July | August 2017







Lengthy To-Do List Awaits Congress After
August Recess

By Leslie Haymon, policy analyst, CSG Washington D.C.
After a busy summer, the House and Senate have entered into their annual August recess. As lawmakers left town to begin this monthlong recess, they left a lengthy to-do list for the fall and not much time to complete it. From the regular tasks of keeping the government funded through Sept. 30 to grander ambitions, legislators have their work cut out for them. About one out of every three dollars of state revenue comes from the federal government and delays in payments or changes to programs could have serious impacts on states’ bottom lines.
Debt ceiling
On July 28, Treasury Secretary Steve Mnuchin notified Congress that his department was taking measures to avoid default on the nation’s debt. In that letter, he indicated that the statutory limit will be reached by Sept. 29, 2017.
In the letter, he stated, “[I]t is critical that Congress act to increase the nation's borrowing authority.”
Failing to raise this limit could exact a substantial economic toll. Neither chamber has yet advanced a plan to address this problem. Mnuchin and congressional leadership have indicated their preference for a “clean” bill, however, conservatives in the House have signaled that they will attempt to attach policy riders.
“Some conservatives think they can get some programs cut. Well, that’s not gonna happen … We have to pay our bills and anybody who doesn’t want to do that doesn’t deserve to be here,” Senate Finance Chairman Orrin Hatch said.
Democrats, however, seem content to wait for the GOP to announce a plan.
“We are awaiting a plan from the Republican majority on how they plan to accomplish lifting the debt ceiling,” a spokesman for House Minority Leader Nancy Pelosi said.
Fiscal Year 2018 Budget and Appropriations
Many states receive a large portion of their budgets from the federal government, making continuing appropriations a priority item. Neither chamber has passed at budget resolution for the fiscal year that begins on Oct. 1. While the House Budget Committee advanced its version of a fiscal year 2018 budget, serious doubts have arisen about the viability of that blueprint on the floor. The committee marked up a budget that allocates $621.5 billion for defense, $511 billion for non-defense, and mandated $203 billion in mandatory spending over the next 10 years. Combined with repeal of some parts of the Dodd–Frank Wall Street Reform and Consumer Protection Act, this budget generates $6.5 trillion in deficit reduction. Passing this budget is required if lawmakers wish to utilize the budget reconciliation process to pursue tax reform. The Senate Budget Committee has not yet passed their version of the budget resolution.
On July 28, the House passed a four-bill mini-bus intended to provide funding for certain portions of the federal government beyond Sept. 30. This legislation combined the energy and water, defense, military construction and veterans affairs, and legislative branch spending bills into a single package. It also contained $1.6 billion in homeland security funding for President Donald Trump’s border wall. It is unclear if the Senate will take up this package or attempt to pass their own spending legislation.
“State governments recently built their fiscal 2018 budgets and 17 states have also passed their fiscal 2019 budgets. States were cautious in forecasting the level of federal funding, especially in light of the substantial cuts and program eliminations in the president’s budget request. The news so far from House budget proposals is that many programs were continued at current funding levels, but several received substantial cuts or eliminations that would concern states. States were not able to consider these possible eliminations or cuts in building their budgets and given such tight state fiscal margins, there would be little room for states to backfill these reductions. There have been no announcements about plans to pass the remaining eight appropriations bills through either chamber,” said John Hicks, executive director of the National Association of State Budget Officers.
Tax Reform
The White House, Treasury, and congressional leaders released a statement elucidating some general principles for tax reform on July 27, however, a detailed proposal has yet to emerge. The framework is light on details and was not accompanied by any legislative language. Notably, there was no mention in this statement of eliminating the state and local tax deduction or changing the tax exemption for municipal bonds.
“The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas,” the group wrote.
Conspicuously, the border adjustment tax, touted by House Ways and Means Chairman Kevin Brady and Speaker Paul Ryan as a way to encourage companies to retain U.S. operations, is officially off the table.
The Senate Finance Committee held its first tax hearing on July 18, grilling a panel of former Treasury officials. Tax reform promises to be as contentious and difficult as health care. Among the proposed changes are an elimination of the deduction of state and local taxes and the non-taxable status of municipal bonds. For more information about the impact this would have on state and localities, download CSG’s report here.
Health Care Reform
Following a dramatic series of votes, the Senate’s attempts to repeal and replace the Affordable Care Act collapsed when three GOP senators refused to support the repeal packages presented by leadership. It is unclear what, if any, legislation may emerge in the coming weeks, although members from both chambers have vowed to continue working on health care reform.
“Right now we go forward recognizing the value of the Affordable Care Act,” Rep. Nancy Pelosi said on July 28. “But we also know that there are updates and improvements we need to make.”
It is not clear what path additional efforts on health care may take. Rep. Josh Gottheimer and Rep. Tom Reed, members of the House Problem Solvers’ Caucus, and 43 of their colleagues released a bipartisan proposal to shore up state individual insurance markets and lower premiums. Likewise, Senate Health, Education, Labor, and Pensions Chair Lamar Alexander has announced plans to hold hearings on how to shore up the ACA.
Several other items await Congress, many with Sept. 30 deadlines. The Federal Aviation Administration, the National Flood Insurance Program, and the Children’s Health Insurance Program must all be reauthorized before that date. These mandatory provisions, along with a desire to begin work on comprehensive tax reform, ensure that Congress will be busy this autumn.