Federal Update: Congress Moves on CHIPS & Science, Reconciliation, and FY23

Ahead of the congressional August recess and with a busy and politically divisive fall looming, there has been a burst of productivity in Congress on key domestic priorities. Bipartisan majorities united to pass the CHIPS & Science Act to bolster domestic high-tech manufacturing and science. Democrats also appear likely to complete action on the FY22 reconciliation bill making investments in priority areas like health care, energy, climate, deficit reduction, and tax fairness. Recent weeks have also seen some early work on the FY23 spending bill. Below is further information on these measures and a brief look ahead to the fall. CHIPS & Science Act

Nearly three years after Majority Leader Chuck Schumer (D-NY, AB’71, JD’74) announced his Endless Frontier Act to reinvest in the National Science Foundation (NSF) and more than a year after each chamber passed their own bipartisan competitiveness packages, Congress passed (64-33, Senate; 243-187, House) the CHIPS & Science Act, which pairs robust spending targets for the physical sciences, engineering, and STEM education with more than $52 billion for domestic semiconductor manufacturing and innovation.

For months, Congress struggled to negotiate the Senate-passed US Innovation and Competition Act (USICA), the comprehensive policy response to the growing threat from the Chinese government, with the House-passed America COMPETES Act, a more narrow, research focused package. Ultimately, a deal, known as the CHIPS & Science Act, emerged to provide semiconductor funding and some of the bipartisan science priorities that made up the original Endless Frontiers Act. The legislation appropriates a total of $52 billion, including $39 billion in direct financial assistance for domestic semiconductor manufacturing and $11 billion for semiconductor research and development, including several public-private partnerships, research programs, and workforce development at the Department of Commerce. The CHIPS & Science Act also secures $2 billion for DOD to fund innovative prototyping and training programs for scientists, engineers, and tech entrepreneurs, and $200 million for semiconductor workforce development and education at NSF.

CHIPS & Science authorizes roughly $170 billion over five years for science agencies, including NSF ($81 billion), the Department of Commerce ($11 billion), the National Institute of Standards and Technology ($10 billion), and the Department of Energy ($68 billion); overall the bill calls for a total funding increase of $82.5 billion above current baseline funding. These ambitious spending targets garnered bipartisan support, and the hope is that they will translate into greater year-over-year investments in research and education when Congress appropriates funds as part of the annual budget process.

In addition, CHIPS & Science authorized the creation of a new technology directorate at NSF. Although NSF launched its new Technology Innovation Partnership (TIP) Directorate in March with funding received in the FY22 process, the CHIPS & Science Act formally authorizes TIP and recommends a $20 billion investment over the next five years, which will allow TIP to focus on advancing critical and emerging technologies like quantum, AI, and next-generation telecommunications, and accelerating the translation of research from lab to market/society.

In general, provisions in USICA or COMPETES that did not have bipartisan, bicameral support or those seen too far afield from research investments and semiconductors were not included in the final CHIPS & Science agreement. This included many of the more expansive, onerous, and concerning provisions related to research security. That said, the bill does include new resources to support institutional and faculty compliance with federal agency requirements related to foreign support and affiliations as well as some bright lines concerning faculty and federal agency staff participation in certain malign foreign talent recruitment programs.

Reconciliation

After months of on-again, off-again negotiations on a FY22 Democratic reconciliation bill, Senator Joe Manchin (D-WV) announced last week a surprise agreement with Leader Schumer on a $739 billion reconciliation package, newly titled the Inflation Reduction Act, which provides $433 billion on energy, climate change and health care, includes corporate and other tax changes, and sets aside approximately $300 billion for deficit reduction.

On health care, the Inflation Reduction Act would extend the Affordable Care Act’s expiring health insurance subsidies through 2025 and expand Medicare’s ability to negotiate the price of certain prescription drugs, which is expected to lower out-of-pocket-costs for consumers and save Medicare $288 billion over the next decade. The largest share of the package - $369 billion - would focus on energy security and climate, including incentives and subsidies for consumers’ clean-energy choices (like retrofitting homes, purchasing new or used electric vehicles, and encouraging cleaner energy sources), support for emissions-free electricity production and carbon-capture, and incentives for domestic manufacturing of clean energy products like solar panels and wind turbines. The plan also includes a $60 billion investment in low-income and disadvantaged communities dealing with the environmental and health effects of climate change. The legislation offsets this new spending with a 15 percent corporate minimum tax on book income, changes to the tax treatment of carried interest, and additional funding for IRS enforcement to close the tax gap.

Senate Democrats hope to take up and pass the legislation as soon as the end of this week, although they will have to stay united in support. As a reconciliation bill, the legislation can pass on a simple majority (i.e., with all the Senate Democrats voting together) but faces special rules in terms of form, scope, and consideration. Currently, the Senate parliamentarian is reviewing the legislation and this review may force provisions from the bill. In addition, a reconciliation bill has proscribed time limits for floor consideration but is open to unlimited amendments – leading the so-called “vote-a-rama” where the Senate votes on dozens of amendments one after the other for hours. A final key factor will be the potential absence of any Democratic Senator since every vote will be needed on this legislation. If the Senate is able to run this gauntlet and complete action, it is expected Speaker Nancy Pelosi (D-CA) will call House members back to Washington later this month for final approval by the House.

FY23 in House and Senate

Although congressional negotiators have been unable to reach a bipartisan, bicameral agreement on topline spending levels for FY23 and the related question of the divide between nondefense and defense accounts, House and Senate Democrats are moving forward on spending bills. In the House, all bills have been approved by the committee and some by the full House. In the Senate, the Democratic committee leaders released drafts of the bills and hope to proceed directly to negotiations with Republicans and the House.

Going forward this fall, it is all but certain these negotiations will stretch beyond the October 1 start of the next fiscal year, requiring the Congress to pass one, or likely more, continuing resolutions to continue funding and avoid potential government shutdown. However, while preliminary, the funding levels proposed demonstrate strong support for key priorities of the University and offer important insights into the potential final numbers. The chart below tracks priority accounts across both chambers’ proposed spending bills:

Congressional Fall

After the August recess, Congress will return to a long to-do list but only a few weeks in September to make progress. Passage of a continuing resolution to fund the government after September 30 and allow additional time to negotiate with Republicans will be top priority. It is also expected that leadership will push again for additional COVID funding for retooled booster shots and treatments as well as to consider an expected emergency funding request for a federal monkeypox response, additional funding for military assistance to Ukraine, and likely emergency funding to respond to natural disasters including wildfires in the West and flooding in Kentucky. The Senate is also expected to consider the annual National Defense Authorization Act (NDAA), which is a magnet for research security provisions (including those provisions that were not included in the CHIPS & Science Act).

The Administration

With the window for legislative action beginning to close ahead of the fall midterms, the Administration may turn increasingly to executive action and the regulatory process to make additional progress on its domestic agenda. Already, the Department of Education (ED) has several significant rulemaking processes underway, including its rewrite of Title IX rules governing sex misconduct and discrimination. Of particular interest, the President is expected to decide whether to cancel up to $10,000 of federal student debt per borrower, with debates continuing over the scope and the focus of the relief. In addition, this announcement may be coupled with a further extension of the student loan repayment pause that has been in place throughout the pandemic but is currently scheduled to expire on August 31.