* $967 billion spending cap approved, lowest in a decade
* Republicans shifting limited funds toward defense, security
By David Lawder
WASHINGTON, May 21 (Reuters) - The Appropriations Committee of the U.S. House of Representatives made clear on Tuesday that automatic spending cuts will be a recurring nightmare for Washington as it passed a measure to sharply reduce funding for government agencies and programs next year.
The Republican-controlled committee approved a $967 billion discretionary spending cap - the lowest in a decade - for the 2014 fiscal year that starts on Oct. 1. That is an $80 billion reduction from the current fiscal year.
Government agencies are struggling with $85 billion in automatic cuts, known in Washington as the "sequester," that began in March and will last through Sept. 30. The committee's action assumes that Congress will not act to stop the next year's installment of $109 billion in cuts.
To make the most of the dwindling discretionary funds for everything from the military to education and national parks, the committee is shifting money toward the Republicans' priorities of defense and homeland security and away from domestic programs that Democrats favor.
"This is in no way ideal, but this is the hand that sequestration is dealing us," said Appropriations Committee Chairman Harold Rogers, adding that the panel is applying cuts with "sharp scissors and clear heads."
The committee passed the first of its appropriations bills on Tuesday, providing $73 billion for military construction and the Veterans Administration, slightly above this year's post-sequester levels.
On Wednesday, the panel will vote on its $38.9 billion Department of Homeland Security appropriations bill, which is $981 million above the current post-sequester level but $617 million lower than last year.
Democrats on the committee complained that these shifts will require domestic spending cuts so deep that some bills, such as funding for the Departments of Labor and Health and Human Services, won't win enough support for passage.
"These funding levels are simply not workable," said Representative Jose Serrano, a New York Democrat.
Although several lawmakers held out hope that a comprehensive budget deal this year would turn off the automatic cuts and allow for higher discretionary spending levels, there has been no movement on Capitol Hill toward that goal in recent weeks.
The House panel's actions are also setting up a potential clash with the Democratic-controlled Senate Appropriations Committee, which is preparing to pass spending bills at a much higher cap of $1.058 trillion - a level specified in a budget deal two years ago.
That means even if the House can muster enough support to pass its appropriations bills with deep cuts, it will then face a $91 billion difference with the Senate bills, adding to already deep differences over taxes, spending and a looming deadline to raise the government's debt limit in the fall.
If Congress fails to approve appropriations bills in time for the Oct. 1 start of the new fiscal year, it will instead need another stop-gap funding measure to avoid a government shutdown.