Weekly Plurus Strategies Update on Infrastructure, Appropriations, and Other Activity in Washington

With the Senate back in town and the House in a committee work week, we are expecting a true grind between now and the August recess, whenever that might officially begin. Here are our latest insights into the state of play on the bipartisan infrastructure agreement and reconciliation, the Fiscal Year 2022 (FY22) appropriations cycle, and other activity in the nation’s capital.

Bipartisan Infrastructure Framework/Reconciliation

There are two major vehicles we are watching in the Senate: the $3.5 trillion budget resolution that will include instructions for reconciliation and the ongoing efforts to finalize the framework and legislative text of the $579 billion bipartisan infrastructure deal.

On Tuesday evening, Senate Majority Leader Chuck Schumer (D-NY) and Budget Committee Democrats announced an agreement on a $3.5 trillion topline for the budget resolution that will be used to advance elements of the American Jobs Plan and the American Families Plan that are not included in the bipartisan infrastructure bill. Given that right up until the announcement Sen. Bernie Sanders (I-VT) had been continuing to make the case for a $6 trillion bill, it seems to be a positive sign for Democrats that he has now endorsed the $3.5 trillion figure. This may be due in part to the fact that he secured the inclusion of Medicare and Medicaid expansion in the package. There are moderate Democrats such as Sens. Mark Warner (D-VA) and Jon Tester (D-MT) who were pushing for a smaller reconciliation bill and Sen. Joe Manchin (D-WV) has yet to offer his full support without assurances the measure is fully paid for. Of course, House Speaker Nancy Pelosi (D-CA) has her own challenges with progressives in the House. The task will now be for Democratic leadership to keep their party unified.

Details are just starting to become available about what might be included in the reconciliation package, how it might be paid for, and who will hold the pen and have input into how the budget resolution ultimately comes together. In a letter to the House Democratic Caucus, Speaker Pelosi indicated the Senate budget resolution will address many priorities shared by House Democrats, including climate change, expanded healthcare coverage, and other support for the care economy. The Democratic budget deal is also expected to include tax credits for clean energy and electric vehicles (EVs) and a clean energy standard (CES). Among Democrats, the consensus seems to be that the plan will be paid for using healthcare savings, corporate tax hikes, and increased taxes on top earners. Though it is not typical of how the Congressional Budget Office (CBO) operates, Democrats also seem to be comfortable relying on dynamic scoring for pricing out their reconciliation proposal.

In conversations we’ve had with various committee staffers this week, it sounds like committees were expecting to get their toplines for the $3.5 trillion budget resolution when President Joe Biden joined the Democratic caucus meeting on Wednesday. Prior to Tuesday night’s announcement, the Budget Committee had requested that committees submit lists of their requests for the reconciliation bill, but as of yesterday, it was unclear if the Budget Committee just tallied up all of the requests or “whittled them down” to $3.5 trillion. If it’s the latter, we can expect a lot of jockeying among Democrats to ensure their priorities are included as part of a bill that is smaller than what some had been hoping for.

From this point forward, most Democratic committee staffers believe that while the Budget Committee has had “a lot of say up until this point,” there will now need to be negotiations between House and Senate leadership and appropriators. Speaker Pelosi has explicitly said the House can be expected to make changes to the Senate budget resolution in order to realign some priorities. Committee staffers tell us they are unsure there will be a traditional conference process and “the next steps are very murky.”

We give the reconciliation bill a 90 percent chance of getting signed into law. Committee staffers continue to be of the mindset that the reconciliation bill will not be limited to just social programs, but that it could include “a mix of all infrastructure types.” In other words, the reconciliation process could present a second bite at the apple for various infrastructure priorities if they are not sufficiently addressed in the bipartisan infrastructure deal. We have explicitly heard that there could be additional broadband funding in the reconciliation bill. However, Sen. Warner has been pretty vocal about “not getting a second bite at the apple.”

Speaking of the bipartisan infrastructure framework, a bipartisan bill is still not certain. In fact, we had been hearing that Leader Schumer was hoping to announce agreement on the bipartisan bill before news broke on Democrats’ agreement to a topline number for the budget resolution. It is possible that Republicans may be getting “spooked” away from the bipartisan agreement now that it seems likely Democrats will have the opportunity to move the $3.5 trillion reconciliation bill without any GOP votes

On Tuesday night, all of the Gang of 22 Senators met in person for the first time to discuss staff-level efforts to advance the bipartisan infrastructure framework over the recess. Readouts of this meeting suggested there is still no final agreement on pay-fors and that a “couple dozen” issues remain unresolved. Members left the meeting committed to finalizing decisions at the member-level by Thursday evening. This would leave staff to draft bill text over the weekend. We have tried to stay in close touch with staff for Sens. Manchin and Kyrsten Sinema (D-AZ) as negotiations continue. While they remain optimistic, there are a number of other factors at play that could still tank the deal.

Although there appears to be confidence that the five Republicans who were part of the original Gang of 10 (Sens. Rob Portman (R-OH), Bill Cassidy (R-LA), Mitt Romney (R-UT), Susan Collins (R-ME), and Lisa Murkowski (R-AK)) are still committed to the bipartisan efforts, their GOP colleagues who are a part of the broader Gang of 22 now seem a bit “squishy” as negotiations continue. For one, there are growing concerns about how a $579 billion bipartisan infrastructure bill plus a $3.5 trillion reconciliation bill, not to mention COVID relief spending enacted earlier this year, could worsen inflation. With details getting nailed down, we are also awaiting CBO analysis on proposed pay-fors and whether or not the cost of the bipartisan measure will be completely offset. We are anticipating the CBO score will come up $100 billion short, which could make it easy for squeamish Republicans to walk away from the deal.

We also hesitate to underestimate Republican Leader Mitch McConnell’s (R-KY) influence over his party and how Republican Senators will ultimately vote on any bipartisan infrastructure bill. We have stepped up our efforts to connect with people close to Leader McConnell and his thinking. They report the GOP leader is not actively trying to undermine the bipartisan talks and rather may be in the camp of believing the bipartisan infrastructure framework may crater under its own weight. If a deal does come to fruition, we think it is possible Leader McConnell could successfully pick a few Republicans off the bill. In all likelihood, Leader McConnell does not want to give President Biden another win. President Biden already has one victory in the COVID bill, and he may now have the chance to put two more points on the board with the bipartisan infrastructure measure and the reconciliation bill. Given that Leader McConnell had often said he wanted to limit President Barack Obama to one term, giving President Biden three wins may be out of the question for him.

In terms of next steps, we are hearing that Leader Schumer would like the Senate to begin consideration of the bipartisan infrastructure bill next Wednesday, July 21, especially as the House-passed surface transportation is already teed up to come to the floor. The vote to break the filibuster on proceeding to the bill will need 60 votes and we are hearing that some Republicans already feel like they are being jammed with an infrastructure bill that it not quite ready for prime time. The idea is that the legislative text for the bipartisan agreement would be offered as substitute amendment. Similar to what we saw with Senate consideration of the U.S. Innovation and Competition Act (USICA), it is possible that components of the bipartisan infrastructure package may come to the Senate floor without much committee consideration or much in the way of opportunities for Senators to make changes. This is also likely to displease the GOP.

In continued conversations with Hill staff, we are hearing there is ongoing lack of clarity on who holds the pen: either Gang of 22 Members who negotiated the topline but don't have the staff resources to write text or Senate Committee staff and their House counterparts who have expertise to craft legislation. Things are complicated because most committee chairs and ranking members are not part of the Gang of 22 process. Obviously, Leader Schumer has input, and we can assume Speaker Pelosi does too, to a certain degree. We expect moderates like Sens. Manchin and Sinema, to continue to have influence and will also be keeping an eye on Gang of 22 Democrats who are in cycle, including Sens. Catherine Cortez Masto (D-NV), Maggie Hassan (D-NH), Mark Kelly (D-AZ), and Raphael Warnock (D-GA). Regardless of who takes responsibility for writing the bill, it will be “a tall order” to have legislative text finalized by Wednesday. So far, only the Senate Energy and Natural Resources Committee has marked up its language.

At this point, we give the bipartisan infrastructure deal a 50 percent chance of getting across the finish line. While some Democrats are emphasizing the need to have 50 Democratic votes in the Senate for the infrastructure bill, our instincts tell us that Democrats might instead want to focus on courting enough Republican support to allow progressives to vote against the bill. In our view, it is also important for Democrats to focus on building a coalition that is strong enough to withstand any efforts by Leader McConnell to diminish support for the bipartisan infrastructure bill for purely political reasons. This would also make it easier for Democrats to blame Republicans for the deal falling apart and likely convince Sens. Manchin and Sinema to support their fellow Democrats’ efforts to advance a reconciliation measure.

Leader Schumer has set an ambitious timeline of passing both the bipartisan infrastructure bill and the budget resolution unlocking reconciliation instructions before the August recess. This means the reconciliation package would likely pass in the fall. Currently, the House is scheduled to break for the August recess on July 30, spending its next two weeks on the Averting Loss of Life and Injury by Expediting SIVs (ALLIES) Act, the PFAS Action Act, the Consumer Protection and Recovery Act, and FY22 appropriations. There is now some thinking the House may stay in session for an extra week if necessary to respond to any action in the Senate.

The Senate’s recess is tentatively slated to begin on August 9. It is now looking more and more likely the Senate delays the start of its recess, not only to address infrastructure and the budget resolution, but also potentially nominations and voting rights. The one thing that is guaranteed is that the next few weeks are going to be insanity, so buckle up and hold on!

Budget/Appropriations

The House Appropriations Committee was very busy this week completing markups of its FY22 appropriations bills. The committee unveiled its Commerce-Justice-Science (CJS), Energy and Water, Labor-Health and Human Services (HHS), and Transportation, Housing, and Urban Development (THUD) bills. By the end of this week, the committee is expected to move these four bills, in addition to the Defense and Homeland security bills, through the full committee.

House leadership is planning to bring at least some of the FY22 appropriations bills to the floor before the August recess. During the week of July 26, the House will take up a minibus that includes the Agriculture, Financial Services and General Government (FSGG), Interior, Energy and Water, Labor-HHS, Military Construction and Veterans Affairs (MilCon-VA), and THUD bills. The remaining five bills – CJS, Defense, Homeland Security, Legislative Branch, and State and Foreign Operations (SFOPs) – are more controversial and it is possible they stall in the House before the August break.

Though the House plans to continue to move the appropriations process forward, the Senate Appropriations Committee continues to lag behind. This week, Sen. Patrick Leahy (D-VT) indicated that the Senate Appropriations Committee could hold its FY22 markups during the last week of July and the first week of August. However, the prospects for passage of all 12 bills before the October 1 start of the new fiscal year remain dim, as the four corners have yet to begin to negotiate with one another and the White House on topline numbers. If the budget resolution passes before the August recess, this is another thing that could further delay the appropriations process by “loading up everyone’s plate.” At this point, we continue to hear that we are staring down a continuing resolution (CR) that will expire right before the holidays in December.