House Advances Partisan Reconciliation Package

Earlier this morning, the U.S. House of Representatives narrowly approved the GOP’s signature legislative package – the One Big Beautiful Bill Act (OBBB, H.R. 1) – by a slim one-vote margin (215-214). All Democrats and two fiscally conservative Republicans – Representatives Thomas Massie (R-KY) and Warren Davidson (R-OH) – voted against the measure. Two additional Republican members missed the vote, and House Freedom Caucus Chair Andy Harris (R-MD) voted “present.” The rest of the Republican conference ultimately backed the package following hours of tense negotiations between party moderates and hardliners.  

It should be noted that the OBBB advanced without a final budget score from the nonpartisan Congressional Budget Office (CBO), raising concerns among some lawmakers about its potential fiscal impacts.  

To secure enough votes, House leaders made significant eleventh-hour revisions during a marathon Rules Committee markup. Key changes included accelerated timelines for implementing sweeping Medicaid work requirements (from 2029 to 2027) and phasing out Inflation Reduction Act tax credits for clean energy projects. In a major concession to blue-state Republicans, the bill would raise the cap on the State and Local Tax (SALT) deduction from $10,000 to $40,000, with the expanded cap gradually phased out for taxpayers earning more than $500,000. 

Safety Net Implications 

The new accelerated timeline for Medicaid work requirements is projected to generate tens of billions of dollars in additional savings to the federal government. However, it could also result in even greater coverage losses than initially projected. Earlier estimates from CBO forecasted $715 billion in savings from proposed changes to Medicaid and the Affordable Care Act (ACA), with up to 8.6 million Americans projected to lose health insurance by 2034. Those estimates do not reflect the looming expiration of the ACA’s enhanced premium tax credits, which could cause an additional 4.2 million people to lose coverage. Additionally, the projections fail to account for the significant administrative and financial burdens that state and county governments are likely to face under new federal mandates, including more frequent eligibility redeterminations and enforcement of new work requirements. Meanwhile, the bill retains $300 billion in cuts to the Supplemental Nutrition Assistance Program (SNAP) over the next decade. 

 For California, the legislation could have the following impacts: 

• Early estimates from the Kaiser Family Foundation project that the legislation could reduce federal Medicaid funding to California by approximately $9.8 billion annually – a roughly 11 percent cut. Depending on how the state responds, between 1.2 million and 1.9 million Californians could lose Medicaid coverage as a result. 

• The proposed changes to SNAP would likely impose a new 25 percent benefit cost-share on California due to the state’s payment error rate exceeding 10 percent. For FY 2024, that cost share would amount to roughly $3.1 billion. In addition, California could face steep financial penalties under a new zero-tolerance threshold for payment errors. Under current rules, overpayments and underpayments only count toward the error rate if they exceed $57 (adjusted for inflation), but the legislation would eliminate that margin, further increasing the state’s financial exposure. 

• The legislation also would raise the state share of SNAP administrative costs to 75 percent, up from the current 50/50 split with the federal government. In California, counties currently shoulder roughly 30 percent of the state’s non-federal administrative burden. If this provision had been in effect in FY 2024, it would have translated into an estimated $174 million increase in SNAP administrative costs for counties statewide. 

• Estimates also suggest that the expanded work requirements within SNAP would put 888,000 Californians at risk of losing some or all of their SNAP benefits. 

Other Provisions of Interest to California’s Counties 

Secure Rural Schools: The OBBB includes a multi-year extension of the Secure Rural Schools (SRS) program, which provides critical financial support to rural counties affected by declining timber revenues from federal lands. Last year, 29 California counties received more than $33.4 million in SRS funding. However, with the program now expired, payments have reverted to an outdated formula based on recent timber sales, resulting in a nearly 67 percent drop in funding for counties statewide. 

Municipal Bonds: Although early discussions suggested that the tax-exempt status of municipal bonds could be at risk, the H.R. 1 ultimately preserves this key provision. According to the Public Finance Network, eliminating this exemption would have increased local borrowing costs by more than $823 billion over the next decade – an added burden equivalent to a $6,555 tax increase for every American household. 

Farm Bill: The legislation includes a “skinny” Farm Bill reauthorization, primarily aimed at boosting federal support for farmers through revisions to the commodity title and expanded crop insurance programs. However, by sharply cutting nutrition programs while increasing funding for commodity supports, the package may undercut broader negotiations on a full Farm Bill renewal. 

Debt Ceiling: The bill would raise the debt ceiling by at least $4 trillion, a level intended to secure the government’s borrowing capacity through the midterm elections. 

Extending the Trump Tax Cuts: The package would extend the expiring provisions of the 2017 Tax Cuts and Jobs Act. These tax cuts are set to expire at the end of the year, meaning most households would see their taxes rise without congressional action. 

No Taxes on Tips or Overtime: H.R. 1 would temporarily exempt overtime pay from federal income taxes between 2026 and 2028 and allow a deduction for car loan interest, but only for vehicles manufactured in the United States. 

Child Tax Credit: The legislation would expand the Child Tax Credit from $2,000 to $2,500 per child for four years. However, it would exclude nearly 4.5 million U.S. citizen children living in mixed-status immigrant households. 

Sequestration Cuts 

Notably, because the bill is not fully offset, it would trigger automatic spending reductions under a 2010 pay-as-you-go law unless Congress votes to waive the requirement. According to CBO, failure to act could result in $500 billion in Medicare cuts over the next ten years. Moreover, because those cuts would still fail to outweigh the deficit impact of the measure, key programs including the Social Services Block Grant, the Maternal, Infant and Early Childhood Home Visiting Program, and the mandatory portion of the Promoting Safe and Stable Families program could be eliminated through 2034. 

Next Steps 

While House Speaker Mike Johnson (R-LA) secured a narrow win with the passage of H.R. 1, the victory may prove short-lived as the bill now heads to the Senate, where major revisions are expected. The measure will first undergo review by the Senate parliamentarian to determine whether it complies with reconciliation rules. Even if it clears that hurdle, the bill faces opposition from both moderate and conservative Republicans. Senators Lisa Murkowski (R-AK), Susan Collins (R-ME), and Josh Hawley (R-MO) have raised serious concerns about the bill’s Medicaid cuts, while Senators Rand Paul (R-KY), Mike Lee (R-UT), and Ron Johnson (R-WI) have argued the package doesn’t go far enough to reduce the deficit. 

For their part, Democrats are preparing to launch a major campaign highlighting a distributional analysis from CBO indicating that the bill would disproportionately benefit the wealthiest ten percent, while the poorest ten percent would see a net loss. With the reconciliation process requiring just a simple majority for Senate passage, Majority Leader John Thune (R-SD) can only afford to lose up to three GOP votes. However, any changes made in the Senate – which has set an internal deadline of July 4 to complete its work – will need to be approved again by the House before final passage. 

Congress Set to Block California’s Zero-Emission Vehicle Mandate

Earlier today, the Senate gave final approval to resolutions that would revoke key federal waivers allowing California to implement stricter vehicle emissions standards. At the center of the debate are three waivers granted by the U.S. Environmental Protection Agency under former President Biden. The most significant of these waivers authorizes California to require that all new cars sold in the state be zero-emission by 2035. The other two waivers permit the state to phase out new diesel trucks and impose more stringent limits on smog-forming emissions from heavy-duty vehicles. California’s authority to implement such policies stems from the Clean Air Act (CAA), which grants the state the unique ability to seek waivers from federal emissions standards. These waivers have long allowed California to set stronger standards than those required at the federal level.

However, the legality of using the Congressional Review Act (CRA) to revoke these waivers remains a matter of considerable debate. While the CRA gives Congress the power to overturn recently finalized federal regulations, legal experts – including the U.S. Government Accountability Office and the Senate Parliamentarian – have raised serious doubts about whether this authority extends to state-specific waivers granted under the CAA. Some argue that overturning California’s waiver would likely require an explicit amendment to the statute itself. If the Senate proceeds with the vote and the waivers are formally overturned, it is widely expected that the Newsom administration and other stakeholders will challenge the action in court.

Central Valley Lawmakers Introduce Bill to Boost Farm-to-Market Roads

On May 21, Congressman David Valadao (R-CA) – along with Representatives Vince Fong (R-CA) and Jim Costa (D-CA) – introduced legislation (H.R. 3572) that would support the repair and maintenance of farm-to-market roads in major agricultural regions. Specifically, the legislation would set aside 10 percent of funding from the Rural Surface Transportation Grant Program specifically for these roads, which are often used by trucks transporting crops and other farm goods. To qualify for funding under the bill, a county would need to produce at least $1 billion in agricultural goods per year and have a production value of at least $500,000 per square mile. H.R. 3572 also would require the U.S. Department of Transportation and U.S. Department of Agriculture to create, and annually update, a list of counties that qualify.