Debt Ceiling Debate – The Fiscal Responsibility Act

Congress is set to debate the Fiscal Responsibility Act (HR 3746) with Conservative House Republicans balking at the deal, claiming it does not contain sufficient spending cuts. Progressive Democrats are concerned about the work requirements, some environmental provisions, the energy permitting and spending caps. Defense hawks say the modest Pentagon spending increases would only allow for inflation and no real spending increases. Speaker McCarthy and President Biden are confident they will have the votes for the bill to pass both the House and the Senate.

The measure would suspend the debt ceiling until January 1, 2025, providing the Treasury Department borrowing authority for two years before Congress would have to approve another debt limit increase.  The debt limit places a cap, currently set at $31.4 trillion by a 2021 law (Public Law 117-73), on how much the federal government can borrow to pay for existing obligations. The suspension would be limited to necessary statutory obligations that require payment before 2025. The Treasury Department could not create cash reserves during the two-year suspension.

The legislation contains the following provisions:

• Spending Caps: The measure would set separate caps for security and non-security programs similar to the Budget Control Act of 2011 (Public Law 112-25) and subsequent laws that increased the amount of spending allowed under those caps.  As under the Budget Control Act, discretionary funding that exceeds statutory limits for a fiscal year would be subject to sequestration, an automatic process that cancels spending across the board to conform to the caps. The measure would cap nondefense spending in fiscal 2024 at $703.7 billion and $710.7 billion in fiscal 2025. The proposal would keep fiscal 2024 nondefense spending roughly the same as 2023 levels when accounting for appropriations adjustments, per the White House. The proposal would cap topline fiscal 2024 discretionary spending for defense programs at $886.3 billion, roughly a 3.3% increase from the fiscal 2023 level, as proposed by President Biden in his budget request. It would cap fiscal 2025 defense spending at $895.2 billion. The measure would also set 302(a) allocations for discretionary spending starting at $1.62 trillion in fiscal 2026 and increasing to $1.67 trillion in fiscal 2029. Appropriators would divide those amounts among the 12 spending bills. Unlike the spending caps for fiscal 2024 and 2025, the limits would not be enforced through sequestration.
• Cap Reduction CRs: If a continuing resolution is in effect on or after January 1, 2024, the discretionary spending limits for fiscal 2024 would be reduced to be 1% less than the fiscal 2023 base funding amounts. Similar requirements would apply if a continuing resolution is in effect on or after January 1, 2025. The provisions would create an incentive to enact all 12 appropriations bills by the end of the calendar year. The reductions would be reversed if all the bills are enacted in the new-year.
• VA Toxic Exposure Fund: The measure would provide the following amounts for the Cost of War Toxic Exposure Fund, created by the 2022 Honoring our PACT Act (Public Law 117-168) to cover veterans’ health care and medical research related to exposure to environmental hazards:
• $20.3 billion that could be used starting in fiscal 2024, and would be available through fiscal 2028.
• $24.5 billion that could be used starting in fiscal 2025, and would be available through fiscal 2029.

• Commerce Funding: The bill would provide $22 billion for the Commerce Department’s Nonrecurring Expenses Fund to support programs related to “government efficiencies.” Half would be available in fiscal 2024 and half in fiscal 2025.
• Cap Adjustments: The proposal would allow additional new budget authority for certain activities, including for health care fraud and abuse prevention. The measure also would allow for adjustments to the spending cap for disaster relief spending in fiscal 2024 and 2025, while modifying the formula for calculating the maximum adjustment for disaster relief appropriations for those fiscal years.
• Rescission of Funds:
  • COVID-19 Funds: The measure would rescind unspent money provided under various laws enacted in 2020 for Covid-19 relief, as well as the 2021 reconciliation package (Public Law 117-2).  That would include “tens of billions of dollars” in unspent funds, such as money provided for the Centers for Disease Control and Prevention’s global health fund, for the largest total rescissions package in history.
  • IRS Rescission: The measure would rescind $1.39 billion of the $80 billion in funding provided to the IRS under the Inflation Reduction Act (Public Law 117-169).  Republicans said that would cut the total fiscal 2023 staffing funding request for new IRS agents.  White House officials said during a May 28th background press call with reporters that the Biden-McCarthy agreement would redirect $20 billion of the IRS funding over the next two years to other nondefense spending. The officials said the reductions would not affect IRS activities in the near term because the $80 billion was provided over 10 years.
• Administrative PAYGO: Agencies taking administrative actions that would increase mandatory spending would be required to submit a proposal to the Office of Management and Budget (OMB) to reduce spending by an equal or greater amount through other actions. OMB would have to return the proposed action to the agency if offsets are not identified.   The requirement would expire on December 31, 2024, and would not apply to actions that cost less than $1 billion over 10 years or $100 million in any given year during the 10-year period. Findings under the title would not be subject to judicial review.  The offset requirement would not apply to actions that are mandated by law. Agencies would need to submit an opinion to the OMB director explaining why the action is required by law and provide a direct spending projection “under the least costly implementation option.”  OMB could waive the offset requirement if it finds the waiver is necessary for the delivery of essential services or programs. The measure aims to codify administrative “pay-as-you-go” rules that were implemented by OMB in 2005, but some Republicans say are not always applied to new rules and other actions.
• Budget Enforcement: The measure would provide for budget enforcement in both chambers in lieu of a budget resolution, for fiscal 2024 in the House and fiscal 2024 and 2025 in the Senate. The provisions would apply unless a separate resolution is adopted. It would direct the chairmen of the House and Senate Budget committees to submit allocations for committees in the Congressional Record for fiscal 2024, including allocations for the Appropriations committees based on the spending caps set in the bill. The Senate Budget chairman would also submit information for the Congressional Record for fiscal 2025 based on the spending caps in the bill, which would apply in the same manner as a budget resolution for that year. The measure would also limit advance appropriations in both chambers.
• Work Requirements
  • TANF Changes: The measure would change to 2015, from 2005, the base year used to determine a state’s required work participation rate for Temporary Assistance for Needy Families (TANF) recipients. The change would take effect on October 1, 2025. States generally must meet a 50% work participation rate each year and can reduce that rate based on how much their caseloads have fallen since 2005. Based on that benchmark, more than half of states have an adjusted work participation rate of zero, per a March 2022 report from the Center on Budget and Policy Priorities, which has opposed efforts to cut social safety net programs. HHS would also be required to determine participation rates without regarding any individual engaged in work in a family that does not receive assistance and has less than $35 in assistance funded with eligible state expenditures. The provision would take effect on October 1, 2025.
  • TANF Pilot Program: The measure would require the Health and Human Services Department (HHS) to carry out a pilot program in which it could choose as many as five states that receive a state family assistance grant to negotiate performance benchmarks for work and family outcomes for TANF recipients. The program would be in effect for six fiscal years, with one year to establish benchmark data and negotiate targets, and five years to measure performance against the targets.

The benchmarks would include the percentage of work-eligible individuals in unsubsidized employment during the second quarter after exiting the program; their level of earnings in the second and fourth quarters after exiting; and other indicators of family stability and well-being established by HHS.  A state that does not meet a measured benchmark standard for two consecutive fiscal years would have to enter into a plan with HHS to achieve the required performance level to continue in the pilot program. A state operating a pilot program would need to have a system to reduce the assistance amount to a family if an individual refuses without good cause to engage in the required activities. A state without a system would be considered to have failed to comply with the penalty requirements.

• SNAP Changes: The measure would expand work requirements for “able-bodied adults without dependents” under the Supplemental Nutrition Assistance Program (SNAP) to individuals up to the age of 51 starting in fiscal 2023, 53 starting in fiscal 2024, and 55 starting in fiscal 2025. Under current rules, an individual between the ages 18 through 49 cannot receive SNAP benefits for more than three months in three years if they do not meet additional work requirements. The measure also would exempt homeless individuals, veterans, or certain individuals in foster care from the work rules that apply to able-bodied adults without dependents. States would have to apply the work requirement provisions to any application for initial certification or recertification beginning 90 days after the bill’s enactment. The work requirement changes would sunset on October 1, 2030, to allow Congress to reevaluate them. The measure would also modify the number of exemptions that state agencies can provide to the work requirements, so the average number of exemptions does not exceed 8% of all covered recipients beginning in fiscal 2024, instead of 12%. States could not accumulate unused exemptions to be provided in subsequent years, beginning in fiscal 2024. The Agriculture Department would be required to make public all available state waiver requests and agency approvals, including supporting data from the state and relevant documents on the waivers’ use.
• Permitting Changes:
  • The measure would modify the National Environmental Policy Act (NEPA) to streamline environmental review processes.  Under NEPA, federal agencies are required to evaluate the environmental and related social and economic effects of their major proposed actions, including making decisions on permitting applications, adopting federal land management actions, and building highways and other publicly owned facilities. NEPA includes two levels of environmental review. Environmental impact statements are required for proposed major actions that are determined to have a significant effect on the environment. If the effect is unknown or not significant, an environmental assessment is required. A proposed federal action can also be “categorically excluded” from any environmental reviews required under NEPA when it generally does not have a significant environmental effect. The measure would set timelines for completing environmental reviews and establish responsibilities for lead agencies during the review process, codifying elements of the Trump administration’s “one federal decision” policy.
  • Review Timelines: The lead agency would have to complete an environmental impact statement within two years or an environmental assessment within one year, unless a deadline extension is agreed to by the project sponsor. A project sponsor could petition a court to order the agency to act if it does not meet its deadline. If the court determines the agency failed to act within the applicable deadline, the agency would generally be required to act not later than 90 days from the date the order was issued.
  • Agency Responsibilities: If a proposed action involves more than one federal agency, the agencies would have to evaluate the proposal in a single environmental document. If there are two or more federal agencies involved in a proposed action, the agencies would be required to determine, by letter or memorandum, which agency would act as lead agency. The decision would be based on several factors, including the extent and duration of an agency’s involvement and expertise related to the action’s environmental effects. Agencies could appoint federal, state, tribal, or local agencies as joint lead or cooperating agencies.

A lead agency would have to create procedures allowing a project sponsor to prepare an environmental assessment or environmental impact statement under the agency’s supervision. The agency would have to independently evaluate the environmental document and take responsibility for the content. Environmental impact statements would be no more than 150 pages in length, with a limit of 300 pages if a proposed action is deemed to be extraordinarily complex. Environmental assessments would be no longer than 75 pages.

• Agency Considerations: The measure would allow agencies to consider the “reasonably foreseeable” environmental effects of proposed major actions and a “reasonable range” of alternatives, including an analysis of the negative environmental impacts of not implementing a proposed action.  Agencies would not have to prepare environmental analyses under NEPA if the proposed action is not final, is covered by a categorical exclusion, or if the analyses would conflict with the requirements of another law.
  • Programmatic Reviews: Agencies would be able to rely on an analysis from an initial programmatic environmental review — those analyzing a policy, program, or group of actions — in a subsequent document for a related action if it occurs within five years and there’s no substantial new information. Agencies could rely on these reviews after five years if they reevaluate the initial analysis and underlying assumptions.
  • Categorical Exclusions: Agencies would be able to adopt categorical exclusions from other agencies’ NEPA procedures. They would have to consult with the other agency to ensure the adoption is appropriate and identify it publicly.
• Other Energy Provisions:
  • Transmission Study: The Electric Reliability Organization would have to conduct a study of “total transfer capability” — the amount of electric power that can be moved from one area to another through transmission lines — between transmission planning regions. The study would have to include recommendations on prudent additions to total transfer capability between planning regions that would strengthen reliability.
  • Energy Storage Permitting: Energy storage projects would be added to the list of covered projects for the purposes of streamlined permitting processes under the 2015 FAST Act (Public Law 114-94). The FAST Act defines covered projects as those that are likely to require a total investment of more than $200 million, are subject to NEPA, and do not already qualify for abbreviated review processes. Per the law, permitting decisions for covered projects must be issued within 180 days of receiving a project application.
  • Mountain Valley Pipeline: Approval for the Mountain Valley Pipeline, a roughly 300 mile natural gas pipeline project stretching across parts of Virginia and West Virginia that has been mired in legal and regulatory challenges, would be expedited under the measure. All necessary permits required to complete the project would have to be issued within 21 days of enactment. The measure would prevent judicial review of any agency action to approve construction and initial operation. It would also give the US Court of Appeals for the D.C. Circuit exclusive jurisdiction over future litigation of the project.

• Student Loans: Sixty days after June 30, the measure would cancel regulations covering extensions of federal student loan payment suspensions, including waivers of interest on such loans that were first provided under the 2020 Covid-19 aid package (Public Law 116-136). The suspension was extended multiple times, most recently on November 22, 2022.  The Education Department could not implement a substantially similar executive action or rule unless authorized by Congress.