FEDERAL UPDATE: Congress Returns to Face Domestic and Foreign Policy Challenges 

Congress returned from its holiday recess this week facing a packed early-year agenda, with lawmakers juggling urgent fiscal deadlines alongside major health care and foreign policy debates. 

FY 2026 Appropriations. Wrapping up the fiscal year (FY) 2026 appropriations process remains Congress’s most immediate challenge. The current continuing resolution – which provides temporary funding for most federal departments and agencies – expires at the end of January, leaving lawmakers less than a month to avert a partial government shutdown. House and Senate appropriators are working to finalize several remaining spending bills for the fiscal year that began on October 1, 2025, with negotiations expected to intensify as the deadline approaches. (More on this below). 

Health Care and ACA Subsidies. The House is expected to advance legislation this week that would extend enhanced Affordable Care Act (ACA) premium tax credits for three years, sending the bill to the Senate where it faces a steep uphill climb. The enhanced subsidies expired at the end of 2025 and were a major factor in last fall’s prolonged government shutdown. The lapse has already contributed to higher premiums for individuals and families purchasing coverage through ACA marketplaces. 

It should be noted that the House vote is proceeding via a Democratic-led discharge petition, which is a procedural tool that allows a majority of House members to force a floor vote over the objections of the speaker. The effort was initiated by House Minority Leader Hakeem Jeffries (D-NY) and gained momentum late last year when four moderate Republicans broke ranks to provide the necessary signatures. The petition cleared a key procedural hurdle this week, with nine Republicans joining all Democrats to advance the measure, despite opposition from Speaker Mike Johnson (R-LA). 

Once the bill passes the House, its prospects in the Senate remain uncertain. In fact, the upper chamber rejected a similar three-year extension in December, and lawmakers expect a comparable outcome if the proposal returns to the floor. Nonetheless, bipartisan discussions continue around a narrower compromise that could pair a shorter extension with targeted policy reforms. 

War Powers Resolution. On the foreign policy front, the Senate advanced a war powers resolution this week that would limit President Trump’s ability to conduct additional military action against Venezuela without congressional authorization. The resolution passed on a 52–47 vote with support from Democrats and five Republicans, signaling bipartisan unease following a recent U.S. military operation that resulted in the capture of Venezuelan President Nicolás Maduro. While the measure is unlikely to become law, it underscores growing congressional concern over executive authority in overseas military engagements. 

Looking beyond the immediate agenda, lawmakers are also expected to grapple with a range of other priorities in the coming months, including surface transportation reauthorization, the biennial Water Resources Development Act (WRDA), permitting reform, and competing housing reform proposals, among other things. 

House Approves Three-Bill FY 2026 Funding Package 

The House today approved a three-bill FY 2026 “minibus” spending package covering Energy and Water Development, Commerce-Justice-Science (CJS), and Interior-Environment, moving Congress closer to avoiding a partial government shutdown ahead of the January 30 funding deadline. 

The package, which passed with broad bipartisan support, funds a range of programs critical to local governments, including the Payment-in-Lieu-of-Taxes (PILT) program, water infrastructure and Bureau of Reclamation activities, wildfire management and land stewardship at the Department of the Interior, Environmental Protection Agency grant programs, and more. 

It should be noted that House consideration of the package followed several days of contentious negotiations, driven largely by concerns from fiscal conservatives over earmarks and the level of rank-and-file input. To secure passage, House leaders agreed to remove the most disputed earmark and allowed a separate vote on the CJS bill, enabling members to register objections independently before the measures were ultimately combined into a single package. 

The minibus now heads to the Senate, where it could be considered as early as next week. While House passage reduces the immediate risk of a shutdown, additional appropriations bills will still need to advance in the coming weeks to fully fund the federal government for FY 2026. 

Key Highlights: 

Commerce-Justice-Science (CJS) – $81.3 billion 

• Department of Justice: $37 billion overall (an increase of $148 million), including $4.4 billion for state and local law enforcement grants (an increase of $780 million), with $800 million designated for COPS programs. 
• Department of Commerce: $11.1 billion (an increase of $744 million), including $400 million (an increase of $30 million) for Economic Development Administration (EDA) grants to support job creation and revitalization in distressed communities. 
• National Oceanic and Atmospheric Administration (NOAA): $6.2 billion to support weather forecasting, climate, and ocean science. 
• A full list of community projects in the CJS bill can be accessed here. 

Energy and Water Development – $63.3 billion 

• Army Corps of Engineers: $10.4 billion (an increase of $1.8 billion) for flood control, navigation, and ecosystem restoration projects. 
• Bureau of Reclamation: $1.65 billion to support water infrastructure and resource management across the West. 
• Department of Energy: $50.8 billion (an increase of $644 million) to support energy programs, research, and national laboratories. 
• A full list of community projects included the Energy and Water Development bill can be accessed here. 

Interior-Environment – $38.6 billion 

• Department of the Interior: $14.5 billion, including $1.34 billion for the Bureau of Land Management, $1.65 billion for the U.S. Fish and Wildlife Service, and $3.27 billion for the National Park Service. 
• Environmental Protection Agency: $8.8 billion total (a reduction of $320 million), including $4.4 billion for State and Tribal Assistance Grants, with $2.8 billion for Clean Water and Drinking Water State Revolving Funds. 
• Fully funds the PILT program. 
• Wildfire Suppression: The bill fully funds essential wildfire preparedness and suppression efforts by providing $4.25 billion for wildfire suppression, of which $2.85 billion is for the Wildfire Suppression Operations Reserve Fund. This funding level – in addition to carryover balances – is anticipated to meet projected needs for fiscal year 2026 wildfires. 
• Does not include language to consolidate U.S. Forest Service and Interior wildland fire management into a new bureau within DOI. Instead, it specifically provides funding to continue wildland firefighting using the longstanding practice of funding both the U.S. Forest Service and the Department of the Interior to allow Congress to consider legislative proposals for such a major change. 
• A full list of community projects in the Interior-Environment bill can be accessed here. 

Federal Court Temporarily Blocks Changes to Federal Homelessness Funding 

On December 23, 2025, a federal court  issued a preliminary injunction blocking the U.S. Department of Housing and Urban Development (HUD) from making significant, last-minute changes to the Notice of Funding Opportunity (NOFO) for the Continuum of Care (CoC) program, the largest federal grant program addressing homelessness.  

The court order temporarily prevents HUD from rescinding the existing FY 2024–2025 NOFO and replacing it with a revised version that would have fundamentally altered the program. The proposed changes would have affected eligible project types, award selection criteria, and grant conditions. Early analyses indicated that, if implemented, the revised NOFO could have put an estimated $250–$420 million in annual funding for permanent supportive housing and rapid rehousing programs in California at risk, potentially impacting housing stability for tens of thousands of individuals. 

The injunction remains in effect while the case proceeds and requires HUD to return to the “status quo” under the original FY 2024–2025 NOFO. The Department must process eligible renewal projects for FY 2025 using the original rules, though the court clarified that the agency is not yet required to award or obligate funds. 

HUD has indicated that, while the injunction is in place, it plans to reopen the original FY 2024–2025 NOFO for renewals and reallocations, with an anticipated award timeline in May 2026. However, the agency has also signaled that it may reissue its revised NOFO if it ultimately prevails in the litigation. 

As a result, CoC grantees remain in a period of uncertainty regarding the timing and long-term structure of future funding, particularly for projects that were scheduled for renewal before May 2026.