Weekly Plurus Strategies Update on Infrastructure, Reconciliation, Appropriations, and the Debt Limit
It’s been a busy week, with lots of the big agenda items that Congress is hoping to tackle before the August recess in flux. Here are our latest insights on the status of the bipartisan infrastructure framework, the budget resolution and Democratic reconciliation bill; and appropriations and the debt limit.
Bipartisan Infrastructure Framework/Reconciliation
We all thought this might finally be infrastructure week, but alas it seems that infrastructure negotiations will continue into next week. As expected, Wednesday’s cloture vote on proceeding to the Investing in a New Vision for Environment and Surface Transportation (INVEST) in America Act (the House-passed surface transportation bill) failed in the Senate, falling short of the 60-vote threshold by a vote of 49-51. Despite bipartisan negotiators’ failure to meet the Wednesday deadline, core members of the Gang of 22 (G22) remain optimistic that the group is just days away from a final agreement on legislative text. Shortly after the failed cloture vote, the G22 issued a bipartisan statement expressing a commitment to finalizing a deal in the coming days. Eleven Republicans have also agreed to vote for cloture once a more detailed version of the bipartisan proposal is released.
Despite Sen. Joe Manchin (D-WV) pleading with Senate Majority Leader Chuck Schumer (D-NY) to delay a vote, we think it is likely that Leader Schumer acted in the interest of keeping pressure on negotiators to finish a deal, while also creating some flexibility to file a motion to reconsider once a bipartisan bill has been written. By most reports, a final agreement on principals could come as early as this evening, with the possibility of bill text being ready by Monday. While it remains uncertain how long it might take the Congressional Budget Office (CBO) to score the bill once there is final consensus on pay-fors, President Joe Biden has suggested the Senate might be able to muster the votes to proceed to the bill on Monday. While Leader Schumer is not directly involved in the bipartisan negotiations, one Schumer staff told us it would be hard for his boss to shut down something the bipartisan group has already agreed to.
Assuming that good faith negotiations continue and the bipartisan agreement prevails, current thinking is that the bill will be on the floor for roughly two weeks in order to allow for a regular order process. Under this scenario, Leader Schumer would call up the text of the bipartisan bill as a substitute amendment and then allow votes on individual amendments while negotiations take place on a potential manager’s package. The process could look similar to the one the Senate used to process the Endless Frontier Act/U.S. Innovation and Competition Act (USICA) on the floor.
Of course, potential stumbling blocks remain, with a handful of issues, including offsets and transit funding, yet to be resolved. Today, we are slightly more encouraged about reports of progress and give the bipartisan infrastructure deal a 60 percent change of making it across the finish line. However, if negotiations get bogged down, Leader Schumer has suggested he might bring components of the infrastructure package that have already been voted out of committee, such as the Environment and Public Works (EPW) Committee’s surface transportation bill, EPW’s water infrastructure bill, the Commerce Committee’s rail and safety title for the highway bill, and the Energy and Natural Resources Committee’s energy bill, to the floor for debate.
Alternatively, it possible that Leader Schumer pivots to a budget resolution, although work on the budget resolution also remained unfinished as of Wednesday’s arbitrary deadline. However, there is some thinking that moderate Democrats who have been spearheading bipartisan negotiations, including Sens. Manchin, Kyrsten Sinema (D-AZ), and Jon Tester (D-MT), might buck party leadership and vote against a budget resolution if they are not given the opportunity to complete bipartisan talks and put a compromise bill forward for a vote. If for whatever reason a bipartisan bill comes to the Senate floor and does not secure enough votes for passage, it is possible Leader Schumer seeks to add the $579 billion in new spending agreed upon by bipartisan negotiators to the $3.5 trillion reconciliation measure.
With nearly all of the action taking place in the Senate, House Speaker Nancy Pelosi (D-CA) has been left with the difficult task of managing a diverse Democratic caucus that appears to be growing increasingly frustrated by delays in the upper chamber. In particular, Rep. Peter DeFazio (D-OR) has been very vocal that he feels like the infrastructure bill he shepherded through the House Transportation and Infrastructure (T&I) Committee is being ignored by his Senate colleagues. While Rep. DeFazio and 30 other Democrats sent a letter to Democratic leadership urging opportunities to advocate for pieces of the House T&I bill to be included in the bipartisan infrastructure agreement, given the tight margins in the Senate, it is likely House Democrats may just have to swallow the Senate bill.
We are also hearing progressives may be pushing House Democratic leadership to move a budget resolution before the Senate, especially as the House has indicated they are inclined to make changes to whatever the Senate passes. However, this puts Democrats in a tough spot because the Gephardt rule can only be used to “deem” the debt limit upon House passage of a budget resolution that originates in the House. Meanwhile, moderates are advocating for the House to pass a smaller infrastructure bill they can claim credit for ahead of the August recess. Speaker Pelosi will have to keep Democrats united, especially as House Republican leadership continues to message against the infrastructure and reconciliation measures as massive increases in federal spending. For now, she seems content to let the Senate process play out, signaling a high degree of trust in Leader Schumer.
As alluded to above, Leader Schumer had also set Wednesday as the deadline for the Senate Budget Committee to finalize Democrats’ $3.5 trillion budget resolution. However, negotiations on topline spending and committee allocations blew past the mid-week deadline. Pay-fors also remain an issue. The latest we are hearing is that Democrats are planning for roughly $2.2 trillion in tax increases, in addition to healthcare savings and dynamic scoring, to offset the bill. Sen. Bernie Sanders (I-VT) is now saying that he anticipates the budget framework may not be finalized until early August. Leader Schumer has been planning for the budget resolution to come to the floor the week of August 2.
Complications in piecing together the budget deal were also emphasized by a staffer we spoke with in Leader Schumer’s office. According to this staffer, the biggest hurdle is expectations. It turns out it is a monumental task to try to fit 10 years of pent-up Democratic priorities into a $3.5 trillion bill. Anecdotally, this staffer reported that there are upwards of seven different Members approaching the leader’s office each day saying their specific issue needs to be in the bill. This staffer went so far to say that “every Senator thinks everything they want will be in the final version.” While a lot of people are “antsy” on reconciliation, this staffer emphasized that all Senate is doing now are the topline numbers and committee allocations. He added “there seems to be the feeling that there is no single policy that’s more important than the whole package.” Additionally, the staffer shared there are also concerns about the vote-a-rama amendment process, which is likely to back right up against the August recess. Rumors are that Republicans already have hundreds of amendments waiting in the wings.
While there is not much Senate Republicans will be able to do to stop the budget resolution and the reconciliation package it unlocks from moving forward, it is clear the GOP will do everything it can to make the process as painful as possible for Democrats. As the debate moves forward, we anticipate Republicans will attempt to characterize the reconciliation package as reckless spending that increases the debt, worsens inflation, and overall is a bad deal for middle class Americans. These messages are likely to be directed at some of the most vulnerable Democrats in cycle. We expect Democrats will try to counter some of these arguments by messaging the reconciliation bill as an initiative to create more jobs and provide tax cuts and lower costs for working families.
Assuming the Senate can pass a bipartisan infrastructure bill, the plan is for Democrats to pass the budget resolution after the bipartisan infrastructure bill before leaving town for the August recess. Committee staff will then work on developing the reconciliation bill during August and September. Leader Schumer’s office told us they are encouraging patience on reconciliation. They say there will be plenty of opportunities to engage in the process in August and September, especially as it is unlikely committees will have their topline figures for another few weeks.
While the Senate has been scheduled to kick off its August recess on August 9, it is becoming increasingly likely that the start of the recess may need to be delayed by at least a few days if the Senate is to pass both a bipartisan infrastructure bill and a budget resolution before the break. The House is scheduled to leave town for August at the end of next week, but the calendar seems up in the air dependent upon action in the Senate. We would not rule out the possibility of the House being called back from recess in August to vote on the bipartisan infrastructure bill and a budget resolution, if necessary.
Budget/Appropriations
As you know, the House is planning to take up an appropriations minibus next week. At the moment, the minibus will include the Fiscal Year 2022 (FY22) Agriculture; Energy and Water; Financial Services and General Government (FSGG); Interior; Labor-Health and Human Services (HHS); Military Construction-Veterans Affairs (MilCon-VA); and Transportation, Housing, and Urban Development (THUD) spending bills. Already, more than 300 amendments had been filed to the seven-bill package by Wednesday evening’s deadline.
More recently, there is talk of the House voting on three additional bills – the FY22 Commerce, Justice Science (CJS); State Foreign Operations (SFOPs); and Legislative (Leg) Branch spending measures – next week. The Rules Committee has set Friday has the deadline for filing amendments to these bills. The process, however, remains unclear. For example, these bills could potentially be added to the minibus so that all 10 bills receive a single vote. Alternatively, because each of these three additional bills cover issues that could become contentious, they may require individual attention or even stall before the break. At this point, action on the most contentious bills – Defense and Homeland Security – is likely delayed until September and the House appears on track to fall short of its goal of passing all 12 appropriations bills before the August recess.
While we had initially been hearing that the Senate Appropriations Committee would try to unveil and markup its 12 FY22 appropriations bills during the last two weeks in session, it now seems some of these markups may now be slipping to September. Rumors are that three or four of the least controversial bills (so far we are hearing chatter about THUD and MilCon-VA) might be considered before the break. These delays, coupled with all of the other activity cramming the legislative agenda, only reaffirm the conventional wisdom that a continuing resolution (CR) is likely in late September. We continue to expect the CR to extend into December.
Debt Limit
The suspension of the debt limit is set to expire on July 31. On Wednesday, CBO issued a new report finding that the Treasury Department’s ability to use extraordinary measures to prevent the U.S. Government from defaulting on its debt will be exhausted in October or November. Previously, Treasury Secretary Janet Yellen had warned that the debt limit could hit a cliff as soon as this summer, while banks had their eyes on late September.
Republicans have made very clear that they have no intention of helping Democrats with the debt limit. While these dynamics would make it seem that a reconciliation measure that can pass with only Democratic support is the best vehicle for addressing the debt limit, we are increasingly hearing from Democrats that even without the debt limit attached, reconciliation is going to be a tough vote. That said, it seems there may be a growing preference for keeping the debt limit out of reconciliation.
Further, if Democrats use reconciliation to do the debt limit, procedural rules will require them to set a new number for the debt limit, rather than setting a date through which the debt limit is suspended. Democrats seem to prefer the latter. As a result, a Schumer staffer told us that a solution for the debt limit is likely “further down the line after reconciliation.” Given the recent CBO analysis, all signs now seem to point to the debt limit becoming part of a CR that passes around October 1.