The major piece of unfinished business from the last session of Congress is the fiscal year (FY) 2011 budget. Even though FY 2011 started on Oct. 1, 2010, the federal government still does not have a budget and has been funded through a series of temporary continuing resolutions (CR) since last fall. It remains to be seen if both the Senate and hard-line fiscal conservatives in the House will sign off on a budget for the remainder of the fiscal year, once again raising the specter of a government shutdown.

The Republican-controlled House is currently working on creating a budget for FY 2011, the broad outlines of which were released the week of Jan. 31. The plan calls for an increase of $8 billion in security-related spending and cuts of $44 billion from non-security discretionary spending.

In the short-term, the calendar does not look good for timely action on the budget. The current CR expires on March 4. House leadership has promised a vote on an FY 2011 budget during the week of Feb. 14 to coincide with the release of the president's budget proposal. However, the Senate will be in recess the following week, meaning the upper chamber will only have a week to react to the House's budget. This is probably not enough time for Senate leadership to hammer out a counterproposal that can garner the necessary 60 votes. Therefore, in all likelihood, Congress will be forced to pass another short-term CR, covering another couple weeks, to give itself more time to agree on a compromise.

What such a compromise will look like, however, is more ambiguous. It is not clear if the Senate will agree to any cuts the House makes or how deep senators would be willing to cut. The debate over earmarks may prove to be an insightful lesson for how spending decisions might be made.

Senate Democrats have strongly opposed elimination of earmarks from the FY 2011 budget even as congressional Republicans have lately highlighted the earmarks issue, agreeing amongst themselves in 2010 to forgo earmarks. Also, the president pledged in his State of Union address to veto spending bills with earmarks in them. Shortly after that, Senate Democrats agreed to no earmarks in spending bills.

In announcing the Senate Democrats' decision, Senate Appropriations Committee Chairman Daniel Inouye (D-HI), a long-time supporter of earmarks, said "the handwriting is clearly on the wall," acknowledging that the current political climate has turned against earmarks. With Republicans asserting that the recent election showed that Americans demand spending cuts, some Senate Democrats might decide that the writing is on the wall when it comes to overall spending, as well, particularly if the president sides with Republicans on the issue.

On the other hand, the agreement to ban earmarks could simply have been political cover for wavering Senate Democrats – earmarks account for a small amount of money in the context of the overall budget. With the 2012 election coming up, Democrats may choose to start drawing distinctions between the two parties, and the FY 2011 budget may be a good place to start. The president has already been calling for investments in certain types of areas such as education and infrastructure, which runs counter to the steep cuts the Republicans are calling for. Liberals both in and out of Congress are already arguing that cutting federal spending now would only hurt the fledgling economic recovery and will intensely oppose any effort to cut spending.

Perhaps foreshadowing the battle to come, The Hill recently quoted Senate Majority Leader Harry Reid (D-NV) as saying that the Republicans' budget plan was "more draconian than we originally anticipated" and "unworkable," strong language for a politician looking for compromise. Similarly, President Obama's budget director, Jack Lew, submitted an op-ed to The New York Times saying that the "easy cuts are behind us," signaling Obama's intention to pressure the Senate to instead back his five-year budget freeze.

On the other side of the Capitol, House Republicans have problems of their own. While House leadership is backing the new spending plan, which cuts about $35 billion from the FY 2010 budget, some rank and file members are less than thrilled with it. "Anything short of our pledge to cut $100 billion from FY 2011 will be getting off on the wrong foot," said Rep. Jeff Flake (R-AZ), voicing the concerns of conservative Republicans. "We're going to have to do much better and cut much more." Even some establishment conservative groups, such as the Heritage Foundation's political action arm, are saying that the leadership's budget proposal left money "on the table."

In order for there to be any kind of a compromise between the House and the Senate, House leadership must be able to control its caucus. However, the vote on the House budget plan scheduled for the week of Feb. 14 will include an open amendment process, and according to CQ (subscription required), the Republican Study Committee, representing the party's conservative bloc, "will push for an additional $42 billion in cuts beyond the non-security spending reductions sought by House leaders." If House leaders fail to beat back amendments like that one, negotiations with the Senate will likely be much harder.

If budget negotiations between the House and the Senate fail, the chance of a government shutdown becomes that much greater. It is entirely possible that the House will send the Senate large spending cuts, and the Senate will refuse to make anything beyond modest, targeted discretionary cuts. In such a situation, neither side will be willing to back down or meet in the middle, and if they cannot agree on a stop-gap solution, a government shutdown could occur as time runs out on the current CR.

Both sides are already trying to blame the other for any future shutdown. "Too many Republicans seem to want to force a government shutdown," said Sen. Chuck Schumer (D-NY), the number-three Democrat in the Senate. "The only people talking about shutting down the government are a handful of Senate Democrats," fired back Senate Minority Leader Mitch McConnell (R-KY). Regardless of blame, if lawmakers can't agree on spending levels in the next 25 days, a shutdown might very well be in the nation's future.