Weekly Plurus Strategies Update on Infrastructure and Reconciliation and the CR, Debt Limit, and Appropriations

It’s been a wild week in Washington. Never can we recall a time when so many expirations and deadlines were simultaneously colliding all when tensions are at a peak, not only between Democrats and Republicans, but also within the Democratic party. Here’s our latest take on the state of play on the bipartisan infrastructure bill and reconciliation and the continuing resolution (CR), the debt limit, and appropriations. 

Infrastructure/Reconciliation 

It feels like it has been infrastructure week for a good part of this year. While we were hoping that today might finally be the day infrastructure legislation reaches President Joe Biden’s desk, the path forward remains unclear and it’s looking like it will be a long night. 

Despite threats from progressives to tank the bipartisan infrastructure bill on the House floor without assurances on reconciliation, as of last night, House Speaker Nancy Pelosi (D-CA) appeared committed to holding a vote on the Senate-passed infrastructure package today. This follows a meeting with President Biden and Senate Majority Leader Chuck Schumer (D-NY) at the White House. As a reminder, the vote was initially pushed pack from Monday, the date Speaker Pelosi previously promised moderates to secure their support for passage of the budget resolution in August. Not only did this deal with moderates slip, but progressives are also seeing a new interpretation of the deal they thought they struck with House Democratic leadership to keep infrastructure and reconciliation linked. Things seem to be changing minute to minute and the fate of the infrastructure vote remains up in the air. The one thing that seems certain is that reconciliation will not get done today and we could be looking at a weeks or months-long process for the human infrastructure package, assuming the president’s domestic policy agenda does not entirely crumble.  

Throughout terse negotiations this week, Speaker Pelosi has made clear that she will not put a bill on the House floor if it does not have thevotes to pass, which makes us wonder if we will, in fact, see the vote on the bipartisan infrastructure bill delayed again. Depending on who you talk to, the whip count is all over the place, with moderates projecting confidence that progressives will not hold hostage a bill they actually support in order to maintain leverage they might not actually have over the reconciliation process. Meanwhile, the left flank of the party continues to say that they have the votes to reject infrastructure legislation on the floor. Speaker Pelosi adamantly insists that Democrats will win the vote, but we have to wonder if this is almost a dare to progressives to go on record voting against the popular infrastructure bill. Meanwhile, external groups continue to push House Republicans to support the infrastructure bill. However, we still think Republicans will not move into the yes column until Speaker Pelosi has corralled at least 218 Democratic votes.

The day is still young, and, in our view, a delay is the most likely scenario, especially given that President Biden and other White House officials, including NEC Director Brian Deese, Director of Legislative Affairs Louisa Terrell, and White House Counselor Steve Ricchetti have upped their negotiations with Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) on what they might be willing to swallow in reconciliation. We had been hearing from House Democratic leadership earlier this week that a balance could potentially be struck between moderates and progressives if there were at least some kind of reconciliation plan in writing. Despite what we have seen reported in the press, some of our contacts are privately optimistic the White House may have been making some progress. Of course, then Speaker Pelosi announced the House will not vote on the bipartisan infrastructure legislation until there is reconciliation legislative language.  

As things play out, the more progressive wing of the party has become increasingly frustrated with Sens. Manchin in Sinema, who have been hesitant to outline their demands for reconciliation. For Sen. Manchin, he continues to struggle with a $3.5 trillion topline and also worries substantively about the reconciliation package coming down too hard on the fossil fuel industry. It feels like Sen. Manchin hit a breaking point today, leaking an agreement he reached with Leader Schumer earlier this summer on a $1.5 trillion topline for a reconciliation process that would not begin sooner than October 1. Sen. Manchin is now reiterating that his spending limit is $1.5 trillion. This pronouncement complicates the path forward on infrastructure and reconciliation, as progressives feel like they have already compromised on $3.5 trillion, down from the$6 trillion reconciliation package they initially envisioned. Separately, our instincts tell us that Sen. Sinema is much more concerned about seeing the bipartisan infrastructure bill, which she played an integral role in spearheading, across the finish line before engaging in reconciliation talks. At the same time, Sen. Bernie Sanders (I-VT) has not been helpful, calling on House moderates to vote down the infrastructure bill.

Given the dynamics at play, it remains possible that progressives make good on their threat to sink the infrastructure bill, if there is a vote today. As you know, under the procedural circumstances the House is using to consider the legislation, a majority vote against the bill will not kill the legislation. Instead, it will remain at the desk to be called up at another time. A no vote on infrastructure would be an embarrassment for President Biden and his fellow Democrats and would do nothing to ease the tensions within the Democratic caucus that have been building for weeks. Aside from the political ramifications, the House’s failure to pass the bipartisan infrastructure bill today would require swift action by Congress to pass an extension of the current surface transportation that expires today. 

There remains a longshot scenario where Democrats come together and strike a deal on both infrastructure and reconciliation in the hours ahead, though we are not optimistic. However, if we have learned anything operating in Washington, it is that we should not underestimate Speaker Pelosi, who has masterfully guided her an increasingly diverse Democratic caucus to victory time and time again. The challenges ahead will pop up around scaling back the House’s reconciliation proposal and cuts to healthcare, climate, and potentially even broadband provisions and are likely to irk many Democrats who viewed the reconciliation process as a once-in-a-lifetime opportunity to advance these domestic policy priorities.

Regardless of what ultimately happens today, the dynamics we have observed over the past week could have lasting impacts on Democrats as we head into the 2022 and 2024 election cycles. While President Biden has stepped up his own lobbying efforts in recent days, there are some who question his leadership and willingness to leverage the bully pulpit against his own party. In part, this might be because President Biden hails from a generation in Congress where party loyalty was a given, and this may not necessarily be the case today. It has also been tricky for the president to navigate how closely he aligns himself with moderates compared to progressives, especially looking ahead to 2024.

Further, throughout the Biden presidency, we have seen the White House closely collaborating with the Senate, which is more moderate and is subject to an even tighter vote margin than in the House. During the Trump Administration, Leader Schumer and Speaker Pelosi were very much viewed as a united front against the president, but theintraparty squabbles over the past week have left us wondering if there might now be cracks in the Democratic leadership façade. While we do not expect much legislating once we get into next year, the current state of play calls into question whether or not these battered relationships can be mended in time to salvage the president’s domestic policy agenda in the weeks and months ahead.

CR/Debt Limit/Appropriations

It’s fiscal New Year’s Eve, so of course Congress spent today debating government funding with potential furloughs of federal workers hanging in limbo. While a deal was clinched moments ago, delays in passing legislation to ensure the government remains open have largely been wrapped around how Democrats intend to increase the debt limit.

As you know, a two-year suspension of the debt limit expired July 31, prompting the Treasury Department to commence special measures including halting new investments into several federal employee retirement funds to save cash. Barring Congressional action, theTreasury Department is expected to exhaust its ability to borrow and will run out of cash along with special measures to avoid defaults on federal payments as soon as late October or early November, according to the Congressional Budget Office (CBO). This tracks with a letter that Treasury Secretary Yellen sent to lawmakers this week estimating that extraordinary measures will be exhausted around October 18. At the risk of its credit, the U.S. Government will then be forced to default on its debt or to reign in other payments, such as Social Security, which would be catastrophic politically, as well as for the Americans who would be affected.  

Democrats’ preference has been to include a suspension of the debt limit as part of the CR under consideration of this week. However, Republicans, led by Senate Minority Leader Mitch McConnell (R-KY), have held firm that the unified Democratic government will have to address the debt limit on its own, presumably using the reconciliation process. As a reminder, if Democrats have to lift the debt ceiling under reconciliation, the rules will require them to set a new target for federal debt, as a suspension would not be allowed. This is one reason why resolving the debt limit as part of the reconciliation package is politically unappealing. Further, we are picking up this week that there are some moderate Senators who have said they will not vote for reconciliation if it includes the debt limit, which may be why Leader Schumer has been throwing cold water on this approach. This could also explain why we are starting to hear increased talk that there might be a need to blow up the filibuster and reorient the debt limit debate as a fight between Democrats and Republicans, rather than another tussle between members of their own party. 

Regardless, on Wednesday, the House passed a bill that would suspend the nation’s borrowing limits through December 16, 2022. While themeasure passed 219-212, it is expected to fail in the Senate when it is put up for a vote, potentially next week. Earlier this week, Leader Schumer called up a vote on the House-passed CR that would fund thegovernment through December 3, suspend the debt limit through December 16, 2022, and provide $28.6 billion to respond to recent natural disasters and $6.3 billion to aid Afghan refugees. The procedural motion on the bill failed by a vote of 48-50 down party lines. 

Recognizing that Democrats are in a quagmire on how to proceed on thedebt limit, on Wednesday, Reps. Brendan Boyle (D-PA) and John Yarmuth (D-KY) introduced the Debt Ceiling Reform Act. The bill seeks to transfer the duty of raising the debt limit from Congress to Treasury.Given that Republicans seem dug in against cooperating on the debt limit, it is hard to imagine they would provide enough votes in theSenate to pass this bill. The strategy for addressing the debt limit is clear as mud and the threat of federal default is a ticking time bomb, as a quick pivot would be needed to make reconciliation to address the debt limit possible before extraordinary measures are exhausted.

Similar to what we have seen on the debt limit, the high stakes have also prompted the introduction of legislative proposals that could pose a solution. Reps. Dusty Johnson (R-SD) and Dean Phillips (D-MN) have put forward a bill to prevent a shutdown if Congress fails to pass a full appropriations bill. The bill would hold the salaries of senior government officials in escrow and prohibit the use of official funds fortravel by such officials if each of the regular appropriation bills for a fiscal year prior has not been enacted into law by the beginning of thefiscal year. However, the proposal faces legal questions since theTreasury is obligated to pay Members in full due to a clause in the 27th amendment that blocks officials from varying the compensation for the services of Members of Congress between elections.  

The good news is that the Senate just this afternoon passed on a 65-35 vote a CR to avert a government shutdown and continue appropriations through December 3. The package includes $28.6 billion for states recovering from hurricanes and wildfires and $6.3 billion for theresettlement of Afghan refugees, but not does not include the debt limit. The final vote came after votes on amendments from Sen. Tom Cotton (R-AR) on Afghan refugees, Sen. Roger Marshall (R-KS) on vaccine mandates, Sen. Mike Braun (R-IN) on a “no budget, no pay” proposal, and a substitute amendment from Sen. Patrick Leahy (D-VT). Moments ago, the House also passed the CR on a 254-175 vote. The bill now heads to the president for his signature.  

Congress will now have just nine weeks before the December 3 deadline to work through all 12 FY22 appropriations bills. While the House has already passed several of its bills, the appropriations process is at a stalemate in the Senate, where Republicans have indicated they will not cooperate in advancing the measures out of committee until there is bipartisan and bicameral agreement on the topline numbers for defense and non-defense spending. It will be interesting to see where these conversations land on a crowded fall legislative agenda.