Federal Update: Averting Shutdown, Congress Continues to Grapple with Critical Funding Issues and the President’s Build Back Better Agenda

Even as Congress passed legislation to avoid a government shutdown today, the White House and Democratic Leadership are continuing efforts to carve a path forward, negotiating entrenched intraparty disagreements, to move the bipartisan infrastructure and reciliation packages that make up the bulk of President Biden’s domestic agenda. This effort is made more difficult by their thin majorities in the House and the Senate and unanimous opposition of Republicans to many of the Democrats’ legislative priorities. That said, Democrats are seeking to work with Republicans to complete action on the FY22 appropriations process and take action to raise or suspend the federal debt limit, although they may be forced to fall back to unilateral action on the debt limit. It is expected all of this will play out this fall. For the University, key priorities are in play in these various bills. Research and student aid funding increases are important pieces of the FY22 appropriations and the reconciliation bills, reform of the endowment tax is in the House reconciliation measure, and while thus far blocked by the rulings of the Senate Parliamentarian, protection of DACA and TPS holders and other Dreamers has been a priority of Democrats in the reconciliation bill.

State of Play

In the midst of a great deal of uncertainty, Congress is moving today to pass a continuing resolution (CR) for FY22 and avoid the shutdown of the federal government. The bill will extend funding at current levels through December 3 and include additional emergency funding to respond to the hurricanes, wildfires, and other disasters and to assist in the resettlement of Afghan refugees. Both the House and Senate passed the legislation this afternoon and it is expected the President will sign it before the midnight deadline.

While progress on the CR does temporarily resolve one issue, Congress remains tied in knots over how to move forward on the two key legislative pieces of the President’s Build Back Better initiative to make generational investments in traditional infrastructure through the bipartisan infrastructure bill and in human infrastructure through a Democratic-only reconciliation bill. Over the summer after weeks of negotiations with the President, the Senate passed a bipartisan $1.2 trillion infrastructure package to provide funds for traditional projects like road, bridges, rail, and broadband. Democrats also passed the FY22 budget resolution, unlocking the reconciliation process to allow for passage of President Biden’s $3.5 trillion human infrastructure package with only Democratic votes. Although the House is scheduled to vote tonight on the bipartisan infrastructure plan favored by moderate Democrats (fulfilling Speaker Nancy Pelosi’s (D-CA) pledge to consider the bill in exchange for their votes to advance the budget resolution and begin putting together the $3.5 trillion reconciliation package), the Speaker continues to whip her caucus and may postpone a final vote until a later date. At this writing, there is no agreement from Senate moderate hold-outs – Senators Joe Manchin (D-WV) and Krysten Sinema (D-AZ) – on the size and substance of the reconciliation bill. Progressive Democrats, concerned that moderate Democrats would not support key elements of the reconciliation package if they were successful in passing the bipartisan infrastructure measure, are threatening to withhold their votes on the bipartisan bill until there is clarity from moderate Democrats on what they would accept in reconciliation.

With a 50-50 Senate, a three-vote cushion for Democrats in the House, and unified opposition from the Republicans, Democratic leadership must keep their party unified to pass the reconciliation package. This gives individual Democrats, especially in the Senate, significant influence over the size and content of the bill as well as its timing. The White House is meeting with moderates and progressives to negotiate differences, although the specific demands from those who have been most vocal about their concerns - Senators Manchin and Sinema - remain unclear.

Below is more detail on the specifics of these important bills as well as some background on the federal debt limit debate and timing challenges. As always, we will stay in touch on any major developments.

FY22 Funding and Debt Limit

Over the summer, the House passed 9 of its 12 annual appropriations bills, but without bipartisan, bicameral agreement on topline spending levels for FY22, those measures have stalled in the Senate, where the appropriations process has barely even begun. With the beginning of FY22 on October 1, the House approved last week a stopgap CR to fund the government through December 3, provide emergency supplemental appropriations for disaster relief and Afghan refugee resettlement, and to suspend the federal debt limit through 2022. Senate Republicans blocked that measure earlier this week because of the inclusion of the suspension of the debt limit.

The federal debt limit must be addressed by mid-October. In 2019, Democrats and Republicans together extended the suspension of the debt limit through July 2021 to avert the threat of default as they have done many times over the decades in measures either outright raising or more recently suspending the limit through a certain period of time. Since July, the US Treasury has been using “extraordinary measures” to avoid a default, but Treasury Secretary Janet Yellen indicated this week that those measures would likely be exhausted by October 18. To date, Republicans have refused to support addressing the debt limit, arguing that Democrats should shoulder the responsibility of the debt limit, given their unified control of government and their recent spending bills. Because of Senate rules, it is difficult to bring up and pass legislation addressing the debt limit without the 10 Republicans necessary to overcome the legislative filibuster. Some, including Republican leadership, have pushed Democrats to reopen the budget resolution and reconciliation process to provide authority to deal with the debt limit on a Democratic-only basis; others have argued for novel approaches from the Administration that would remove the debt limit from Congress’ purview.

Democrats had hoped a more traditional approach – linking the CR and much-needed disaster funding with the debt limit – would attract some Republican support and deal with both critical issues at once. However, when that was blocked, Democrats dropped the debt ceiling suspension, and Congress is moving easily to the CR and emergency funding on a bipartisan basis. While this averts the immediate funding crisis, it leaves both the debt limit and final funding levels for FY22 to be resolved in the coming weeks.

Reconciliation Bill – House Proposal

The House Democratic reconciliation package – the Build Back Better Act (BBBA) – is the core of President Biden’s domestic agenda and makes sweeping investments in health care, education, childcare, climate, and other policies. Over the last several weeks, House committees completed their portions of the package and the House Budget Committee reported out the House’s final draft legislation last weekend. Overall, the bill invests nearly $3.5 trillion over 10 years, with a significant portion of that cost offset with changes in corporate and individual taxation. Pressure from Democratic moderates in the House and Senate will likely shrink the size and scope of this package, but the House’s draft captures key priorities for the Administration and Congressional leadership and more detail on the current bill is provided below.

Education

The BBBA would invest more than $500 billion in education, with approximately $111 billion for higher education. The bill would achieve President Biden’s goal of providing an additional four years of free public education through universal pre-K and two-years of tuition-free community college and would reinvest in Historically Black Colleges and Universities and minority serving institutions. Of particular interest, it would increase the maximum Pell Grant by $500 and extend eligibility for federal aid to Deferred Action for Childhood Arrival (DACA) recipients and those with Temporary Protected Status (TPS).

Research

The reconciliation package includes $45 billion to support research and education in federal civilian research agencies, focused on the physical sciences and engineering, $3 billion to create the new Advanced Research Projects Agency-Heath at HHS, and $16 billion for future pandemic preparedness, including –

  • NSF – approximately $11 billion
    • $7.5 billion for research
    • $3.4 billion for instrumentation and equipment
    • $1 billion for academic lab modernization
  • DOE Office of Science – $12.8 billion
    • $10.8 billion for the national lab infrastructure
  • NASA – $4.4 billion
    • $4 billion for infrastructure
    • $388 million for climate change research
  • EPA S&T – $264 million for climate science

Tax

The tax provisions of the BBBA are some of the policies in the package, including an extension of the pandemic-expanded child-care tax credit, paid leave, and various climate-focused tax incentives. The House bill would also reform the 1.4 percent net investment income (endowment) tax on private colleges and universities to reduce the tax for institutions that provide meaningful grant aid to reduce the cost of tuition to undergraduates. The revenue-raising portion of the bill includes a higher tax rate on individual income above $400,000 and a 5 percent increase to the capital gains and corporate tax rates.

Health Care

The House package would make significant expansions to Medicare, including adding dental, hearing, and vision coverage. The plan would create a federal Medicaid expansion in states that opted not to expand their programs under the Affordable Care Act. It also would expand subsidies for purchasing insurance through the Affordable Care Act exchanges, capping the cost of insurance at 8.5 percent of income.

Climate

The package’s climate provisions broadly support President Biden’s goal of decarbonizing the US power sector by 2030 and the entire economy by 2050. This includes $235 billion of green tax credits over 10 years, such as credits for carbon-free power, solar farm construction, and the purchase of electric vehicles, the creation of a $150 billion program to incentivize utility companies to move to non-emissions electricity sources, such as wind, nuclear, hydro, and solar, and $10 billion to NOAA for coastal and Great Lakes restoration, resilience, and mitigation efforts. The package also includes a proposal championed by Senator Ed Markey (D-MA) to create a Civilian Climate Corps to provide temporary employment or job training in sustainability, renewable energy, or other climate-friendly fields.

Immigration

Immigration advocates were dealt a blow when the Senate Parliamentarian determined that the House provision to provide a pathway to citizenship would not comply with the rules of reconciliation, although Democrats continue to push alternate solutions for relief through reconciliation. The BBBA also provides $2.8 billion to USCIS to alleviate the visa processing backlog and solidify the agency’s financial position and seeks to recapture unused visas from the last 30 years, potentially offering permanent status to waiting applicants.

Looking Ahead

Although the plan to consider the major components of the Biden agenda is unclear at this point, we expect negotiations to continue through the fall and into the winter, with the President playing a direct role in brokering an agreement with his caucus. Not only are the bipartisan infrastructure and reconciliation packages core to his first term agenda, they also are key to the effort to buck historical trends at the midterm, where the party in the White House loses seats in Congress, by delivering big for the American people. Since the Democrat majority is literally on the line in 2022, many believe that the President will find a way to obtain and claim victory, even for packages that are smaller in scope. Similarly, Congressional Democrats are eager to demonstrate that, as the party in power, they can govern effectively, making it likely that they will reach an agreement on the FY22 budget process and the debt limit before the end of the calendar year without default or shutdown along the way.

Contact

As always, Harvard’s DC-based federal relations office will remain closely engaged in support of University priorities. If you have any questions, please feel free to reach out to Suzanne Day (suzanne_day@harvard.edu) or Kara Haas (kara_haas@harvard.edu).

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