vote Thursday would suspend the debt limit, keep thegovernment open through Dec. 8 and finance aid to flood victims inTexas and other parts of the Gulf coast. The measure now goes tothe House for consideration, where even small-governmentRepublicans in opposition predict it will pass because of theurgent need for storm funds.

Trump's decision to accept the deal undercut GOP leaders in theHouse and Senate, as well as his own Treasury Secretary StevenMnuchin, who had been arguing for a longer-term debt-limitextension. It also left Republicans blindsided, angry anddisappointed with their own leaders and, to a lesser degree,Trump.

The episode provided the latest illustration of the bindRepublicans find themselves in. Even though they control the WhiteHouse and both chambers of Congress, they've been unable to setaside their own differences to get much done.

Republicans say Democrats likely will gain the upper hand innegotiations when the short-term agreements are due to expire inDecember as lawmakers race to complete their work to go on recess.The agenda is expected to include Trump's proposed border wall withMexico, his decision to end a program that lets young undocumentedimmigrants stay in the U.S., and perhaps the debt limit.

Before the final vote on the bill, H.R. 601, the Senate rejectedamendments by Republican Rand Paul of Kentucky that would haverequired foreign aid cuts to offset the disaster assistance and byRepublican Ben Sasse of Nebraska that would have dropped thedebt-limit extension and stopgap spending from the disastermeasure.

Yields on Treasury bills fell across the curve in advance of theSenate vote. T-bills maturing Oct. 5 extended their drop for thethird straight session, falling below 1%, while December maturitiespared Wednesday's rise.

The next fight over the debt limit could slip into 2018 becausethe Treasury Department can deploy so-called extraordinary measuresto extend its ability to operate. Jefferies economists WardMcCarthy and Thomas Simons said the drop-dead date could come asearly as February if tax refund outlays are “relatively high.” AGoldman Sachs research note estimated that the next debt limitincrease would be needed by March.

Yet the extraordinary measures may provide only weeks, notmonths, of flexibility on the debt-limit date because the Treasuryhas already used almost all available measures during the currentextension, a Democratic aide said party members were told afterconsulting with Treasury officials. Expected spending on storm aidcould also eat into what will be available, the aide said.

Disaster Funds

The measure passed by the Senate would nearly double the totaldisaster funding from the $7.85 billion the House passed Wednesdayin a measure that didn't include the debt-limit or stopgapgovernment spending. The additional funding would go toward theCommunity Development Block Grant program to address housing needsin disaster zones.

Congress is rushing to pass Hurricane Harvey relief funds by theend of the week because the Federal Emergency Management Agency'sdisaster-relief fund is set to run out of money as soon as Fridayas a more powerful storm, Hurricane Irma, bears down onFlorida.

During an Oval Office meeting Wednesday, Trump accepted theproposal by Senate Minority Leader Chuck Schumer of New York andhis House counterpart, Nancy Pelosi of California, to extend thedebt limit until December instead of the 18-month suspensionproposed by Republican leaders.

House Speaker Paul Ryan of Wisconsin, who was in the meetingwith Trump, didn't see it coming. Hours before Trump's deal, he hadtold reporters that the Democratic proposal for a short-term debtlimit deal would be “unworkable” and “ridiculous.”

Ryan told reporters on Thursday that Trump “thought it was inour country's best interest to have bipartisan support in abipartisan package to deal with these ongoing hurricanedisasters.”

Conservatives were fuming over the deal. Asked about thecompromise, Freedom Caucus member Ted Yoho of Florida saidsarcastically, “It's great to be in the majority.”

The White House tried to sell the deal as a way to “clear thedecks” for a tax overhaul, as Trump's legislative director, MarcShort, put it to reporters.

Bloomberg News

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