Congress Approves Massive Budget Reconciliation Package

Earlier today, the House gave final approval to President Donald Trump’s top legislative priority – the One Big Beautiful Bill (OBBB) Act (H.R. 1). Despite several last-minute holdouts, only two House Republicans – Representatives Thomas Massey (KY) and Brian Fitzpatrick (PA) – ultimately voted against the measure, while House Democrats remained unified in their opposition. Final passage came after efforts by Democrats to delay the vote, including a record-breaking floor speech by House Minority Leader Hakeem Jeffries (D-NY).

The Senate narrowly passed the budget reconciliation bill earlier this week, with three Republicans – Senators Rand Paul (R-KY), Thom Tillis (R-NC), and Susan Collins (R-ME) – joining all Democrats in opposition. Senator Lisa Murkowski (R-AK) ultimately supported the measure after securing concessions related to rural hospitals nationwide and SNAP implementation timelines for her state. With the chamber evenly divided, Vice President J.D. Vance cast the tie-breaking vote, thus advancing the reconciliation measure by a vote of 51-50.

The final bill, which is expected to be signed into law by President Trump tomorrow, includes a number of major tax provisions, including the extension of several expiring tax cuts. The legislation also directs hundreds of billions of dollars toward new investments in border enforcement and makes significant reductions to social safety net programs, including Medicaid (Medi-Cal) and SNAP (CalFresh). Clean energy provisions authorized under the Inflation Reduction Act (IRA) were also scaled back.

Key Revisions

Several key changes emerged from a series of intense negotiations over the weekend. For example, the final package establishes a Rural Health Fund that will provide $10 billion annually over five years to help offset Medicaid cuts in underserved areas. In addition, language was added that will allow states with high SNAP Payment Error Rates (PERs) to delay implementation of the new cost-sharing requirement.

The final bill also removed a controversial provision that would have penalized Medicaid expansion states, like California, for offering health coverage to undocumented immigrants. The original language would have reduced the Federal Medical Assistance Percentage (FMAP) from 90 percent to 80 percent for those states. However, the provision was ultimately stripped from the bill after the Senate Parliamentarian determined it violated reconciliation rules.

In addition, a controversial proposal from Senator Mike Lee (R-UT) requiring the sale of public lands was dropped due to bipartisan opposition and a ruling from the Senate Parliamentarian. A three-year extension of the Secure Rural Schools (SRS) program also was not included in the final legislation.

With regard to energy policy, the final bill retains language phasing out tax credits for solar and wind projects. Lawmakers also removed a proposed tax on clean energy development.

In another key amendment, the Senate overwhelmingly voted to eliminate a moratorium on state regulation of artificial intelligence, removing language that would have restricted such efforts.

SNAP/CalFresh

The final version of H.R. 1 includes several provisions that will place increased financial pressure on counties, particularly those that administer health and human services programs.

The bill modifies the SNAP benefit cost-sharing structure. States with PERs under 6 percent will be exempt, while those above that threshold will gradually assume up to 15 percent of benefit costs starting in FY 2029. States may use either their FY 2025 or FY 2026 error rate to determine their required share for FY 2028. With a FY 2024 error rate of 10.98 percent, California is expected to fall under the standard implementation timeline and would need to contribute 15 percent of the benefit if their error rate remains above ten percent. The majority of states are above that threshold.

In addition, the state and county share of SNAP administrative costs will increase from 50 to 75 percent beginning in FY 2027. This change is projected to raise total administrative costs from $1.7 billion to $2.6 billion annually across the 10 states where counties administer the program. Work requirements for able-bodied adults without dependents will now apply to those up to age 64 and will also apply to adults with dependents over the age of 14.

Medicaid/Medi-Cal

Modifications to the Medicaid program are equally significant. Beginning in 2029, most individuals who were covered under the Affordable Care Act’s Medicaid expansion who are between the ages of 19 and 64 will be required to participate in work or community engagement activities for at least 80 hours per month to maintain eligibility. States must verify compliance at redetermination and may conduct more frequent checks. Exemptions apply to pregnant individuals, Medicare enrollees, caretakers of children under 14, recently incarcerated individuals, and residents of disaster-affected areas. Unlike earlier efforts, these requirements cannot be waived. However, states may apply for a one-time exemption through the end of 2028 if they demonstrate a good-faith effort to implement the policy.

The final bill also prescribes new out-of-pocket costs for Medicaid enrollees beginning on October 1, 2028. Cost-sharing will be capped at $35 per service, with exemptions for primary care, behavioral health, substance use treatment, and services provided at federally qualified health centers. While the fees are limited, the provision is expected to increase uncompensated care burdens on county hospitals and clinics.

State and Local Tax Deduction

H.R. 1 will increase the cap on the State and Local Tax (SALT) deduction to $40,000 for the 2025 tax year for individuals and joint filers earning less than $500,000 annually. The cap will gradually phase down before reverting to $10,000 in 2030.

Tax Exempt Status of Municipal Bonds

The final package maintains the tax-exempt status of municipal bonds. By preserving this exemption, the bill ensures that counties can continue to issue municipal bonds to finance public infrastructure projects at a lower cost to taxpayers. This includes investments in roads, bridges, water systems, public safety facilities, schools, hospitals, and other essential services.

Child Tax Credit

H.R. 1 includes a modest expansion of the Child Tax Credit, increasing the maximum per-child credit from $2,000 to $2,200. It also requires both parents and all qualifying children to be U.S. citizens with Social Security numbers.

Other Notable Provisions

In a win for county-operated long-term care providers, implementation of the federal nursing home staffing rule is delayed until September 2034.

In terms of environmental and energy policy, the bill folds $13 billion in unobligated IRA funds into the U.S. Department of Agriculture’s conservation programs. The funds are now mandatory and can be used to support soil, water, and land stewardship efforts in partnership with counties and local entities.

The bill also introduces a new revenue-sharing provision for renewable energy, providing counties with 25 percent of revenues from wind and solar projects on federal lands, mirroring the model used for oil and gas leasing.

Separately, H.R. 1 makes a significant change to the National Environmental Policy Act (NEPA). Under the bill, project sponsors will now be allowed to expedite environmental reviews by paying a fee equal to 125 percent of the cost of preparing the review. While intended to streamline project delivery, the provision could have implications for counties’ local permitting and zoning authority.

Sequestration Cuts

Because the OBBB Act is projected to increase the federal deficit, it will trigger automatic spending cuts under the statutory PAYGO law, unless Congress acts to waive them. If left in place, these sequestration cuts could reduce Medicare spending by up to $500 billion over the next decade.

Additionally, mandatory funding for several human services programs – including the Social Services Block Grant, the Maternal, Infant and Early Childhood Home Visiting (MIECHV) program, and a portion of the Promoting Safe and Stable Families program – could be eliminated. However, these cuts would not take effect immediately. The Office of Management and Budget typically issues its PAYGO notice within 14 days of the end of the congressional session, which gives lawmakers several months to consider and pass legislation waiving these requirements.

Upcoming NACo Webinar

NACo is hosting a webinar on Monday, July 7 at 3:00 p.m. ET to review key provisions and potential impacts to counties. California county officials are encouraged to register and attend. Register here.