Federal Update: Senate Scrambles to Finalize Funding as DHS Debate Threatens Shutdown 

With the January 30 government funding deadline quickly approaching, attention shifted to the Senate this week as lawmakers weigh the fate of a six-bill fiscal year 2026 appropriations package.  

The House last week completed its final round of spending bills, narrowly approving funding for the Department of Homeland Security (DHS) along party lines while overwhelmingly passing a bipartisan package covering Defense, Labor-Health and Human Services-Education, and Transportation-Housing and Urban Development. Those measures were bundled with earlier House-passed funding for Treasury and State, setting up Senate consideration of six bills at once. 

Senate action has been complicated by weather-related disruptions and heightened Democratic opposition to the DHS funding bill following another fatal shooting involving federal immigration agents in Minnesota. Senate Democrats have indicated they will not support the full package unless DHS funding is removed and considered separately. 

Against that backdrop, President Trump and Senate Democrats are negotiating a framework to pass five of the six outstanding FY 2026 funding bills, while temporarily extending DHS funding to allow more time to negotiate reforms to immigration enforcement. At the time of this publication, it was just reported that an agreement has been reached with further details forthcoming on this compromise.  

Even with a deal, a brief funding lapse remains possible, as the House – which is not scheduled to return until Monday – would need to return to pass both the five-bill package and a DHS stopgap measure. Any agreement emerging from Senate-White House talks would also likely face significant skepticism from House Republicans, particularly with respect to DHS operations and enforcement policy. 

In the meantime, and as expected, the Senate failed to advance the broader funding package earlier today after a procedural vote fell short, with eight Republicans joining Democrats in voting against the motion. 

OMB Funding Review Targets Blue States 

The Office of Management and Budget (OMB) recently directed federal agencies to conduct a review of federal funding provided to 14 states and Washington, D.C., pursuant to a January 20 memo. The review applies to all federal agencies except the Departments of Veterans Affairs and Defense. California is among the states included. All but one of the affected states (Vermont) are led by Democratic governors. 

According to OMB, the information will be used to assess the scope of federal funding in the identified states and localities and to support efforts to reduce improper or fraudulent use of federal funds through administrative actions or potential legislative proposals. OMB stated that the review is a data-gathering exercise and does not involve withholding funds. Agencies were required to submit responses to their resource management offices by January 28. 

Judge Extends TRO Blocking Freeze of CA Social Services Funding 

Last week, a federal judge extended for an additional 14 days the Temporary Restraining Order (TRO) granted to California, Colorado, Illinois, Minnesota, and New York in their lawsuit over the federal government’s attempt to freeze those states’ Child Care Development Fund (CCDF), the Temporary Assistance for Needy Families (TANF/CalWORKs) program, and the Social Services Block Grant (SSBG) program funding. 

The extension will remain in place while the court prepares a written decision on the states’ motion for a preliminary injunction. In extending the TRO, the judge cited inconsistencies between federal officials’ statements and the implementation of the funding freeze, noting that the rollout created “consternation and chaos” for the affected states. 

Separately, two national public employee and child-care unions, along with a small business advocacy group, have filed a class action lawsuit challenging the funding freeze. A copy of the complaint is available here, and a related press release can be found here. 

FEMA Review Council Extended Through March 2026 

President Trump recently issued an executive order extending the FEMA Review Council through March 25, 2026. The extension is notable because its charter specified that it would terminate on January 24, 2026, absent presidential action. The Council was originally established in January 2025 to evaluate FEMA’s disaster response, recovery programs, and long-term resilience efforts, and to recommend potential reforms. 

The extension comes as the Council’s work remains unfinished. Its most recent scheduled meeting in December was cancelled, making the additional time an important signal that the Administration intends for the review process to continue into 2026. State and local governments are closely monitoring the Council’s work given its potential implications for disaster assistance programs, cost shares, mitigation funding, and FEMA’s future role in emergency management. 

Senators Warn Disaster Impacts Are Putting Insurance Markets at Risk 

In a recent joint op-ed, Senators Sheldon Whitehouse (D-RI) and Tim Sheehy (R-MT) warn that increasingly severe wildfires, floods, and storms are straining homeowners’ insurance markets and, if left unaddressed, could destabilize housing values and the broader economy. They outline how rising premiums, reduced coverage, and insurer withdrawals can make homes uninsurable and unmortgageable, creating cascading risks for lenders and taxpayers. 

The senators emphasize that avoiding this outcome will require a shift toward proactive disaster preparedness, not just post-disaster response. Among the solutions highlighted is the creation of a new U.S. Wildland Fire Service, which they argue would improve early wildfire response, establish clearer national standards, and reduce catastrophic losses that drive insurance market disruption. Additional policy approaches include investing in coastal resilience infrastructure, modernizing building codes, expanding and streamlining federal buyout programs, and better aligning insurance, mortgage, and risk-reduction incentives. 

In addition, the op-ed underscores a bipartisan commitment to keeping insurance availability and affordability at the center of the policy debate. The senators make clear that safeguarding insurance markets is essential not only for protecting homeowners, but also for maintaining housing stability and economic resilience in disaster-prone communities. 

CEQ Clarifies NEPA Flexibilities for Emergency Actions 

The Council on Environmental Quality (CEQ) – the White House office responsible for overseeing implementation of the National Environmental Policy Act (NEPA) across the federal government – has issued updated guidance replacing prior emergency review instructions. The guidance is intended to provide clarity to Federal agencies on how to comply with NEPA when responding to emergency situations (i.e. catastrophic wildfires, threats to species and their habitat, economic crises, infectious disease outbreaks, and states of emergency declared by the President). 

Key updates and clarifications include: 

Clear direction not to delay urgent actions. Agencies are instructed that NEPA procedures should not prevent immediate action when there are imminent threats to life, property, or important natural, cultural, or historic resources. Environmental impacts should be considered where practicable, but agencies may proceed first and document impacts later. 

Streamlined determinations on NEPA Applicability. Agencies are directed to first assess whether an emergency action qualifies as a major federal action subject to NEPA. If it does not, agencies may proceed after documenting NEPA’s inapplicability. 

Greater flexibility in using categorical exclusions (CEs). Emergency actions covered by an existing CE may proceed even when extraordinary circumstances are present, provided the action does not result in significant impacts or is modified to avoid them. Agencies may also rely on categorical exclusions adopted by other federal agencies. 

Expanded use of alternative arrangements. When emergency conditions make standard NEPA review impracticable, agencies may use alternative arrangements for environmental assessments or environmental impact statements. Consultation with CEQ is required for actions with reasonably foreseeable significant effects and optional for lower-impact actions. 

Encouragement to formalize emergency procedures. Agencies are encouraged to build emergency-specific NEPA procedures into their regulations, including clear authority, documentation requirements, and coordination protocols, reducing the need for ad hoc approvals. 

Continued compliance with other environmental laws. The guidance reiterates that alternative NEPA arrangements do not waive other environmental requirements and encourages early coordination with resource agencies. 

California Coast Faces Renewed Offshore Drilling Push 

The Trump administration has taken an initial step toward potential new offshore oil and gas drilling off the California coast. Earlier this week, the Bureau of Ocean Energy Management (BOEM) issued two calls for information and nominations to gather industry input on areas of interest for possible lease sales off Central and Southern California, with tentative sales proposed for 2027. 

This action is part of BOEM’s development of a new five-year offshore leasing program. A draft plan released last fall included up to six potential lease sales off California, though BOEM emphasized that issuing these calls does not constitute a decision to proceed and that any sale would depend on the final leasing program. The broad planning areas – about 36 million acres in central California and 68 million acres in southern California – would likely be narrowed based on feedback. 

BOEM plans to publish the requests in the Federal Register and accept public comments for 30 days. 

House Panel Advances Clean Air Act Reforms 

Last week, the House Energy and Commerce Committee advanced a package of seven bills along party lines that would make significant changes to the Clean Air Act (CAA). The markup comes as Congress continues to explore bipartisan permitting reform legislation. However, these CAA bills are not expected to be included in any negotiated bipartisan permitting package. 

Instead, the measures reflect a parallel track being pursued by House Republicans, who argue that existing CAA requirements, particularly air permitting timelines and regulatory uncertainty, are constraining infrastructure development, energy production, and domestic manufacturing. For their part, Democrats on the panel opposed the bills, contending they would weaken air quality standards, limit federal oversight, and undermine public health protections. 

While bipartisan permitting talks remain ongoing, GOP leaders are expected to bring some or all of these CAA bills to the House floor later this year, either as standalone measures or as part of a broader messaging effort on regulatory reform and economic competitiveness. 

Below is a brief summary of the CAA bills that were considered: 

CLEAR Act (H.R. 4218) – Extends the review cycle for National Ambient Air Quality Standards (NAAQS) from five years to ten years, allows consideration of likely attainability when setting standards, and gives states additional time to revise state implementation plans before a federal plan is imposed. The bill also authorizes states to consider technological achievability and economic feasibility when developing plans. 

FENCES Act (H.R. 6409) - Makes it easier for states to exclude pollution from foreign sources, both human-caused and natural, when determining compliance with national air quality standards. 

Air Permitting Improvements to Protect National Security Act (H.R. 6373) – Allows the president to exempt certain advanced manufacturing and critical minerals facilities from emissions offset requirements and permits states to use alternative emissions reduction programs for these facilities. 

New Source Review Permitting Improvement Act (H.R. 161) –Clarifies that certain facility upgrades or operational changes do not constitute modifications that would trigger New Source Review permitting requirements under the Clean Air Act. 

FIRE Act (H.R. 6387) – Limits how emissions from wildfires and prescribed burns are factored into air quality attainment determinations and requires greater coordination between states and the Environmental Protection Agency on excluding emissions related to exceptional events. 

Clean Air and Building Infrastructure Improvement Act (H.R. 4214) – Requires EPA to publish implementation rules and guidance at the same time revised air quality standards are finalized and restricts application of new standards to certain preconstruction permits until guidance is issued. 

RED Tape Act (H.R. 6398) – Eliminates the requirement for EPA to comment on federal construction projects that are already subject to environmental review under NEPA.