When the previous fiscal year ended on September 30, 1995, the Democratic President and the Republican-controlled Congress had not passed a budget. A majority of Congress members and the House Speaker, Newt Gingrich, had promised to slow the rate of government spending; however, this conflicted with the President's objectives for education, the environment, Medicare, and public health.
According to Bill Clinton's autobiography, their differences resulted from differing estimates of economic growth, medical inflation, and anticipated revenues.
When Clinton refused to cut the budget in the way Republicans wanted, Gingrich threatened to refuse to raise the debt limit, which would have caused the United States Treasury to suspend funding other portions of the government to avoid putting the country in default.
Clinton said Republican amendments would strip the U.S. Treasury of its ability to dip into federal trust funds to avoid a borrowing crisis. Republican amendments would have limited appeals by death-row inmates, made it harder to issue health, safety and environmental regulations, and would have committed the President to a seven-year budget plan. Clinton vetoed a second bill allowing the government to keep operating beyond the time when most spending authority expires. A GOP amendment opposed by Clinton would not only have increased Medicare Part B premiums, but it would also cancel a scheduled reduction. The Republicans held out for an increase in Medicare part B premiums in January 1996 to $53.50 a month. Clinton favored the then current law, which was to let the premium that seniors pay drop to $42.50.
Since a budget for the new fiscal year was not approved, on October 1 the entire federal government operated on a continuing resolution authorizing interim funding for departments until new budgets were approved. The continuing resolution was set to expire on November 13 at midnight, at which time non-essential government services were required to cease operations in order to prevent expending funds that had not yet been appropriated. Congress passed a continuing resolution for funding and a bill to limit debt, which Clinton vetoed as he denounced them as "backdoor efforts" to cut the budget in a partisan manner.
On November 13, Republican and Democratic leaders, including Vice President Al Gore, Dick Armey, and Bob Dole, met to try to resolve the budget and were unable to reach an agreement.