September 14, 2017

The House continued this week its consideration of a catch-all fiscal year 2018 omnibus spending bill (HR 3354). The $1.2 trillion measure, which would provide a full year’s worth of appropriations for every federal department beginning October 1, was approved by the House on September 14 by a vote of 211-98. Passage of the legislation followed several days of debate during which time lawmakers voted on hundreds of amendments.

All told, the 12-bill package would provide $621 billion for defense programs and $510 billion for domestic discretionary programs. It should be noted that the legislation would spend $72 billion more for defense in fiscal 2018 than what is allowed for under the 2011 Budget Control Act (BCA). Accordingly, if approved and signed into law as currently written, HR 3354 would trigger automatic spending cuts, known as sequestration.

Looking ahead, and because the House omnibus busts the BCA’s defense spending cap, the bill will serve as a placeholder for House Republicans when broader budget negotiations begin with the Senate later this fall. For their part, Senate Democrats have indicated that any increase in defense spending must be matched by corresponding increases in domestic discretionary spending. Democrats in the upper chamber will wield substantial bargaining power as part of the budget talks due to the GOP’s need to attract 60 votes for Senate passage of any final fiscal year 2018 appropriations measure.

Senate Committee Holds Hearings on Health Care

The Senate Health, Education, Labor & Pensions (HELP) Committee is conducting a series of hearings on stabilizing premiums and the insurance marketplaces for individuals under the Affordable Care Act (ACA). State governors, insurance commissioners, providers, and individuals have all appeared before the panel.

The HELP Committee hearings are a precursor to a bipartisan attempt to craft a measure that would provide long-term financial certainty for the ACA’s Cost Sharing Reduction (CSR) payments. The payments enable health insurers to assist lower income individuals in meeting their insurance co-pays and deductibles. While the payments, to date, have been made monthly by the Department of Health and Human Services, the Trump administration has threatened to end the subsidies.

As part of the legislative effort, Republicans on the HELP Committee are pushing to provide states with increased flexibility – in the form of waivers – to design their insurance packages. What those waivers may entail remains to be determined, though some Democrats have expressed concerned that such efforts represent a backdoor way to weaken existing protections for individuals and the ACA overall.

Committee leaders intend to introduce a CSR bill in the very near future, with Senate floor consideration before the end of the month. Whether that ambitious schedule will be met is highly uncertain.

Cassidy-Graham ACA Replacement Bill

Marking a last-gasp effort at replacing the ACA, Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA) are drafting legislation that they have indicated would allow each state to make a decision on how to structure their health insurance systems, including keeping the ACA if a state chooses to do so. The financial structure of the bill, however, would make retaining the ACA impossible. California Counties are opposed to this measure. Click here for more, and to see our joint letter of opposition.

Under the measure, the ACA’s Medicaid expansion funds would be eliminated and the Medicaid program would be converted to a per-capita cap system. Moreover, states that took aggressive steps to insure individuals under the ACA, including California, would be disproportionately affected. If enacted, California would face an approximate 50 percent cut in federal Medicaid funding by 2026, according to an analysis by the Center on Budget and Policy Priorities.

At this juncture, there does not appear to be sufficient support for the legislation to advance in the Senate. Incidentally, a final vote on the bill would need to occur before September 30, which is when the current budget reconciliation rule allowing a healthcare measure to be approved by a simple majority expires.

Children’s Health Insurance Program Funding

Congress must act on extending funding for the Children’s Health Insurance Program (CHIP) beyond September 30, 2017. While all states have enough CHIP funding to continue financing their programs after that date, some states, including California, are expected to exhaust their allotments by January 1, 2018.

The CHIP program has typically received strong bipartisan support. While a draft extension bill has yet to be unveiled, the Senate HELP Committee announced this week that committee members have reached a bipartisan agreement to extend program funding for five years.

Pursuant to the agreement, the current two-year, 23 percentage point boost in the federal contribution (from 65 percent to 88 percent in California) would be maintained though fiscal year 2019. The federal contribution would then decrease to 76.5 percent in fiscal year 2020, and return to the original 65 percent match the following year.

Tax Reform

This week, Trump administration officials and GOP leaders indicated that they will release details of a major tax reform proposal in two weeks. While it is unclear what will ultimately be included in the package, President Trump has repeatedly stated his desire to reduce the corporate income tax rate from a level of 35 percent down to 15 percent. The president also has indicated that he intends to simplify the tax code and focus on relief for the middle class, rather than seek a tax cut for the highest earners – a prospect that could help attract bipartisan support. While the president will aim for a bipartisan agreement, House Republicans are preparing to use the budget reconciliation process to avoid a potential Democratic filibuster in the Senate.

For its part, CSAC is keeping a close eye on tax reform discussions in the nation’s capital. While certain reforms could significantly help boost the economy, other elements of a tax package could significantly impact key county priorities, including the tax exemption for municipal bonds and the deductibility of state and local taxes (SALT). In fact, previous reform blueprints have called on both the muni bond exemption and the SALT deduction to be capped at a certain level, or to be eliminated altogether. Either proposal could have major ramifications for California’s counties.

BRAC

Finally, in the Senate, lawmakers are moving to wrap up debate on a fiscal year 2018 defense authorization bill (HR 2810), which primarily covers defense activities at the Department of Defense, as well as some programs at the Energy and State Departments. All told, the bill would authorize $640 billion in base discretionary funding, a level that far exceeds the $549 billion defense spending cap put in place by the Budget Control Act. The legislation also would authorize $60.2 billion in funding for off-budget Overseas Contingency Operations (OCO).

Of particular interest to counties with a military base, the legislation rejects a proposal from the Pentagon for a new round of Base Realignment and Closures (BRAC). It should be noted that Congress has soundly rejected previous BRAC requests from the Defense Department during the final five years of the Obama administration.