Tense Meetings, Stalled Talks Led to 'Painful' Budget Deal - San Francisco Chronicle

April 10 (Bloomberg) -- President Barack Obama had finally reached his breaking point.

For more than an hour in an Oval Office meeting on April 7, House Speaker John Boehner had insisted that any compromise on the government's budget include a prohibition on federal funding for Planned Parenthood.

Obama already had reluctantly agreed to a provision banning the District of Columbia from spending funds on abortion services -- and that was as far as he would go.

"Nope, zero," he told Boehner, according to a senior Democratic aide. "John, this is it." The room went silent.

The tense negotiations culminating in a last-minute deal the next night to avert a government shutdown underscored the challenges facing both Boehner and Obama as they tackle the fiscal issues that will dominate the debate during the next two years in Washington.

Looming battles to raise the $14.3 trillion debt ceiling and craft next year's budget will help shape the country's economic future and define the 2012 presidential race. The fight to fund the government through the Sept. 30 close of the fiscal year resulted in what Obama said were some "painful" spending cuts. Yet it was only the initial test of how both leaders will navigate the dangers of divided government.

'A Good Exercise'

"It's the first time we all worked under these new parameters we are in, so we've had to learn each other," said House Appropriations Committee Chairman Hal Rogers, a Kentucky Republican, who participated in the talks. "It was a good exercise in that respect because we will know next time -- and there will be many times -- we will know next time more how to handle these kinds of things."

The deal averted the furlough of 800,000 federal employees, the closure of federal facilities such as national parks and the Smithsonian Institution in Washington and a delay in processing tax returns.

While officials warned of economic consequences from a shutdown, financial markets have shown little concern about U.S. fiscal health. The benchmark 10-year Treasury note yield was at 3.58 percent on Friday, below the average of 7 percent since 1980, reflecting expectations a deal would be reached, said John Lonski, chief economist at Moody's Capital Markets Group.

Obama Draws Complaints

For weeks, Obama, 49, stayed out of direct negotiations over the budget accord, sparking complaints from lawmakers in both parties on Capitol Hill that he waited too long to get involved. He spoke to Boehner, 61, directly just twice between Feb. 19, when the House passed its budget bill, and April 2, according to Republican aides.

Serious negotiations only began after Republicans passed the sixth stopgap spending measure on March 15, funding the government through April 8. Fifty-four Republicans voted against the bill, forcing Boehner to rely on Democrats to pass the measure and making it clear that another short-term extension wouldn't be tolerated by the Tea Party-wing of his conference, which is pressing hardest for deficit reduction.

The two sides struggled even to agree on a baseline for how much spending to cut. Formal talks stalled after a heated March 22 meeting, at which a Republican Appropriations aide insisted on using as a starting point the House bill that included $61 billion in spending cuts, said one of the people familiar with the talks. Democrats offered to cut $10 billion.

Another $20 Billion

Six days later, White House Chief of Staff William Daley reinvigorated discussions when he suggested that Democrats could accept another $20 billion in cuts. The staffs began working on a deal that would slash $33 billion in spending, according to aides.

Negotiations suffered another setback on March 30, however, when Vice President Joe Biden announced the $33 billion number to reporters after a meeting on Capitol Hill. That fueled reports of a tentative deal and angered Republican negotiators, who feared a Tea Party backlash.

As Tea Party activists protested outside the Capitol, chanting "shut it down" in a chilly drizzle, Boehner disputed the reports of a deal.

"There is no agreement on a set of numbers, and nothing will be agreed to until everything's agreed to," he told reporters.

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