Update 830 — Lame Duck Finish Line:
Remaining Business of 118th Congress
This morning’s November CPI report, showing overall inflation ticking up to 2.7 percent last month, shows that the steep price increases of the past two years have eased but far less than the Federal Reserve would prefer. The new data comes ahead of the Fed’s final interest rate decision of 2024 next week. More on the CPI report to follow in Friday’s update.
In the days remaining before its adjournment, the 118th Congress looks to tackle important fiscal issues, including extending the current government funding for Fiscal Year 2025 (FY25) agreement, which expires on December 20, as well as the National Defense Authorization Act (NDAA). Behind the scenes, reconciliation talks are circling as the GOP continues to develop policy plans for their trifecta next Congress. Below, we outline the current state of play on these priorities and comment on the road ahead, reflecting what we know at this juncture.
Best,
Dana
Government Funding Stalls as Congress Negotiates
As we discussed in last Friday’s update, Congress has officially abandoned plans to pass full-year funding bills in favor of a short-term funding solution known as a Continuing Resolution (CR). The CR, which will fund the government temporarily at prior-year levels, is expected to “kick the can” on full-year appropriations until late March – the halfway point of FY25.
While Speaker of the House Mike Johnson (R-LA) initially planned to release text for the CR this past weekend, Congress instead turned its attention to the NDAA, postponing action on annual appropriations until next week. The House and Senate will need to make quick work of the funding measure, as failure to pass a CR by the end of next week will deliver Americans the gift of a government shutdown for the holidays.
Leading the factors that have held up the bill in recent weeks is the Biden Administration’s supplemental funding request for disaster relief of more than $100 billion, which Republicans are trying to pare down and/or offset with spending cuts – a House Freedom Caucus demand – before agreeing to a temporary funding patch (discussed in greater detail below).
Below, we highlight some of the additional priorities members of Congress and/or the administration will attempt to get across the finish line. These priorities have varying degrees of bipartisan support, and might further complicate the months-long government funding negotiations for FY25.
Disaster Relief
The main item holding up the negotiation process for a CR is disaster funding, for which the Biden administration has requested over $100 billion in supplemental funding. The funding would provide support for past disasters like the Maui wildfire as well as additional funding for FEMA’s Disaster Relief Fund (DRF) and the SBA’s disaster loan program, in addition to a myriad of other priorities. Recent disasters Hurricane Milton and Hurricane Helene devastated the Southeastern United States two months ago, putting significant strain on federal disaster response efforts and heightening the need to invest in federal disaster assistance.
While we are not yet sure how much Republicans are trying to cut the disaster relief package from Biden’s request, Senator John Kennedy (R-LA) signaled last week that the final value could be closer to $30-$40 billion — a significant decrease. An important portion of the aid will flow to Republican-controlled states and districts, adding a geographic component to the negotiation process.
The negotiations have faced further complexities as members of the House Freedom Caucus (HFC) have demanded offsets to whatever disaster relief package is passed to prevent the Biden administration from spending more money before its exit next month. Though representing a smaller block of votes with 38 total members, the HFC’s opposition again puts Speaker Johnson in a precarious position – choosing to satisfy the right flank of his party or turning to Democrats to pass a bipartisan funding measure.
Farm bill
Democrats and Republicans in Congress also agree they will add a one-year extension of the farm bill to the CR. The farm bill is a broad and complex omnibus bill that authorizes funding for an array of agricultural and food programs every five years. The current 2018 farm bill expired on September 30 and funding for key farm programs included in the bill is set to dry up on December 31.
As the window for negotiations narrows, Senate Agriculture Committee Chair Debbie Stabenow (D-MI) and House Agriculture Committee Ranking Member David Scott (D-GA) have proposed a one-year extension of the 2018 farm bill, along with about $10 billion in additional funding, some of which would be added through incorporating climate-smart agriculture funding from the Inflation Reduction Act into farm bill spending. Senate Agriculture Committee Ranking Member John Boozman (R-AK) and Republicans have so far failed to agree to the proposal and continue to negotiate.
With the 2018 farm bill being extended once again, Republicans will have significant power to shape a further extension or a full five-year reauthorization of the farm bill in 2025. Chair Stabenow will be retiring at the end of this Congress and Ranking Member Boozman is expected to chair the Senate Committee next Congress. House Agriculture Committee Chair Glenn “GT” Thompson (R-PA) is set to continue as chair while Democrats have yet to decide whether Ranking Member David Scott (D-GA) will retain his leadership position on the Committee next Congress, which makes it all the more important for Democrats to push for progressive priorities to be included in the farm bill extension over the remaining days of negotiations.
Health
Though health priorities have not been central to the discussion surrounding end-of-year funding legislation, pressure is mounting to include in the CR a package of extensions to health programs, which has been put on the back burner in recent months.
Several health programs are facing expiration at the end of this year, headlined by Medicare telehealth flexibilities enacted during the COVID-19 pandemic and subsequently extended through 2024. Additionally, the Centers for Medicare and Medicaid Services (CMS) finalized a 2.83 percent cut to the Medicare Physician Fee Schedule (MPFS) conversation factor for next year, which has received opposition from Congress along with calls for inclusion in the CR.
It is currently unknown whether supporters of these priorities will drive further delays in the negotiation process, but this effort will surely be complicated by President-elect Trump’s propensity to threaten cuts to mandatory spending on healthcare. With so little time remaining to finish negotiations, Republicans may force a delay to give the incoming administration an official seat at the table instead of increasing mandatory spending weeks before Trump’s second term – though the political cost will be high in their home districts/states as delays past the end of the year will affect healthcare benefits.
Given the implications of inaction on health extenders, we should expect pressure to continue this week ahead of an agreement – the text for which is likely to be released this weekend based on precedent in the 118th Congress.
Congress Turns Attention to NDAA
On Saturday, the House and Senate released a compromise version of the National Defense Authorization Act (NDAA). The NDAA – traditionally passed with bipartisan support – outlines spending priorities for the United States Department of Defense. With a topline of $895.2 billion, the negotiated bill adheres to congressionally mandated budget caps from the Fiscal Responsibility Act (FRA) with a one percent boost above last year’s total.
In mid-June, the House and Senate Armed Services Committee (SASC) passed their respective versions of the NDAA and in the months since have been conferencing, or negotiating amongst themselves, to produce this compromise text. The largest discrepancy at the time was their top-line figures. While the House adhered to the FRA caps with a price tag of $883.7 billion, the SASC’s version of the NDAA far surpassed the limit with a top line of $923.3 billion. If appropriated, the almost $25 billion increase from the SASC proposal would risk triggering sequestration, causing a one percent across-the-board cut to both non-defense discretionary (NDD) and defense-related priorities.
On Tuesday, the House voted to adopt the rule to tee the compromise bill up for a vote as soon as Wednesday afternoon. If passed, the Senate will take up the bill next week before they leave for recess on the 20th.
The path ahead for the NDAA is not crystal clear. Republican defense hawks in the Senate are still calling for a higher top line while House Democrats are calling out the few poison pills that survived conferencing. Controversial inclusions like the removal of increased funding for IVF and gender-affirming care for children of military members risk rocking the boat and the over 60-year tradition of passing the NDAA with bipartisan support. House Minority leader Hakeem Jeffries (D-NY) even reversed course on supporting the inclusion of a much-anticipated measure to restrict U.S. outbound investment in China over these Republican additions.
Some of the other major priorities that will make it through in the FY25 NDAA are related to cybersecurity, AI, and even historic pay raises of 15.5 percent for junior enlistees with a 4.5 percent increase for all other service members.
Once the House and Senate both pass the NDAA and send the bill to the President for his signature, appropriators will then use the policies and recommendations laid out in the NDAA to craft their eventual spending bill. With a CR deadline looming, defense spending risks continuing at the previous fiscal year’s funding levels – so new programs or increased production rates included in the NDAA could not yet be fulfilled.
Behind-the-Scenes/Look Ahead: Reconciliation
While Congress works to resolve these remaining issues before the end of the lame-duck session, GOP members are working behind the scenes to plan for legislative action in the new year. Priorities for next year are headlined by tax reform, as individual and estate provisions of the Tax Cuts and Jobs Act (TCJA) are scheduled to expire at the end of 2025. Since securing a trifecta, Republicans have been preparing to use reconciliation – an expedited procedure for passing legislation that circumvents the 60-vote threshold to break a filibuster in the Senate – to pass tax cuts in addition to legislation for Trump priorities like immigration, energy, and defense.
Last Tuesday, Senate Majority Leader John Thune (R-SD) outlined his plan for reconciliation, the most detailed “roadmap” of GOP plans to date. Thune’s plan, which has received mixed reviews from Republican legislators, would be to pass two reconciliation measures. The first package would focus on defense, immigration, and potentially energy – key Trump priorities that would help secure him an early win upon taking office. The second, more robust package would focus on tax, including extensions of expiring TCJA provisions and some of Trump’s proposals from the campaign trail. This strategy, according to Thune, would allow for more time to work out the complicated details of planned tax cuts while still taking early advantage of a trifecta. However, Thune’s plan will need approval from the House and the incoming Trump administration, neither of which is certain at this time.
In the House, the Chair of the tax-writing Ways and Means Committee, Rep. Jason Smith (R-MO), stated reservations about the Senate Majority Leader’s plans. Smith and others in the GOP are hesitant to put TCJA extensions on the back burner as this would risk a tax hike for most Americans starting in 2026. Speaker Johnson has been careful in weighing in on the matter, stating last week that he has not decided on a reconciliation strategy for next year. But yesterday, Speaker Johnson expressed support for passing two different reconciliation bills in an interview with Fox – seen as a likely endorsement of the Thune approach.
Trump has yet to comment formally on his preference for the reconciliation timeline, which could be contributing to some of the uncertainty surrounding the best path forward. But Stephen Miller – expected to be appointed deputy chief of staff for policy – asserted border priorities will pass by “early February.” This, when combined with Speaker Johnson’s statements mentioned above, signals that Thune’s two-step approach may be the most likely outcome for the process despite associated risks. Speaker Johnson and President-elect Trump will meet this weekend and reconciliation strategy will surely be top-of-mind.
We will provide additional coverage and analysis on the matter of reconciliation in the coming weeks and months. Interested parties should be on the lookout for House and Senate Budget Committees to pass a concurrent budget resolution as early as the end of January, which will give us a better sense of the nature, scope, and size of Republican plans for reconciliation.