By Andrew Duehren, Kate Davidson and Catherine Lucey 

WASHINGTON -- Congressional and White House negotiators reached a deal to increase federal spending and raise the government's borrowing limit, securing a bipartisan compromise to avoid a looming fiscal crisis and pushing the next budget debate past the 2020 election.

The deal for more than $2.7 trillion in spending over two years, which must still pass both chambers of Congress and needs President Trump's signature, would suspend the debt ceiling until the end of July 2021. It also raises spending by nearly $50 billion next fiscal year above current levels.

The agreement forgoes the steep spending cuts initially sought by the administration, providing for about $320 billion in spending over two years above limits set in a 2011 budget law that established automatic spending cuts, known as the sequester.

Mr. Trump, a Republican, announced the deal on Twitter late Monday, citing all four congressional leaders. He added: "This was a real compromise in order to give another big victory to our Great Military and Vets!"

House Speaker Nancy Pelosi (D., Calif.) and Treasury Secretary Steven Mnuchin negotiated the agreement for weeks, hoping to complete a deal before the House leaves Washington at the end of the week for August recess. Mr. Mnuchin had warned that the government could exceed its borrowing limit as soon as early September, before lawmakers return from recess.

In a joint statement Mrs. Pelosi and Sen. Chuck Schumer of New York, the chamber's Democratic leader, pledged that the House would bring the deal quickly to the floor. They stressed that the agreement increases both defense and domestic spending and said they had agreed to spending offsets that were part of an earlier bipartisan agreement.

Senate Majority Leader Mitch McConnell (R., Ky.) said he was encouraged by the deal, adding that it "secures the resources we need to keep rebuilding our armed forces." He said he intended to have the Senate vote on it before the chamber departs for recess.

The deal marked a victory for congressional leaders and Mr. Mnuchin, who had stressed that without action, the government could exhaust its ability to keep paying its bills in early September.

For President Trump, the deal pushes the debt-limit question out beyond the 2020 election and provides a boost to military spending that he can tout on the campaign trail. For congressional leaders, it ensures an initial measure of stability and marks a win for the kind of pragmatic deal making that has been in short order in Washington in recent years.

The accord also marked another example of Washington's rising tolerance for deficits, among both Democrats, who prize domestic spending, and Republicans, who consistently seek more money for the military.

A key sticking point in the negotiations was how to pay for the cost of the spending increases. The deal extends small cuts to Medicare beyond fiscal year 2027 and extends fees collected by Customs and Border Protection, amounting to $77 billion worth of savings to offset the cost. Those routine budget accounting moves fall short of the $150 billion in spending cuts originally sought by the administration.

The White House was represented in negotiations by Mr. Mnuchin, but others in Mr. Trump's circle have been urging him to press for greater spending cuts.

Fiscal hawks panned reports of the proposed deal Monday before many of the details had been released, warning it could add trillions of dollars more to projected government debt levels over the next decade. The White House estimated this month that annual deficits are on track to exceed $1 trillion this fiscal year because of weaker federal revenue following the 2017 tax cut and higher government spending under the current budget agreement.

"There was a time when Republicans insisted on a dollar of spending cuts for every dollar increase in the debt limit," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. "It's hard to believe they are now considering the opposite -- attaching $2 trillion of spending increases to a similar-sized debt limit hike."

Some House Republicans had urged Mr. Trump to reject the deal over the weekend, calling for more spending cuts. But Rep. Kevin McCarthy of California, the top House Republican, praised the increases in military spending.

"While this deal is not perfect, compromise is necessary in divided government," he said.

Democrats said the expiration of the fiscal controls enacted in 2011 was an important victory.

"While the bipartisan deal represents a compromise, I am proud that this agreement ends the senseless austerity imposed by the Budget Control Act, " said House Appropriations Chairwoman Nita Lowey (D., N.Y.)

The deal wasn't praised by all Democrats. Rep. Alexandria Ocasio-Cortez (D.,N.Y.) tweeted skepticism about spending increases and tax cuts for "corporations, contractors & the connected."

Mrs. Pelosi has been clear that she wanted to reach an agreement before Congress leaves for summer break. She has said she wants the House to vote on the agreement on Thursday, before the chamber goes on recess on July 26. The Senate doesn't take its break until Aug. 2.

Mr. Mnuchin took the lead negotiating on behalf of the administration, working closely with Mrs. Pelosi. That appeared to limit the roles of White House acting chief of staff Mick Mulvaney and acting Office of Management and Budget Director Russ Vought.

Once the agreement on overall spending levels passes Congress, both chambers will still need to pass 12 individual bills to keep the government open after Sept. 30. Lawmakers have indicated they may need to pass some sort of stopgap funding measure to avoid a shutdown and negotiate agreements on all of the remaining bills.

Congressional leaders pledged to forego any "poison pills," or measures that lawmakers include in appropriations bills that advance partisan goals. House Democrats have included a number of policy provisions aimed at canceling Trump administration initiatives in the spending bills they advanced in their chamber this year. Those measures were already unlikely to pass in the GOP-controlled Senate.

While budget talks began earlier this year, they took on fresh urgency after Mr. Mnuchin's warnings about the debt ceiling. Without the ability to borrow, the government could begin to miss payments on its obligations, such as Social Security and veterans benefits or interest on the debt.

Leaders of both parties sought to pair the debt limit vote with a broader spending agreement -- a move that creates an impetus for Democrats to push for domestic spending increases and lets Republicans avoid a difficult, stand-alone vote on raising the borrowing limit.

An aide to the speaker said Mrs. Pelosi and Mr. Mnuchin spoke three times on Sunday and Mr. Schumer joined one of the calls. On Monday, they spoke in the morning and again in the late afternoon before Mr. Mnuchin held a conference call with the four congressional leaders to discuss any issues. During the call, Mr. Mnuchin told the leaders that the president would tweet on the deal within the hour.

Write to Andrew Duehren at andrew.duehren@wsj.com , Kate Davidson at kate.davidson@wsj.com and Catherine Lucey at catherine.lucey@wsj.com

(END) Dow Jones Newswires

July 22, 2019 20:47 ET (00:47 GMT)

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