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June 1, 2023

House passes Fiscal Responsibility Act, 314-117

On May 31, the House voted 314-117 to pass the Fiscal Responsibility Act of 2023 (HR 3746) agreed to by President Biden and House Speaker Kevin McCarthy (R-CA), just days before the June 5 deadline that Treasury Secretary Janet Yellen has cited as the potential day the U.S. could default on its debt.

The bill, which faced last-minute opposition from many conservative House Republicans and progressive Democrats, suspends the statutory debt ceiling through January 1, 2025, along with (among other things) curbs on government spending and clawbacks of Internal Revenue Service (IRS) and COVID-related funding. The spending curbs have been framed as meeting the ideological views of each party, with neither side getting everything they want: the White House noted discretionary programs would be funded at the same levels as FY 2023, while Republicans claim a cut from planned spending.

The bill now goes to the Senate, where Majority Leader Chuck Schumer (D-NY) and Minority Leader Mitch McConnell (R-KY) have both endorsed it and are working toward final passage by the weekend.

Below is a non-exhaustive overview of the bill's spending provisions, as well as provisions related to tax, health and energy.

Spending Provisions

Spending caps. The bill would establish caps on discretionary spending for FY 2024 and FY 2025: an FY 2024 defense limit of $868.349 billion and nondefense limit of $703.651 billion, growing by 1% in FY 2025 to $895.212 billion for defense and $710.688 billion for nondefense. The Washington Post explained that nondefense discretionary cuts will be "mitigated by redirecting funds from other areas, such as the money clawed back from IRS expansion. Spending on these domestic programs will fall by $1 billion from this year to next and rise by 1% in 2025 … "

"Legislative text suggests nondefense discretionary outside of veterans' programs would shrink in 2024 to about last year's spending levels. But White House officials say a series of side deals with Republicans, including one related to funding for the Internal Revenue Service, will allow actual funding to be closer to this year's levels," the New York Times reported. "Although Republicans had initially called for 10 years of spending caps, this legislation includes just 2 years of caps and then switches to spending targets that are not bound by law — essentially, just suggestions."

The Congressional Budget Office (CBO) said May 30, "if H.R. 3746 was enacted and appropriations that are subject to caps on discretionary funding for 2024 and 2025 were constrained by the limits specified in section 101(a) of the bill, the agency's projections of budget deficits would be reduced by about $1.5 trillion over the 2023–2033 period relative to its May 2023 baseline projections."

The bill also includes a mechanism to discourage continuing resolutions, providing that if all 12 appropriations bills are not enacted by January 1 of the following year, discretionary spending will temporarily operate at a maximum of 99% of current levels.

'Administrative PAYGO.' In a bid by Republicans to restrain spending by the executive branch, the agreement require federal agencies taking actions that would increase spending to submit a proposal to the White House Office of Management and Budget (OMB) reducing spending by an equal or greater amount through other actions. OMB would have to reject the action if the agency does not identify offsets, requiring the agency to resubmit the proposal. Republicans have said the "administrative PAYGO" approach was actually implemented by 2005 OMB rules that have not been applied consistently. A common example of an executive action governed by the provision is student loan forgiveness.

Importantly, the "PAYGO" requirement is narrowed by several qualifiers. The obligation sunsets on December 31, 2024 and would not apply to federal actions that are estimated to cost less than $1 billion over the 10-year budget window, or $100 million in any given year during the 10 years. The PAYGO requirement would not be subject to judicial review and would not apply to spending that is mandated by law. In the latter case, the agency would have to submit an "opinion" to the OMB director outlining why the action is statutorily required and estimate how much spending it would require "under the least costly implementation option." Also, OMB could waive the requirement if it determined that doing so is "necessary for effective program delivery."

The Government Accountability Office (GAO) must include, in its Congressional Review Act (CRA) reports to Congress on federal rules, an analysis of whether the executive action complied with the PAYGO requirements.

During a background briefing for reporters on May 28, a White House official responded this way to a question about how the OMB's waiver authority over the PAYGO requirement would work: "It is a very broad waiver authority … I would add, in addition to that waiver authority [and] protection to judicial review, that provision actually sunsets after two years. So this will be a waiver authority that the Biden administration's OMB director will have for the next two years, and then that provision will sunset."

IRS Provisions

The bill would rescind $1.4 billion of the Inflation Reduction Act's increased IRS funding and repurpose $20 billion of the funding to offset other spending cuts in the bill. The $20 billion-plus claw-back of expanded IRS funding was seen as trying to win support for the deal from conservatives, who have long made the IRA's $80 billion boost a top target. White House officials signaled to the press that the change wouldn't significantly hamper the agency's near-term plans to boost audits and compliance.

Health Care Provisions

COVID-19 relief funding. The bill would rescind about $28 billion in unspent COVID-19 funding allocated to various federal agencies — including the Centers for Disease Control and Prevention, the Centers for Medicare and Medicaid Services, the National Institutes of Health and the Health Resources and Services Administration — as part of federal COVID-relief bills. For example, the deal would rescind portions of public health and social services emergency funding to support COVID-related prevention, preparedness and response efforts totaling over $9.9 billion included in the Coronavirus Preparedness and Response Supplemental Appropriations Act, Families First Coronavirus Response Act, CARES Act, and the Paycheck Protection Program and Health Care Enhancement Act.

In addition, the deal would rescind portions of American Rescue Plan Act funding for COVID-19 testing, contact tracing and other mitigation efforts; COVID-19 vaccines, treatments and medical supplies; vaccine-related activities; COVID genomic sequencing; global health; mental health and substance use disorder training and education; the public health workforce and medical reserve corps; as well as public health funding for community health centers and community care, National Health Services Corp., teaching health centers, and family planning; and Defense Production Act COVID-19 emergency medical supplies.

However, the Biden administration said the deal retains $5 billion for the federal Project NexGen, which aims to accelerate the development of new COVID-19 vaccines and treatments, as well as funding for COVID-19 vaccines and treatments for the uninsured.

Work requirements. While the deal does not include Medicaid work requirements included in the House Republican-passed budget proposal — the Limit, Save, Grow Act, H.R. 2811 — it does phase in work requirements for the Supplemental Nutrition Assistance Program (SNAP) for those ages 50-54 and creates a program to implement work requirements for Temporary Assistance for Needy Families (TANF) recipients. Those provisions include exceptions for veterans, homeless people and foster youth.

Energy Provisions

Energy Project Review & Permitting. The agreement fell short of hopes for an ambitious set of changes to federal permitting laws — either the expedited approvals for oil and gas projects sought by Republicans and Sen. Joe Manchin (D-WV), or the faster approval of interstate power lines the Biden administration has sought to carry solar and wind power across the country to meet its climate goals. Instead, the agreement modifies the 1970 National Environmental Policy Act (NEPA) to streamline federal environmental review practices. The bill establishes timelines for completing reviews and seeks to remove interagency conflicts by giving "lead agencies" certain responsibilities for managing reviews. It would codify parts of the Trump administration's "One Federal Decision" policy, which set a goal for completing environmental reviews of major infrastructure projects within two years.

  • 'Reasonably Foreseeable' Impacts and Lead Agencies. Among other provisions, the bill amends NEPA to focus an agency's consideration on a project's "reasonably foreseeable" environmental impacts, and "a reasonable range of alternatives to the proposed action that are technically and economically feasible and meet the purpose and need of the proposed action." When different federal agencies are involved with a project, they would have to determine which one is the lead agency (based on factors like the duration of its involvement and its expertise) and evaluate the proposal in a single environmental document.

A NEPA environmental review wouldn't be necessary if the project's plans aren't final or it is covered by a categorical exclusion. (NEPA allows actions to be "categorically excluded" from environmental reviews when they don't have a significant environmental effect.) Agencies also could adopt categorical exclusions that other agencies have authorized under NEPA. An environmental review would be unnecessary if it would conflict with another law's requirements.

  • Environmental Reviews. The lead agency with authority over a proposed project would have to complete an environmental impact statement within two years, or an environmental assessment within one year, unless the project's sponsor agrees to extend the deadline. A project's sponsor could assist in conducting the review to expedite it, while the lead agency remains in control of the review. The bill allows project sponsors to petition a court to order the agency to act if environmental reviews aren't finished by their deadline. Agencies would have to act within 90 days of the issuance of a court order.

Agencies would be allowed to rely on previous "programmatic reviews" of policies or programs in the environmental document for a new, related project, if those reviews are less than five years old and there is no substantial new information.

Energy Storage & FAST Act. In a nod to the Biden administration's energy agenda, the list of covered projects that would qualify for streamlined permitting processes under the 2015 FAST Act would be expanded to include energy storage projects. The FAST Act, which requires decisions on permits to be made within 180 days of receiving an application, covers projects that: 1) are likely to cost more than $200 million, 2) are subject to NEPA, and 3) don't already qualify for abbreviated review processes.

Transmission. The bill requires the North American Electric Reliability Organization to conduct a study of "total transfer capability" between transmission planning regions, meaning the amount of electric power that can be moved from one area to another via transmission lines, with recommendations on how to expand transfer capability to strengthen reliability.

Mountain Valley Pipeline. The agreement would expedite approval of the Mountain Valley Pipeline, a 300-mile natural gas pipeline covering parts of Virginia and West Virginia. All permits necessary to finish the pipeline would have to be issued within 21 days of enactment. The bill prevents judicial review of any action to approve construction and operation the project, and the D.C. Circuit Court of Appeals would have exclusive jurisdiction over any future litigation relating to the pipeline.

Student Loan Payment Suspension

The agreement ends the suspensions of federal student loan payments, which have been extended several times, most recently in November 2022. The "pause" in payments would end 60 days after June 30 (August 30). The agreement also ends the waivers of interest on student loans that were first provided by the 2020 CARES Act Covid relief bill. The White House said the bill codified a timeline for ending the payment suspension that it was already planning.

The bill prohibits the Secretary of Education from implementing a substantially similar debt suspension program by executive action or rulemaking unless authorized by Congress. But Education Secretary Miguel Cardona has said the bill's language "protects our ability to pause student loan payments, should that be necessary in future emergencies." (The Limit, Save, Grow Act passed by House Republicans on April 26, HR 2811, had a provision permanently blocking the Education Department from freezing student payments.) Republican lawmakers have said the pause in payments and interest has cost the federal government $4.3 billion a month, for a total of $176 billion. The agreement does not affect the Biden administration's plan to provide up to $20,000 in loan forgiveness per borrower, whose status will be determined by the Supreme Court in the coming weeks.


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For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
   • Any member of the group, at (202) 293-7474.