United States: Congress Passes Budget Resolution, Begins Reconciliation Process

Highlights

• The U.S. House of Representatives and Senate agree to a 2021 budget resolution, setting into motion the budget reconciliation process.
• Democrats will use the reconciliation process to attempt to pass a $1.9 trillion COVID-19 relief package.
• Congressional leadership has indicated they hope to approve a relief bill by early March.

The U.S. House of Representatives approved the Senate's 2021 budget resolution (S. Con. Res. 5) on Feb. 5, 2021, laying the groundwork for the budget reconciliation process. Created by the Congressional Budget Act of 1974, budget reconciliation is a mechanism by which Congress can use expedited procedures to consider spending, revenue and debt-limit laws as set by an annual budget resolution. Importantly, the process allows the Senate to enact legislation with a simple majority vote, though it also limits the scope to provisions that directly affect federal spending, revenues and debt.

The 2021 budget resolution includes instructions giving committees of jurisdiction until Feb. 16 to draft a COVID-19 relief bill that would include up to $1.9 trillion in spending and revenue loss – the cost of President Joe Biden's "American Rescue Plan." Congressional leadership has indicated they hope to approve a relief bill by early March.

Given the upcoming deadline, committees are getting to work drafting the policies that will ultimately be advanced through the reconciliation process. This alert outlines the contents of the budget resolution, the policies that are likely to move forward via budget reconciliation and the procedural rules that will ultimately govern whether they become law.

Resolution's Budget Targets and Reconciliation Instructions

The budget resolution is a nonbinding plan for budgetary levels for fiscal years (FY) 2021 through 2030, including total federal revenues, new budget authority, budget outlays, deficits, public debt (debt that is subject to a statutory limit) and debt held by the public. For FY 2021, the resolution includes target outlays of $6.14 trillion and revenue of $2.3 trillion, for a net deficit of $3.84 trillion.

More importantly for budget reconciliation, the budget resolution directs certain House and Senate committees to produce legislation by Feb. 16 within the deficit budgets below:

House of Representatives

Senate

Budget resolutions often include reserve funds, which are nonbinding grants of flexibility to the budget committees against the overall constraints of the budget resolution. Reserve funds provide insight into how committees may move forward in crafting legislation. The reserve funds that passed the Senate with overwhelming support include:

• prohibiting a federal minimum wage increase during the pandemic
• limiting the authority of states to tax income of employees working in other states (a topic that is currently the subject of litigation between New Hampshire and Massachusetts)
• providing support for food and drinking establishments, as well as the hospitality and entertainment industries
• prohibiting the importation of quantities of oil, gas and hard rock materials from certain countries with weak labor and environmental standards
• preventing tax increases on small businesses during a pandemic (adopted 100-0)
• providing aid to schools in states that lose oil and gas revenue due to federal moratoriums on leasing

What Is the Budget Reconciliation Bill Likely to Contain?

Democratic Budget leadership in the House and Senate have outlined several policies they expect to pass under reconciliation, including:

• Vaccine distribution: expanded funding for vaccine distribution, in part to support the reopening of schools
• Stimulus payments: providing an additional $1,400 per qualifying individual in direct stimulus payments; in addition to the $600 in supplemental payments enacted in December's relief bill, this would fulfill Democratic demands for $2,000 in payments
• Minimum wage: a phased-in increase in the federal minimum wage to $15 per hour
• Tax changes:
• • temporary, fully refundable enhancement of the value of the Child Tax Credit to $3,000 for children older than 6 and to $3,600 for children younger than 6; this is an increase in the current credit of $2,000, of which only $1,400 is refundable
  • temporary, fully refundable enhancement of the Child and Dependent Care Credit from the current limitation of $1,050 per child or dependent up to $4,000
  • temporary increase in the value of the Earned Income Tax Credit, along with expanded eligibility requirements on income
• State and local aid: $350 billion in financial assistance to state and local governments to support public sector employment
• Transportation: additional funding for state transit agencies, as well as Amtrak
• Internet access: Additional funding for broadband, including in rural areas and inner cities, to increase internet connectivity
• Healthcare: A breakdown of the president's request for $160 billion in direct pandemic relief within the broader American Rescue Plan was released in early February. Specifically:
• $50 billion to testing: $46.5 billion to procure and administer regular screening tests and $3.5 billion to invest in U.S. laboratory capacity for diagnostic and screening tests
• $20 billion to vaccinations: $15.5 billion for community vaccinations clinics and mobile vaccination units; $4.5 billion to accelerate manufacturing and supply chain and an increase in the Federal Medical Assistance Percentages
• $30 billion for the Disaster Relief Fund
• $35 billion would be used for aid to care providers through the Provider Relief Fund, with 20 percent expressly set aside for rural hospitals
• $15 billion to restock the strategic national stockpile
• $8 billion to expand the public health workforce
• $5 billion in additional personal protective equipment for first-responders, doctors and dentists
• $5 billion toward the Defense Production Act, which gives the president the authority to speed up domestic production of critical resources

Budget Reconciliation Procedure: The Path Ahead

The 2021 budget resolution tasks congressional committees (12 in the House and 11 in the Senate) with reporting out reconciliation-compliant legislation by Feb. 16. The budget committees will then package the various legislation into an omnibus budget reconciliation bill and report it to the full chambers. Committee markups begin this week, with the reconciliation bill expected to be on the House floor the week of Feb. 22. After which, the Senate is expected to take up the House-passed bill.

When the Senate considers the reconciliation bill, it will be subject to the "Byrd Rule," created by former Sen. Robert C. Byrd (D-W.Va.). Under the Byrd Rule, any senator may raise a point of order to strike "extraneous matter" in a reconciliation bill or instructions, and the rule can be waived only with the support of three-fifths of senators. The Byrd Rule definitions of "extraneous matter" cover provisions that:

• do not produce a change in outlays or revenues or a change in the terms and conditions under which outlays are made, or revenues are collected
• produce an outlay increase or revenue decrease when the instructed committee is not in compliance with its instructions
• is outside of the jurisdiction of the committee that submitted the title or provision for inclusion in the reconciliation measure
• produce a change in outlays or revenues which is merely incidental to the nonbudgetary components of the provision
• would increase the deficit for a fiscal year beyond the "budget window" covered by the reconciliation measure
• recommend changes in Social Security

Motions to waive the Byrd Rule for a provision requires a 60-vote threshold to pass.

Should the Senate amend any provisions of the House-passed reconciliation bill, the two chambers will have to resolve the differences before the bill is sent to the White House for the president's signature.

The Biden Administration may need to reconsider its agenda in terms of which measures can be passed through reconciliation and which measures require regular order. Direct stimulus checks and extended unemployment aid are expected to qualify for the reconciliation process. However, it is not clear whether vaccine funding and a minimum wage increase would qualify because of the Byrd Rule requirement that a provision's fiscal effects not be merely incidental to its policy effects.

Given the slim Democratic majority in the House and 50-50 split in the Senate, any bill will require near-unanimous Democratic support in the House and unanimous support in the Senate, along with Vice President Kamala Harris' tie-breaking vote. This will give individual Democratic members substantial power to shape the policies that could become law. Most of the speculation has revolved around moderate Democratic senators such as Sens. Joe Manchin (D-W. Va.) and Kyrsten Sinema (D-Ariz.). Still, any senator from any part of the ideological spectrum could complicate passage.

The proposals for what to include in the  budget reconciliation package by the administration and Democratic leadership have so far avoided major criticism from Democratic members. There are strong incentives for members to put aside whatever issues they might have for the sake of getting relief to families and giving the president an early win, or conversely, saving him from an embarrassing early loss. For this reason, Democrats are expected to remain united and pass a substantial package close to the president's proposals by March 14, 2021, or shortly thereafter.

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