(Corrects first name of House Appropriations chair to Harold)

Republicans and Democrats in the U.S. Congress clinched a short-term budget deal to keep the federal government running for a week after hammering out an agreement to cut domestic spending.

The U.S. Senate passed the stopgap spending bill before midnight on Friday, followed by approval in the U.S. House of Representatives just after the midnight deadline.

But White House Budget Director Jack Lew told federal agencies to continue normal operations, noting that President Barack Obama was expected to sign the bill into law on Saturday.

House Speaker John Boehner said he expected Congress to vote by the middle of next week on a longer-term agreement that includes the largest domestic spending cuts in U.S. history.


The short-term measure cuts nearly $2 billion in spending from transportation and housing programs, including $1.5 billion from a high-speed rail program and $280 million from capital investment grants.

The longer-term agreement will cut spending in the current 2011 fiscal year by about $38 billion, including $17.8 billion from benefit programs, or entitlements, lawmakers said.

The rest would come from so-called discretionary spending, including a cut of $3 billion from defense programs, according to House Appropriations Committee Chairman Harold Rogers.

Changes in mandatory spending, or CHIMPs in Washington-speak, minimize the impact of the spending cuts in future budget cycles because they do not lower the baseline levels for discretionary programs such as space exploration or housing, whose funding levels are set by Congress each year.

The package of cuts falls short of the $61 billion that Republicans passed through the House in February, but it is still above the original proposal they advanced in January.

Measured another way, the longer-term agreement cuts $78.5 billion from the budget proposal submitted by Obama to Congress a year ago for the current fiscal year, which began on October 1.


The budget fight has been waged over the 14 percent slice that Congress approves each year for domestic spending.

Most of the federal budget is beyond the reach of the annual budget process. The size of benefit programs such as Social Security is determined by how many people qualify for them, not by how much money Congress sets aside for them.

Democrats pushed for cuts from mandatory programs, although they exempted the Big Three -- Social Security, the Medicare health plan for retirees, and the Medicaid plan for the poor.

The largest of the remaining entitlement programs: $4.9 billion from a Justice Department fund for crime victims; $400 million from a fund to seize assets from organized crime; and roughly $550 million from the SMART Grant student-aid program.

Republicans wanted most of the cuts to come from discretionary programs that Congress reviews annually, because that would set a lower baseline for spending in future years.


The package does not contain the most divisive policy riders, or restrictions, that Republicans wanted: measures to ban funding for birth control and greenhouse-gas regulation.

Republicans had sought to block birth control funding to the Planned Parenthood family planning organization, because it also provides abortions, though not with public money.

That provision is not included. Instead, the Senate will vote on it separately, but the measure is not expected to get the 60 votes needed for passage.

The bill did include one policy rider: school vouchers for the District of Columbia, a pet project of Boehner's, according to congressional aides.

It also bans the use of local money to pay for abortions in Washington, a provision that has already been included in past budgets.

As part of the compromise, the Senate also agreed to hold a vote on blocking implementation of Obama's healthcare reform law, but that measure is expected to fail.

The bill subjects the new Consumer Financial Protection Bureau to yearly audits by both the private sector and the congressional Government Accountability Office.

(Reporting by Andy Sullivan, Kim Dixon and Andrea Shalal-Esa in Washington; editing by Mohammad Zargham)