Plurus Strategies Weekly Update: CHIPS Plus, Reconciliation, Appropriations, NDAA & Other Activity in Washington
CHIPS Plus
Late last week, it felt like the U.S. Innovation and Competition Act (USICA)/America COMPETES Act conference had imploded, but the picture is rosier as we approach the end of this week. While Senate Minority Leader Mitch McConnell (R-KY) had previously threatened to block action on competitiveness legislation if Democrats continued to simultaneously pursue reconciliation, it became clear over the weekend that Sen. Joe Manchin (D-WV) walking away from a broad healthcare, tax, and climate reconciliation package before the August recess voided Leader McConnell’s threat.
By Sunday, legislative language began circulating on a narrow CHIPS Act package that Senate Majority Leader Chuck Schumer (D-NY) intended to bring to the Senate floor for a vote this week. Republicans increasingly began to return to the negotiating table on CHIPS, especially as U.S. semiconductor leadership has come to be viewed as a national security priority. While we were initially skeptical that Republicans would be willing to give the president a win so close to the midterms, some of the GOP Senators who had previously voted for USICA indicated that their votes might be gettable if the package were expanded to include a compilation of other bipartisan science priorities championed by Sens. Todd Young (R-IN) and Kyrsten Sinema (D-AZ).
Despite the bill text not being finalized, following coordination between original USICA sponsors Leader Schumer and Sen. Young, on Tuesday the Senate voted 64-34 to begin debate on what is now being referred to as the “CHIPS Plus.” Leader Schumer filed cloture on the bill last night and a vote on final passage is expected next week. Given the bipartisanship observed over the past several days, as well as the fact that there are some Members like Leader McConnell who voted no on the procedural motion but could vote for the package once it is finalized, the prospects are strong that CHIPS Plus will clear the Senate.
The legislation includes $52 billion to fund the CHIPS Act, along with a 25 percent investment tax credit for the manufacturing of semiconductors and the tools used in semiconductor manufacturing, derived from the Senate version of the FABS Act; $200 million to fund the House Science, Space, and Technology Committee’s (HSST) semiconductor workforce bill, the CHIPPING IN Act; $500 million for an international secure communications program; and $1.5 billion for O-RAN supply chain innovation. With the addition of science provisions, the bill package also now includes significant boosts to authorized research and development (R&D) funding, including a $36 billion increase for NSF, in addition to $20 billion for a new technology directorate; $10 billion for the Commerce Department to launch 20 regional technology hubs; increased resources for Department of Energy (DOE) science programs; and the National Aeronautics and Space Administration (NASA) reauthorization bill. Notably left on the cutting room floor were the trade and foreign policy titles of the original competitiveness proposals. At this point, there does not appear to be an appetite to continue the USICA/America COMPETES Act conference to negotiate these outstanding provisions.
Once CHIPS Plus passes the Senate, attention will shift to the House. As you might recall, last week we heard that House Speaker Nancy Pelosi (D-CA) and Democratic committee chairs were focused drafting a compromise competitiveness package. Considering the way the politics unfolded in the Senate, it is our understanding that Speaker Pelosi has been communicating to committee chairs since the start of this week that the House will have to “swallow” the Senate bill. On Wednesday, Speaker Pelosi endorsed the Senate package and signaled the House will vote on it next week. Though there may be some grumbling in the House about being forced to accept yet another Senate product, we anticipate CHIPS Plus will be on its way to President Biden for signature by the end of next week.
Reconciliation
Just hours after we sent out last week’s update, Sen. Manchin told Leader Schumer that he would not be able to support a healthcare, tax, and climate reconciliation package before the August recess, likely putting a nail in the coffin of for the chances of a Build Back Better (BBB)-like reconciliation bill being enacted before the break. Given the latest figures on inflation, Sen. Manchin said he could not support a large package without seeing July economic data. However, he indicated that he would support swift action on a narrower reconciliation package that reduces prescription drug prices and extends for two years Affordable Care Act (ACA) subsidies that are due to expire at the end of December. Sen. Manchin has also clarified that he would be willing to return to discussions regarding a broader package in September.
Since then, Democrats have been soul searching and debating whether to use their one shot at reconciliation for a nearly certain healthcare package now or to take their chances that Sen. Manchin might come around to pushing forward on more Democratic priorities after the recess in the tight window before the FY22 reconciliation vehicle expires on September 30. While it is a disappointment for several Members, including progressive House Democrats who initially envisioned a sprawling $10 trillion reconciliation package, most Democrats seem inclined to shoot for narrow healthcare reconciliation legislation that will stop bills for higher healthcare premiums from being sent out before the elections. While some had been hopeful that a reconciliation package might also include additional COVID funds, we are hearing this is unlikely.
The Senate parliamentarian is set to hear from both Democrats and Republicans on Democrats’ prescription drug pricing proposal today as part of the “Byrd bath” process. While Democrats likely face fewer hurdles in making the case that the provision complies with Byrd rule restrictions since Sen. Manchin has now sworn off tax hikes, Republicans remain eager to continue to scrape away at the proposal in order to diminish any victory Democrats might tout on the campaign trail heading into November. Senate Democrats hope to pass the healthcare package on a party line vote before leaving town on August 5. One Democratic House chief of staff told us there is now a lot of talk about the House coming back sometime during the week of August 8 to vote on the reconciliation package.
In the meantime, we are increasingly hearing chatter about potential procedural pathways Democrats might consider to attempt to move tax and climate provisions before the end of the year. While there is some precedent for using a single budget resolution to generate multiple reconciliation bills, this does not appear to be an option in this case, as the healthcare package that is likely to move forward will touch on both revenue and spending. Democrats could also potentially try to revise the existing budget resolution. However, doing so would trigger a time-consuming vote-a-rama, lessening the chances that Democrats would be able to use reconciliation to accomplish their goal of evading notices of healthcare premium increases being sent out, potentially as soon as August.
This might be crazy talk, but coming out of yesterday’s Senate Democratic caucus lunch, we are hearing that Leader Schumer proposed that Democrats pursue a fiscal year 2023 (FY23) budget resolution in September that would give Democrats a second bite at the reconciliation apple. We understand that Sen. Manchin expressed support for this approach so that negotiations over tax and climate provisions might continue. Passing another budget resolution could be quite painful, as it would trigger a vote-a-rama that would allow Republicans opportunities to secure votes on messaging amendments just ahead of the midterms. If there were new reconciliation instructions, it is likely that Democrats would only have until the end of this Congress to act, assuming at least the House flips to GOP control.
Conventional wisdom is that it would be nearly impossible for Democrats to achieve this, especially in an election year. To us, the idea is so crazy that we must wonder if Leader Schumer might be dangling a second reconciliation bill as a tactic to rally Democrats behind the healthcare-only package. Even if the Senate could pass a second reconciliation bill, it is a huge unknown if it could clear the House. We sort of view the notion of a second reconciliation bill as a funny way of attempting to placate a caucus that is disappointed with its current political fortunes. Regardless, we are hearing that some Members are excited. Others are not saying anything negative, even though they might be rolling their eyes.
Since it is unlikely that Congress will be able to move climate legislation this year, the White House is reportedly considering declaring climate change a national emergency, allowing it to invoke new resources and authorities. It is unclear what additional action the Biden Administration might take to prove to Democratic voters that, in the absence of legislation, it is doing something to address the climate crisis. It is also an open question how Democrats might tackle tax priorities, such as the 15 percent corporate global minimum tax that would being the U.S. into compliance with international standards, while they still control both houses of Congress. Other things that seem to have fallen out of reconciliation talks altogether include universal pre-kindergarten, free community college, childcare, the Child Tax Credit, paid family leave, public housing, dental coverage, and vision care for seniors.
Appropriations
On Monday, the House Rules Committee met to consider more than 600 amendments filed to the first FY23 appropriations minibus, which includes the Agriculture; Energy and Water; Transportation, Housing, and Urban Development (THUD); Interior; Financial Services and General Government (FSGG); and Military Construction-Veterans Affairs (MilCon-VA) appropriations bills. The Rules Committee made 190 amendments in order for floor debate, and the House worked its way through amendments to each title of the bill throughout the week. The minibus passed the House yesterday on a 220-207 vote.
While House Democratic leadership had hoped to move all 12 appropriations bills on the floor before leaving for the August recess, it is unclear what, if any, additional appropriations work can be accomplished next week. Without an agreement between Democrats and Republicans on topline defense and non-defense spending, we have been told the Defense bill is unlikely to see the light of day. Further, Democrats appear to be increasingly concerned about bringing the Homeland Security bill to the floor and ginning up fierce debate on immigration issues. In addition to wanting to avoid fights over funding for Capitol security in the wake of January 6, we are also hearing that Members may want to hold back the Legislative Branch bill so that they can approve a pay increase for Members of Congress after the elections. We will be watching for any movement on the Labor-Health and Human Service (HHS); Commerce-Justice-Science (CJS); and State and Foreign Operations (SFOPs) bills, but we are not holding our breath now that the House could be jammed with bills coming over from the Senate.
With Sen. Patrick Leahy (D-VT) now recovering from a second surgery for his broken hip, it seems increasingly likely that there will not be a final deal on toplines until after the elections. His absence could impact not only the appropriations process, but also Democrats’ plans to move a healthcare package under reconciliation. Despite Sen. Leahy being away from Washington, Senate Appropriations Committee staff continues to work on drafting its FY23 bills with the goal of posting them before the start of the August recess. We are picking up some GOP frustration that this process has not been as bipartisan as some would like, especially as the bills that are posted will be what the Senate eventually uses to go to conference with the House. At this point, we are not certain what toplines Democratic Senate appropriators are using. The one thing that is clear is that the Senate will forego committee markups.
For several weeks now, Members have been resigned to the fact that a continuing resolution (CR) is on the horizon to fund the government past September 30. However, we continue to think the lame duck environment might be right for action on an omnibus appropriations package. An omnibus could become the vehicle for numerous items, such as healthcare and tax extenders, as Members of both parties aim to clear the decks for next year. Our instincts tell us that if Republicans control one or both chambers in the 118th Congress, an omnibus might be the last big legislative package we see for some time.
FY23 National Defense Authorization Act (NDAA)
Last Thursday, the House passed its NDAA by a vote of 329-101. The House defense bill boosts topline defense spending by $37 billion above the president’s budget request, teeing up what is likely to be a lively conference debate once the Senate passes its bill.
Speaking of the Senate, this week the Senate Armed Services Committee (SASC) released its NDAA bill text and committee report, nearly a month after completing its closed markup proceedings. As a reminder, the Senate bill increases topline defense spending by $45 billion. While Sen. Jack Reed (D-RI) had been hopeful the Senate would tackle the NDAA before the August recess, other packages like CHIPS Plus and the healthcare reconciliation bill are taking precedence, likely bumping the NDAA to September.
Given that a conference committee is unlikely to convene until the fall, with breaks for the elections, we do not anticipate enactment of the NDAA until the lame duck. A must pass bill, the NDAA could become a vehicle for other legislative priorities at the end of the year.
War in Ukraine
Ukrainian First Lady Olena Zelenska was in Washington this week hoping to put the spotlight back on the war in Ukraine as lawmakers scramble to tie up other priorities before the August recess. On Monday, she met with Secretary of State Antony Blinken. On Tuesday, First Lady Zelenska met with First Lady Jill Biden to mental health challenges facing women and children in Ukraine since the start of the Russian invasion. On Wednesday, she addressed a joint session of Congress, providing an update on security, economic, and humanitarian conditions in Ukraine. Her speech comes as Congress weighs another assistance package for Ukraine, something that is now being talked about for inclusion on a CR.
The Biden Administration continues to work through the $40 billion in Ukraine assistance that Congress approved in May. Yesterday, Defense Secretary Lloyd Austin indicated that a new tranche of weapons will be sent to Ukraine, including four extra rocket launchers. To date, the Biden Administration has provided roughly $8 billion in weapons and military equipment to Ukraine, including 12 HIMARs, laser-guided rockets, more than 120 howitzers, and over 40,000 artillery rounds. The announcement of additional aid coincided with the most recent Ukraine Defense Contact Group meeting and a call between JCS Chairman Mark Milley and Commander-in-Chief of the Ukrainian Armed Forces Valerii Zaluzhnyi.
While the last U.S. Ukraine assistance package included reporting requirements, such as regular briefings from the administration, Members of Congress on both sides of the aisle continue to articulate concerns about transparency into how funds previously allocated for military assistance are being spent. While SASC received a classified briefing this week, the full House and Senate have not received updates since the Russian invasion began. To address these concerns, the Government of Ukraine established a special commission to monitor Western weapons entering the country.
Beyond issues related to military assistance, Congress tackled several issues related to the war in Ukraine this week. The House Foreign Affairs Committee (HFAC) held a hearing to assess the U.S. economic response to the war in Ukraine, while the Senate Judiciary Committee held a hearing on aiding Ukraine through forfeiture of Russian oligarchs’ illicit assets. Also worth noting, the Senate Foreign Relations Committee (SFRC) approved the treaty document that would ratify Sweden’s and Finland’s accession into NATO. A full Senate vote is likely before the August recess. Meanwhile, earlier in the week, the House voted 394-18 on a non-binding resolution in support of both countries joining NATO. Another issue that continues to interest Congress is the potential designation of Russia as a state sponsor of terror. Earlier this week, Speaker Pelosi told Secretary Blinken Congress might pass legislation requiring such a designation if the administration does not act on its own.
Yesterday the Department of Homeland Security (DHS) announced that the administration is making progress on its pledge to accept 100,000 Ukrainian refuges into the U.S. Since the start of the Russian invasion, DHS has approved 29,000 Ukrainians to temporarily relocate to the U.S. Intel reports suggest the situation in Ukraine could become more dire in the weeks and months ahead. On Tuesday, National Security Council (NSC) Coordinator for Strategic Communications John Kirby teased additional military aid for Ukraine due to Russia taking steps aimed at annexing additional Ukrainian territory. According to the White House, the playbook may be like the one Russia used to take control of Crimea in 2014. This might entail Russia installing proxy officials and forcing Ukrainians to apply for Russian citizenship timed to coincide with September regional elections in Russia.
Political Tidbits
Election Day is still over 100 days away. However, this week the Democratic Congressional Campaign Committee (DCCC) hosted its Red to Blue week, inviting their endorsed challengers for flipping Republican seats to Washington. Of the 32 candidates, 22 have been endorsed by the New Dems. That caucus, the second largest ideological one after the Congressional Progressive Caucus, also has 24 of the 37 vulnerable Frontliners. We heard from New Dem Chair Suzan DelBene (D-WA) that in the lead up to November the caucus is focusing on their legislative priorities: reconciliation, CHIPS, and healthcare.
With no major updates on redistricting or retirements, the big political news of the week comes from the one state that held its primary elections on Tuesday: Maryland. The state’s Court of Appeals had delayed the primary by three weeks after lawsuits had challenged legislative redistricting maps. Since the counting of the 500,000 or so mail-in ballots already received did not start until this morning, and because mail-in ballots can be accepted through July 29, the final certification of the election is likely to be delayed until the week of August 8.
That being said, a number of races have been called, namely the primaries for the one Senate seat and the six House districts. Although Maryland is one of the bluer states at the federal level, last voting for a Republican presidential candidate in 1988, Republicans have been able to make a strong showing at the state level. Current Gov. Larry Hogan is term-limited, and the race for his replacement set up yet another proxy battle between President Donald Trump and moderate Republicans.
Senate: Sen. Chris Van Hollen (D-MD) is seeking a second term and was projected to have won the Democratic primary just hours after polls closed. Chris Chaffee won the Republican primary against seven other candidates. Sen. Van Hollen is expected to cruise to a victory as the state has not elected a Republican Senator since 1980.
MD-4: Incumbent Rep. Anthony Brown (D-MD) is seeking to become the state’s next Attorney General. He secured the Democratic nomination for the role this week. Former state’s attorney for Prince George’s County Glenn Ivey beat eight opponents, notably former Rep. Donna Edwards who came in second. Many of Edwards’ former colleagues in the House had endorsed her, as well as several labor unions, while Ivey had gained support from the New Dems and AIPAC. Ivey’s Republican opponent has not been declared, although this district is deeply blue.
MD-6: Several candidates were challenging incumbent Rep. David Trone (D-MD) whose district became much more competitive for the general election as a result of redistricting. Rep. Trone had put nearly $12.6 million of his own money into the race and has $10.8 million on hand. He was declared winner of the Democratic primary with 78 percent of the vote. On the Republican side, state Rep. Neil Parrott, who lost to Rep. Trone in 2020, won the primary setting up a rematch in the 6th District.
Gubernatorial: Democrats see the state’s gubernatorial race as one of the best chances to flip a governor’s seat this year. While State Comptroller Peter Franchot entered the Democratic primary with the highest statewide name recognition, he was unable to sway the large number of undecided voters to his camp, currently hovering just under 20 percent of the votes as he had during most polling. Wes Moore, a former nonprofit CEO and author who boasts endorsements from Oprah Winfrey to Steny Hoyer, currently leads in the primary tally, followed by former Democratic National Committee (DNC) Chair Tom Perez. However, the race has not been called. The Republican primary to take the seat from term-limited Republican Gov. Hogan offers a window into the competing visions of the Republican party. State Del. Dan Cox, an attorney endorsed by President Trump, beat Hogan-endorsed former state Commerce Secretary Kelly Schulz. Notably, Schulz had out-fundraised and outspent Cox.
In other primary updates, former New York City Mayor Bill de Blasio announced he would be dropping from the crowded competition for New York’s 10th Congressional District. There are still over ten Democrats on the ballot and many days between now and the August 23 primary.