Debt ceiling deal spares state and local pandemic aid

The White House and Republicans reached a deal over the holiday weekend that will avoid the nation’s first breach of its debt limit and leave untouched leftover pandemic aid allocated to cities and states.

A House vote on the Fiscal Responsibility Act of 2023 is set for Wednesday to move the bill ahead of a U.S. default as soon as June 5. The House Rules Committee is set to take up the legislation Tuesday afternoon.

“The agreement prevents the worst possible crisis: a default for the first time in our nation’s history,” President Joe Biden said Sunday night at a White House press conference. It “takes the threat of a catastrophic default off the table.”

The 99-page bill would cap discretionary spending for six years — but with a sequester mechanism in place only for the first two years — as well as rescind enforcement funding for the Internal Revenue Service and streamline energy infrastructure project permitting.

It would also claw back $28 billion of pandemic relief funds – out of the $4.6 trillion allocated under six pandemic laws passed in 2020 and 2021 – none of which would come from the prominent $350 billion State and Local Fiscal Recovery Funds, the key account for pandemic relief for cities, counties and states.

The State and Local Fiscal Recovery Funds that are part of the American Rescue Plan Act are “not at risk of recession,” the National League of Cities said in a May 27 post.

“Local leaders do not have to rush to obligate funds. Any SLRFR funds, even if they have not been spent, are safe,” the NLC said.

“Since the Treasury Department has already sent all SLFRF funds to local governments, those funds are already considered obligated for federal budgeting purposes as well as for the purposes of the negotiations – even if they have not been spent by your municipality.”

A previous GOP debt limit bill rescinded nearly $70 billion of unobligated pandemic aid, although the bill did not name specific programs.

Local governments and states are required under Treasury rules to obligate pandemic funds by the end of 2024 and to spend the money by the end of 2026.

The Fiscal Responsibility Act would suspend the nation’s $31.4 trillion debt limit until Jan. 1, 2025 – past the 2024 presidential election – and freeze non-defense spending for the next two years.

The legislation rescinds $20 billion of the $80 billion that the Biden Administration wanted to allocate to the Internal Revenue Service for increased enforcement. It would streamline energy project permitting and the National Environmental Policy Act process, which Republicans have criticized as too cumbersome. Among other things, it would create a single lead agency charged with developing a single environmental review document according to a clear timeline. Republicans said it would mark the most significant reform to NEPA since 1982.

The bill also approves the long-stalled Mountain Valley Pipeline to carry natural gas from West Virginia to Virginia.

The legislation incentivizes Congress to pass 12 annual appropriations bills as opposed to one large omnibus spending bill by temporarily reducing spending.

Treasury Secretary Janet Yellen has warned the latest projects shows the so-called X-date when America runs out of money as June 5.

Assuming passage in the House, the Senate would take the legislation up as soon as Friday.