Plurus Strategies Weekly Update: FY23 Budget, War in Ukraine, & Election Season Tidbits
FY23 Budget/Appropriations
Monday was budget day and the official kickoff of the FY23 appropriations cycle. In its messaging on the budget, the White House has indicated the administration’s proposal reflects a commitment to fiscal responsibility, security at home and abroad, and efforts to build a better America. However, we see the president’s budget request (PBR) as part of President Joe Biden’s ongoing pivot away from the left flanks of the Democratic party towards the political center.
With an overall discretionary spending topline of $1.6 trillion, the PBR includes $813 in defense spending (up from $782 billion in FY22) and $696 billion in nondefense spending (up from $730 billion in FY22). Higher defense spending does not come as a surprise given the spotlight on the war in Ukraine. However, Congressional doves argue a defense spending increase is unjustifiable given the end of the war in Afghanistan, while hawks argue that with inflation, the proposed topline is not nearly enough. At present, it seems like the doves will have a hard time finding traction for their case.
The budget also aims to reduce the deficit by $1 trillion over ten years. Roughly $360 billion in new revenue is generated through a “Billionaire Minimum Income Tax” proposal that imposes a 20 percent minimum tax on the income and unrealized capital gains of billionaires. Other savings will come from $1.3 trillion less in federal spending associated with the end of various pandemic relief programs. Traditionally, the PBR has been viewed as an exercise for the administration to identify priorities for the annual appropriations cycle. Realistically, any administration’s proposal is dead-on-arrival on the Hill.
Congress now has the option of passing a budget resolution to codify toplines. We struggle to see a budget resolution getting done this year, especially as appropriators have claimed the reins in negotiating 302(a) allocations. The “four corners” have not met yet on FY23, but we are hearing they could get together soon. Looking at politics in a vacuum, Democrats might desire a budget resolution to produce reconciliation instructions. However, we find it difficult to believe a reconciliation bill can get done on such slim margins in an election year, especially considering that Democrats have yet to act on the reconciliation vehicle reserved for BBB. As a reminder, this vehicle will expire on September 30.
Instead, the Budget Committees appear focused on providing oversight of the budget, as evidenced by Office of Management and Budget (OMB) Director Shalanda Young’s appearances before the House and Senate committees this week. Meanwhile the Appropriations Committees are rolling forward with their budget hearings with agency principals, as evidenced by the House Labor-Health and Human Services (Labor-HHS) Subcommittee hearing with HHS Secretary Xavier Becerra today.
Appropriators are also preparing for another cycle that includes earmarks. In case you missed it, Rep. Rosa DeLauro (D-CT) recently provided colleagues with guidance on submitting earmark requests. Each House Member will be allowed to request up to 15 earmarks, an increase above the 10-project limit in the FY22 appropriations process. The deadlines to submit earmark requests are as follows by subcommittee:
April 27: Financial Services and General Government (FSGG); Labor-HHS; Legislative Branch; and State, Foreign Operations and Related Programs (SFOPs)
April 28: Agriculture; Defense; Homeland Security; and Military Construction-Veterans Affairs (MilCon-VA)
April 29: Commerce-Justice-Science (CJS); Energy and Water; Interior; and Transportation, Housing, and Urban Development (THUD)
Appropriators are aiming to complete the 12 FY23 appropriations bills before the October 1 start of the new fiscal year (just 182 days from now), but this remains a tall order given that toplines must still be agreed to and bipartisanship will be rare in the runup to the November elections. We anticipate that we will see a continuing resolution (CR) past the elections and most likely into early 2023.
War in Ukraine
This week, Russia began to draw its forces back from Kyiv as it focused its aggression on securing gains in areas in southern and eastern Ukraine, including the port city of Mariupol. The tactical shift came as the Russians and Ukrainians met in Turkey for peace talks and as the Russian attacked sites along Ukraine’s border with Poland where weapons are being transferred. The Biden Administration and the rest of the world remain skeptical of Russian overtures indicating they intend to pull back from Kyiv, especially as it appears that Russia’s pivot might be aimed at taking full control of Donbas.
President Biden visited Europe last week for international meetings on Ukraine and to visit with refugees in Poland. President Biden’s trip has been overshadowed by a series of gaffes in which the president seemed to suggest that Putin should be removed from power, that the U.S. would respond “in kind” to a Russian chemical weapons attack, and that U.S. troops might set foot in Ukraine. President Biden has insisted these comments do not indicate a change in U.S. policy. Though this may be true, experts believe they have strengthened Putin’s hand.
Yesterday, President Biden spoke with Ukrainian President Volodymyr Zelensky amidst rumors that the administration is considering providing Ukraine with an additional $500 million in aid. The two discussed additional U.S. assistance for Ukraine, including specific defense support, new sanctions, and financial and humanitarian aid. Today, President Biden announced plans to release more than 1 million barrels per day from the Strategic Petroleum Reserve to address rising prices at the pump brought on by the conflict in Europe. The announcement came as the administration unveiled new sanctions targeting 21 Russian technology companies and 13 individuals.
The Senate is still struggling to advance House-passed legislation to codify the president’s executive orders eliminating normal trade relations with Russia and prohibiting imports of Russian oil and gas. Late last week, we connected with a senior Democratic staffer on the Senate Banking Committee who indicated that Sen. Rand Paul (R-KY) was blocking Senate Majority Leader Chuck Schumer’s (D-NY) efforts to schedule votes on both bills. While this staffer had hoped the Senate would work through the weekend to “bust things loose,” by the start of this week, Sen. Paul remained unwilling to accept any compromise to allow a vote on his amendment so specify what human rights abuses might trigger sanctions. At this point, Sen. Paul may be undermining the GOP’s effort to paint Democrats as slow to respond to the conflict in Europe, and we are hearing Senate action on the legislation might now be pushed to after the Easter break. If the bills are amended, another vote will be required in the House.
There is likely to be another Ukraine assistance package, but when we spoke with a senior staffer for Sen. Jack Reed (D-RI), his view was that it is probably a few weeks out, most likely after the Easter recess. Such a package could include more military aid. At the end of last week, House Defense Appropriations Subcommittee (HAC-D) Ranking Member Ken Calvert (R-CA) wrote to Defense Secretary Lloyd Austin calling upon the Department of Defense (DoD) to ramp up missile procurement and identify a successor for the Javelin. House Armed Services Committee (HASC) Chairman Smith has similarly called for an expedited replacement program for Stingers. In addition, Sens. Jon Ernst (R-IA) and Kirsten Gillibrand (D-NY) have led a bipartisan letter to National Security Adviser Jake Sullivan urging the administration to play a bigger role in helping Ukraine fight Russia and requesting information regarding the provision of lethal assistance.
USICA/America COMPETES Act Conference
On Monday evening, the Senate voted 68-28 to re-pass the U.S. Innovation and Competition Act (USICA) as an amendment to the House-passed America COMPETES Act, sending the bill back to the House. On Wednesday, the House agreed by unanimous consent to disagree with the Senate language and request a conference. A vote on a motion to instruct conferees is expected today. Votes this week in both chambers now clear the way for the Senate and the House to begin formal conference proceedings to iron out the differences between the two bills, which include $52 billion to fund the CHIPS Act and other provisions to stimulate research and innovation in the U.S., address supply chain concerns, and maintain U.S. leadership vis-a-vis China.
While the Biden Administration has pressed Congress to wrap up negotiations quickly, we anticipate a complicated process ahead. Trade provisions included in the bills are likely to be partisan sticking points. Members on both sides of the aisle also continue to question the need for chip subsidies. For example, Sen. Bernie Sanders (I-VT) held up passage on the bill until securing votes on amendments that would target “corporate welfare” provisions in the bill by eliminating a $10 billion appropriation for NASA’s Human Landing System that would benefit Blue Origin and requiring companies receiving financial incentives to issue warrants or equity stakes in return. Sen. Ron Johnson (R-WI) has questioned if tariffs might serve as a more effective strategy to compete with semiconductor subsidies being offered elsewhere around the world.
We expect conferees will be named before the end of next week. Republicans are demanding that the conference committee be comprised by an equal number of Democrats and Republicans from all the committees of jurisdiction. Just the sheer scope of committees that will be involved could make the conference a lengthy process. We continue to hear that it will likely be late May before a final bill reaches the president’s desk.
SCOTUS Confirmation
The Senate Judiciary Committee met on Monday to consider Judge Ketanji Brown Jackson’s SCOTUS nomination. As expected, the vote was held over, with committee action expected on Monday. Assuming Judge Jackson’s nomination will be reported out of committee along party lines, Leader Schumer will have to file a discharge petition to bring the nomination to the Senate floor.
Unless there is an agreement to speed up floor proceedings, the Senate is on track to confirm Judge Jackson on April 8, just as Senators are one foot out the door for the two-week Easter recess. However, we wouldn’t rule out jet fumes speeding things up, especially since Judge Jackson’s confirmation is most likely inevitable. We expect all 50 Democrats to vote for confirmation. Sens. Susan Collins (R-ME) has publicly announced she will back Judge Jackson’s nomination and Sens. Mitt Romney (R-UT) or Lisa Murkowski (R-AK) could also cross the aisle to support the nomination.
COVID Aid
After a week of high tensions, the Senate may be on track to take procedural votes this evening that would allow a COVID supplemental appropriations bill to move next week. As a reminder, the FY22 omnibus initially included $15.6 billion that was yanked due to Democratic displeasure with the pay-fors. The White House has proposed an emergency request totaling $22.5 billion. House Speaker Nancy Pelosi (D-CA) had indicated she would be open to an even bigger package, so long as it is paid for.
Sen. Mitt Romney has taken on the role of lead negotiator in working with Democratic Senate leadership to identify offsets for another tranche of COVID aid. We were sort of surprised that Sens. Richard Shelby (R-AL) and Roy Blunt (R-MO) deferred to Sen. Romney, as Sen. Romney is not all that popular with fellow Republicans and the COVID bill will likely need the support of ten Republicans to clear the chamber. The deal that is coming together has now shrunk to a $10 billion package that would provide funding for purchasing existing vaccines, developing new ones, procuring treatments, and covering patient costs.
While there has been momentum, it remains possible the train will come off the tracks. Both parties are now familiarizing their respective caucuses with the contours of the presumptive deal. On the cutting room floor is $5 billion in global COVID assistance due to disputes over how to pay for it, a potential dealbreaker for Democrats. We have been hearing that Sen. Romney’s most recent menu of potential offsets includes unspent ARP and CARES Act funds, which could force Democrats to make difficult decisions. Meanwhile, some Republicans continue to demand that the administration provide a full accounting of previously appropriated COVID monies, while others are unconvinced more COVID aid is urgently needed.
Leader Schumer has teed up an unrelated House-passed appropriations bill to serve as the vehicle for new COVID monies, if a final agreement can be reached. Assuming negotiators are successful, both the House and Senate could pass the final COVID relief bill next week. If there is no deal, Leader Schumer could hold a vote on a COVID package and force Republicans to vote no. Such a vote might allow Democrats to message their GOP colleagues as obstructionist while also showing that Democrats tried to break the logjam before moving to other legislative priorities. If necessary, the next Ukraine supplemental or the reconciliation package could serve as a backup vehicle for Democrats to pass emergency COVID appropriations.
BBB/Reconciliation
Speaking of reconciliation, we are increasingly hearing that a Build Back Better (BBB) package needs to come together between the Easter recess and the Memorial Day recess, otherwise it might be too close to the midterm elections and too late to get it done. It is worth pointing out that the FY23 budget released by the White House on Monday makes some assumptions that tax provisions that were agreed upon before BBB talks broke down last year get enacted into law. During her testimony before the Budget Committees this week, OMB Director Young urged that President Biden remains committed to a reconciliation bill that reduces the costs of childcare, healthcare, and energy and is paid for by tax reform.
On Wednesday, President Biden met with progressives and New Dems to try to plot out the path forward. Progressives pushed the president to consider moving his agenda via executive order, while moderates encouraged the president to employ the bully pulpit on a reconciliation bill that will endure if there is a change in political power. Moderate Democrats want a bill so bad that they may have told the president they are willing to abandon some priorities, such as the expanded child tax credit.
Sen. Joe Manchin (D-WV) is increasingly signaling he is ready to return to the negotiating table for talks on a narrow bill that tackles climate change, prescription drug costs, and deficit reduction. This week, we caught up with one of Sen. Manchin’s Energy Committee staffers who said there is “definitely space for a proposal and a deal to come together.” This staffer told us she couldn’t give “under or over odds,” but emphasized that Sen. Manchin is working to “get a clean energy/climate/tax package done via reconciliation.” Another Manchin staffer emphasized that Sen. Manchin dislikes anyone approaching him on “BBB,” but emphasized he is open to “reconciliation.”
Notably missing on Sen. Manchin’s list of priorities for reconciliation are the care economy provisions that headlined President Biden’s original BBB framework. Earlier this year, Sen. Manchin seemed open to including universal pre-kindergarten in a slim BBB bill, but it seems that BBB might now be “Build Back Even Slimmer.” This week, more than two dozen Senators and 70 House Members sent a letter to the president urging the White House to push for a bill that lowers the cost of child card, increases access to pre-kindergarten, and invests in the early childhood workforce. The White House finds itself stuck between Sen. Manchin and progressives. If a BBB bill comes together, it is unclear if it will include elements of the president’s soft infrastructure agenda or if Democrats will need to find a way to pass them with 60 votes in the Senate.
Political Tidbits
Retirements/Resignations
After a few weeks of no retirement announcements, Rep. Filemon Vela (D-TX) announced late last week he will leave Congress in the coming weeks to work for Akin Gump. This news comes as a surprise, and Democrats are suddenly staring down another special election. The winner will only serve for a short period, but Republicans are already eyeing the election as a chance to show their strength. Rep. Vela’s 34th Congressional District was redrawn last year in favor of Democrats and would have had President Biden carrying district by 16 percentage points based on 2020. However, the special election will be held under the boundaries of the previous, more competitive district lines, which President Biden carried by only 4 points. With Mayra Flores, the GOP nominee for the 2022 election, already indicating she is in for the special election and Democratic nominee Rep. Vicente Gonzalez (D-TX) indicating he will not participate, Gov. Greg Abbott may opt to call an emergency special election. The 34th’s special election, as well as 28th’s member-member runoffs, will continue to remain on the radar for Republicans.
Rep. Jeff Fortenberry (R-NE) formally resigned due to felony convictions just as he was approaching his two-decade mark in the House. Nebraskans in his district will now be casting ballots three times this year. The first will be in the May primary, then a special election to fill Rep. Fortenberry’s seat for the remainder of his term, and then the November election to decide Nebraska’s 1st District representative for the next term. A special election for a vacant Nebraska Congressional seat has not happened before, so it is difficult to know what the process will be. It also remains unclear which candidate both parties will select to appear on the ballot for the special election this June, though the conviction likely will not change the dynamic of the longtime safe seat for Republicans.
As of today, the retirements and early departures tally:
1 Senate Democrat: 1 full committee chair (Appropriations)
6 Senate Republicans 6 full committee ranking members (Appropriations; Armed Services; Banking; Health Education, Labor and Pensions (HELP); Homeland Security and Governmental Affairs (HSGAC); and Rules)
32 House Democrats: 4 full committee chairs (Budget; Ethics; Science, Space, and Technology; and Transportation and Infrastructure)
17 House Republicans: 2 full committee ranking members (Homeland Security and Ways and Means)
Redistricting
Florida: On Tuesday, Gov. Ron DeSantis announced a formal veto of the state's redistricting maps proposed by the Republican-controlled legislature, prompting him to call for a special session to redraw the maps again. The veto puts more pressure on the legislature to approve a map and resolve any resulting lawsuits before the June 13-17 qualifying period for federal candidates. This special session will be held April 19-22. As you know, the Governor has argued that a certain SCOTUS ruling determines districts cannot be drawn with race being the primary factor. His own version of the map, submitted back in January, would likely result in two Black members of Congress losing their seats: Reps. Al Lawson (D-FL) and Sheila Cherfilus-McCormick (D-FL). It would also completely change the shape of Florida’s 10th Congressional District, represented by Rep. Val Demings (D-FL), who is currently looking to unseat Sen. Marco Rubio (R-FL).
Ohio: The Ohio Redistricting Commission met with two outside mapmakers over the weekend in an attempt to meet the Monday deadline. Lawmakers voted to pass the fourth version of the map late Monday night, but the fight is not over yet. Democratic members have expressed frustration as this most recent attempt is a tweaked version of what has already been rejected as unconstitutional by Ohio’s Supreme Court. Sec. Frank LaRose has stated it is too late for the state legislative districts to be used for the May 3 primary meaning a second primary would have to be held for state legislative races. Sec. LaRose said on Monday that the earliest it could be held is May 24.
Maryland: After the courts rejected Maryland’s first attempt last week, a new Congressional redistricting map was introduced in the General Assembly on Monday, the subject of a joint hearing on Tuesday, and on the Governor’s desk on Wednesday. This map is seen as a win for Republicans who strengthened Rep. Andy Harris’ (R-MD) district while weakening the Democratic advantage in Rep. David Trone’s (D-MD). Following the vote, the Attorney General’s office filed to appeal the decision.
Senate Races
As the first quarter comes to an end, there are some key facts emerging. Democrats have nominees in most races, while Republicans have several hotly contested primaries. Primaries are on the horizon and statewide races in swing states, especially without an incumbent, are often indicative of the political environment. In states like Pennsylvania and Wisconsin, it is clear the significant Democratic turnout in the 2020 elections was because of the suburbs. The outcome of these elections will likely be a strong signal of Democrats’ current and future political viability. Midterms this year are on track to do the same and Democrats could gain an advantage in states like Pennsylvania, Ohio, and North Carolina, depending on which Republicans are nominated.
Pennsylvania: GOP primary frontrunner Dave McCormick, currently holding a 9-point advantage over Dr. Oz, is delicately balancing the Trump-wing of the party with the moderates. Trump-endorsed candidate Sean Parnell previously dropped out of the Senate race amid domestic-abuse allegations. The two GOP candidates have launched personal attacks against one another, and with two months until the primary, attacks are expected to escalate. McCormick may be leading, but roughly a third of voters remain undecided. On the Democratic side, Progressive Lt. Gov. John Fetterman appears to be pulling away from Rep. Conor Lamb (D-PA), but neither has aired ad campaigns against one another.
Ohio: President Donald Trump has yet to give his endorsement, but each GOP candidate is certainly attempting to be the most-Trump-like candidate in the race. One candidate’s ads announced: “Josh Mandel. Pro-God. Pro-gun. Pro-Trump.” Another candidate, former state Republican Chair Jane Timken, had an ad saying, "There are pretenders in the Senate race — Jane Timken is the real Trump conservative." There’s also Mike Gibbons, whose ads highlight business, saying “Trump saved our economy before, Gibbons knows how to do it again." GOP candidates have directed attacks not only toward President Biden and Democrats, but also against fellow competitors. Some Ohioans have indicated they’re considering switching their affiliation to independent as January 6 represents a turning point in which the Republicans need to draw a hardline or else. It seems President Trump’s endorsement will be the greatest aid in determining how Republican voters make up their minds. The May 3 primary is on the horizon and Gibbons may be leading, but surveys indicate more than a third of Republican voters are still undecided.
North Carolina: While Democrats have thrown their weight behind former North Carolina Supreme Court Justice Cheri Beasley, the Republican contest remains contentious and has now also turned personal. In a recent ad, former Gov. Pat McCrory accused Rep. Ted Budd (R-NC) of being sympathetic towards Russia and the invasion of Ukraine. President Trump endorsed Rep. Budd last year, but the momentum seems to have dwindled and did not provide nearly as substantial a boost as expected. Rep. Budd and former Rep. Mark Walker (R-SC) had a falling out in late 2019, only adding to the heat of the state’s primary and how high the stakes are. The intraparty fight among state Republicans reflects major stylistic differences between the candidates and a larger fight over the state’s future leadership. On that note, North Carolina’s unaffiliated voters outnumber both Republicans and Democrats. The May 17 GOP primary winner will likely take on Beasley in what is expected to be one of the nation’s most expensive Senate races this year.
Missouri: A recently published poll for Sen. Blunt’s open seat in Missouri indicates shifts in support for GOP Senate primary nominees. Previous polling showed former Gov. Eric Greitens leading the primary, but a more recent poll has Gov. Greitens three percentage points behind his competitor Eric Schmitt. If this is correct, it could be good news for Republicans, but the primary is August 2, meaning there is quite a bit of time for things to change.
Georgia: President Trump’s other endorsements are causing headaches or proving not as successful as anticipated. In Georgia, Trump-backed former Sen. David Perdue (R-GA) is trailing in his bid to deny Gov. Brian Kemp re-nomination.
Alabama: Other Republican-leaning open seats will also be indicative of the direction of the party. As you know, President Trump withdrew his endorsement of Alabama Senate candidate Rep. Mo Brooks (R-AL), citing the candidate’s appeal to voters to move past the 2020 election. The former president has had a growing list of qualms against the representative, including criticisms of weak fundraising efforts. By pulling his endorsement, President Trump is likely temporarily boosting the two other GOP candidates Katie Britt and Mike Durant before the May 24 primary. While President Trump has promised a new endorsement, if no Republican wins the majority on May 24, they will face a runoff.
Until candidates are confirmed for the general election and voters have more specific factors to consider, a poll by Harvard CAPS-Harris conducted in mid-March and out this week found that in a generic ballot test, voters support Republicans over Democrats 53 percent to 47 percent. Of those polled who are independents, 59 percent of respondents align themselves with Republicans to 41 percent with Democrats.