Budget deal reached amid conservative opposition

By Richard Cowan and David Lawder WASHINGTON (Reuters) - Budget negotiators in the Congress have reached an agreement on Tuesday that, if approved by the House and Senate, could restore some order to the nation's chaotic budget process and avoid another government shutdown on January 15. The chief negotiators, Democratic Senator Patty Murray and Republican Representative Paul Ryan, were to announce details at a news conference at 6 p.m. ET (2300 GMT). While not a big deal in terms of deficit reduction, enactment of the funding measure - by no means a certainty - would be a departure from the political showdowns of recent years that have rattled markets, threatened the country's economic recovery and lowered the standing of the U.S. Congress to all-time lows in the eyes of voters. The most immediate result would be to avoid starting the new year with another government shutdown on January 15. The government was partially closed from October 1 to October 16 after a battle over Obamacare held up passage of a measure to fund the government. As the terms of the prospective budget plan became clearer, conservative groups warned that they would oppose it because it would blunt some of the automatic spending cuts known as "sequestration." As envisioned, the two-year deal aims to restore Congress' normal budgeting process, which has broken down every year since 2010. It is not expected to address the equally volatile issue of the nation's borrowing limit, known as the debt ceiling, which will need to be increased in the late winter or early spring and could by itself spark a conservative-led showdown. Congressional aides familiar with the talks said there were still some sticking points on Tuesday, such as a demand from Democrats to extend long-term federal unemployment benefits due to expire on December 31 for 1.3 million Americans. Democratic support for a budget deal, considered essential for passage in the House of Representatives given the conservative opposition, is likely to hinge on whether the unemployment benefits can be extended separately, a senior Senate Democratic aide said. But Democratic senators said negotiations were making progress and a deal was close at hand after hearing a mid-day status briefing from Murray, who heads the Senate Budget Committee. "I am very, very hopeful and increasingly optimistic that we will have a budget," said Senator Richard Blumenthal, a Connecticut Democrat. Democrats "are working to minimize ... the size of the cut that Ryan has sought," said one Senate aide. Ryan "is still working with Senator Murray to cut spending in a smarter way. They haven't reached an agreement yet," said William Allison, a Ryan spokesman. TARGETING REPUBLICANS As the two lawmakers and their staffs worked behind closed doors, conservative groups were waging a public campaign to defeat their efforts. Those groups hold sway with House Republicans, and with the 2014 midterm elections coming into focus, their opposition to the deal could complicate its passage. In some cases, the groups are backing more-conservative primary challengers to Republican incumbents they view as too moderate. According to congressional aides speaking before the deal was announced, any tentative budget deal might allow spending to rise from the scheduled $967 billion for fiscal 2014 to around $1 trillion. While that increase in outlays would be offset by raising some government fees and possibly cutting federal workers' retirement benefits, conservatives were rallying against the deal, even before it was reached. Americans for Prosperity, which supports cutting taxes and government spending, called on congressional Republicans to "stand firm" in upholding a second round of across-the-board automatic spending cuts, which are scheduled to start in January. "Otherwise, congressional Republicans are joining liberal Democrats in breaking their word to the American people to finally begin reining in government over-spending that has left us over $17 trillion in debt," said AFP President Tim Phillips. A Ryan-Murray deal it is expected to relax some of those cuts, which are known as "sequestration." Late on Monday, another conservative group, Heritage Action for America, an offshoot of the Heritage Foundation, announced that it also could not support the emerging budget deal. The group complained that such a deal would increase spending "in the near-term for promises of woefully inadequate long-term reductions." Koch Industries, the company controlled by conservative activists and campaign contributors Charles and David Koch, also urged Congress in a letter to stick to the $967 billion spending cap set under the sequester. "It is essential if our country is to achieve economic prosperity once again. It is also the right thing to do," wrote Philip Ellender, the head of Koch Industries' government and public affairs arm. While some Republicans backed by the Tea Party conservative movement will likely heed these calls, the party's more moderate wing is eager to make a deal that avoids more messy budget showdowns, particularly with mid-term congressional elections in less than a year. In October, it was largely Tea Party-led demands to undermine "Obamacare" health reforms that prompted the shutdown. From the other end of the political spectrum, Democratic lawmakers have voiced opposition to any deal that takes a whack at federal workers' pensions without asking sacrifices from wealthier Americans. A vote in the Republican-controlled House could be expected to come by Friday, when that chamber plans to recess for the year. If it passes the House, the Democratic-controlled Senate is likely to vote on it late this week or next week. Senate Democrats are banking on winning the support of at least five Republicans who want to ease the Pentagon's automatic spending cuts and avoid a budget standoff like last October's, which led to a 16-day government shutdown. Absent a budget deal, money for most federal agencies is set to run out on January 15, and much of the government will close. (Reporting by Richard Cowan and David Lawder; Editing by Eric Beech and Jackie Frank)