Weekly Plurus Strategies Update on Infrastructure, Appropriations, and Other Activity in Washington
As we head into the holiday weekend, please find our weekly report with the latest insights on infrastructure, the Fiscal Year 2022 (FY22) appropriations cycle, and other activity in Washington, included below.
Bipartisan Infrastructure Framework/Reconciliation
Despite the agreement that was reached on a bipartisan infrastructure framework last week, the infrastructure debate continues to be a bit of a roller coaster given the number of obstacles that could still obstruct the deal.
For example, the White House spent last weekend and the early part of this week trying to walk back President Biden’s emphasis that he would not sign the bipartisan agreement into law without also having the opportunity to enact a reconciliation measure to address remaining priorities included in the American Jobs Plan and American Families Plan that did not find their way into the compromise package. Following these comments, a number of Republicans threatened to yank their support for the bipartisan framework. Over the past several days, some of the original GOP negotiators, including Sens. Rob Portman (R-OH), Mitt Romney (R-UT), and Bill Cassidy (R-LA), have reaffirmed their commitment to supporting the deal. Linkages between the bipartisan infrastructure framework and reconciliation continue to be problematic for Speaker of the House Nancy Pelosi (D-CA) as she seeks to appease progressives and frontline members and secure their votes for both bills at the end of the day.
It remains uncertain, however, if this will be enough to guarantee passage of the agreement in the Senate. Notably, Senate Minority Leader Mitch McConnell (R-KY) has yet to take a position on the bill. He has also ramped up his criticism of Speaker Pelosi and Senate Majority Leader Chuck Schumer (D-NY) for echoing President Biden’s early sentiments that a bipartisan infrastructure bill and a Democrat-only reconciliation bill are linked. Leader McConnell and Senate Republicans are not in an enviable position as they try to game out what infrastructure strategy will best boost their prospects for taking back the Senate majority next year. For one, infrastructure is popular among voters and could yield some very tangible results for key constituents. On the flip side, it could be a political risk to hand President Biden and Congressional Democrats a win.
Of course, there are Senators on both sides of the aisle who remain hesitant to take a position until the framework is transformed into a bill. It is our understanding the bipartisan Gang of 21 has now split up into bipartisan working groups with specific subject areas where they will have responsibility for drafting legislative text. According to some, these working groups “hold the pen,” and have also been charged with consulting the relevant committees of jurisdiction for technical feedback, as well as background on existing bipartisan programs or legislative proposals that could serve as part of the foundation for the bipartisan infrastructure bill. The bipartisan working groups are aiming to finish their work quickly. We are hearing that despite the upcoming holiday, many of these groups have set a goal to complete their drafting by the end of next week.
As pay-fors had been a major sticking point throughout bipartisan negotiations, it is an unanswered question whether the Congressional Budget Office (CBO) will deem the final package as completely paid for or if negotiators will need to identify new offsets, cut topline spending, or grow the deficit. Pay-fors are one issue that remain at the full Gang of 21 level, rather than being directed by a specific working group. While the bipartisan infrastructure framework includes a list of consensus offsets, we continue to hear that tax pay-fors are largely off the table for the bipartisan bill. It is also possible the group may look to expand the list of potential offsets if funding falls short, which could also potentially jeopardize the deal.
There are also several progressives who continue to demand assurances that there will be a robust reconciliation package that advances through the Senate after the bipartisan infrastructure bill, especially as the bipartisan framework does not incorporate all their demands, including on climate change. This means that Democratic leaders are now not only fine tuning the bipartisan bill, but also attempting to manage the extreme flanks in their caucus to shape a reconciliation package. In the meantime, the White House has dispatched Assistant to the President Steve Ricchetti and Director of the White House Office of Legislative Affairs Louisa Terrell to work both Democrats and Republicans on the White House’s two-pronged infrastructure strategy.
Sen. Joe Manchin (D-WV) has now publicly said that he will support a reconciliation effort to restore fairness to the tax code, but he has balked at the idea of a $6 trillion package, as has been suggested by Sen. Bernie Sanders (I-VT). The Sanders plan is thought to include free community college, expanded childcare support, and expanded Medicare coverage.
In the meantime, this week the House passed the Investing in a New Vision for the Environment and Surface Transportation in America Act (INVEST in America Act), the House Transportation & Infrastructure (T&I) Committee’s surface transportation bill. The House Rules Committee made 149 amendments in order for consideration on the floor. It is worth pointing out the transportation components of the bipartisan deal track closely with the House T&I highway bill at roughly $715 billion. Rep. Peter DeFazio (D-OR) has argued for “merging” the surface transportation bill with the bipartisan infrastructure framework, especially as the current highway bill authorization is due to expire on September 30.
While it remains to be seen exactly how the House T&I and relatively smaller Senate Environment and Public Works (EPW) surface transportation bill fit in with the bipartisan infrastructure framework and the reconciliation infrastructure package, the White House provide some additional clarification this week. President Biden and other administration officials have now made clear that there will be “no double dipping” between the bipartisan infrastructure bill and the reconciliation measure. In other words, if an issue is addressed in the bipartisan bill, it will not be included in the reconciliation bill.
This is likely to reduce the overall size of the reconciliation package, which could be helpful in keeping Republicans engaged in the bipartisan effort and bringing Democrats together on the second bill. Realistically, this probably means the high end of the range for the reconciliation bill tops out around $3 trillion. Given the complicated political dynamics, in addition to the fact that you cannot do policy under reconciliation, it is currently our view that we are likely to see a reconciliation package that is in the range of $1 - $3 trillion.
While it is an ambitious plan, we are hearing rumblings the Senate is hoping to have its bipartisan infrastructure bill on the floor the week of July 19. Of course, this would require an agreement on offsets, finished bill text, and a solid whip count before then. We have heard the floor consideration process in the Senate could be very similar to what we observed on the United States Innovation and Competition Act (USICA), with amendments considered under regular order with lengthy negotiations on potential manager’s packages, with the goal of final passage before the August recess. The House is scheduled to head into their recess on July 30, which means final passage of the bipartisan infrastructure plan may need to wait until September.
Once the bipartisan bill is through the Senate, it is possible the Senate sticks around into the week of August 9 to take up a budget resolution that tees up the reconciliation process for the post-August work period. We continue to hear the full House could vote on their budget resolution the week of July 19. Our instincts tell us the soonest we might see passage of the human infrastructure reconciliation might be late September/early October.
Budget/Appropriations
This week, the House Appropriations Committee unveiled 302(b) allocations for its Fiscal Year 2022 appropriations bills, which were approved by the full committee on Tuesday, totaling $1.5 billion in discretionary spending across the Federal Government. The committee also released its FY22 Homeland Security Appropriations bill, which notably includes a boost in Cybersecurity and Infrastructure Security Agency (CISA) funding to $2.4 billion, above the $2.1 billion included in the president’s budget request. This includes a $186.7 million increase for cybersecurity efforts.
This week, the full House Appropriations Committee marked up the FY22 Financial Services and General Government, Legislative Branch, Agriculture, Military Construction-Veteran’s Affairs, Interior-Environment, and State and Foreign Operations Appropriations Bills. The Defense and Homeland Security Appropriations Bills also advanced in their respective subcommittees, with full committee consideration of these bills and the four remaining appropriations bills (Commerce, Justice, and Science; Energy and Water; Labor-Health and Human Services; and Transportation, Housing, and Urban Development) scheduled for markups after the July 4 recess.
We continue to expect there will be intraparty fighting among Democrats, as well as with Republicans on the topline numbers for defense and non-defense spending. Consistent with President Biden’s FY22 budget request, House Democrats have proposed a $705.9 billion topline for the Defense Appropriations Bill. This is considered a modest increase, which is supported by House Blue Dogs. However, progressives are threatening not to back any appropriations bill that does not cut defense spending, while Republicans continue to call for greater increases for defense. The wide range of views on defense spending bolster the prospects for a Continuing Resolution through the end of the year, although if both sides dig in, it remains possible DoD continues to operate on a Continuing Resolution through next October.
USICA/National Science Foundation for the Future Act/DOE Science for the Future Act Conference
On Monday evening, the House passed the National Science Foundation (NSF) for the Future Act by a vote of 345-67 and the Department of Energy (DOE) Science for the Future Act by a vote of 351-68 in response to recent Senate passage of USICA. These bills, although more narrowly focused than the Senate bill on NSF and DOE research initiatives, are likely to be used to go to conference with the Senate. The NSF for the Future bill authorizes $75 billion over five years, while the DOE Science for the Future Act provides roughly $95 billion.
With the upcoming summer recesses, current thinking seems to be that a conference committee could produce a compromise bill by September or October, although we would not rule out a final package being tacked on to an end-of-the-year legislative vehicle. In the interim, it is possible that other bills, such as forthcoming legislation from the House Foreign Affairs Committee that will focus on U.S. competitiveness vis-à-vis China, and potentially even some of the supply chain and network security bills considered in this week’s House Energy & Commerce legislative hearing, could ultimately be added to the package. However, the White House has made clear its preference for the Senate bill.