Biden’s Economic Recovery Path: How Budget Reconciliation Plays a Role in Passing $3.5 Trillion in Relief

On August 11, 2021, the Senate passed its FY 2022 budget resolution (S. Con. Res. 14) laying the foundation for Senate Democrats to use the reconciliation process in both chambers to pass a $3.5 trillion economic spending package, which will likely include ambitious Biden Administration priorities such as, adopting a federal paid leave benefit, adding a series of energy tax incentives, including drug pricing reforms, and expanding dental, vision and hearing benefits to seniors. While presidents have used reconciliation to enact 22 bills since 1980, Democrats have the opportunity this year to use reconciliation twice in the same calendar year¹—something that has been achieved only once in 1986.² Reconciliation has been used to enact deficit reduction,³ welfare reform,⁴ higher education reforms,⁵ and tax cuts.⁶ It also gave the House Democratic Caucus a way to make changes to the Affordable Care Act without going to conference after Democrats lost their Senate super majority in 2010.⁷ Earlier this year, Democratic leadership used reconciliation to enact the American Rescue Plan,⁸ which was President Biden’s first major legislative vehicle providing relief to Americans in the wake of the COVID-19 pandemic. 

How Does Reconciliation Work? 

Reconciliation is a process by which provisions with a budgetary impact can pass on an expedited basis by a simple majority.⁹ In the current Congress, this means Democrats can advance legislative priorities that are budgetary in nature without Republican support. First, each chamber must adopt a budget resolution with reconciliation instructions on tax and spend targets for specific House and Senate committees. Importantly, reconciliation legislation is limited to spending and revenue provisions and must therefore originate in the House.¹⁰ But the Senate helps shape the final legislation because under the Senate’s Byrd Rule, the parliamentarian may rule policy provisions that are extraneous to the budget out of order, stripping them from the reconciliation bill.

There are several legislative steps between passage of a budget resolution with reconciliation instructions and final passage of a reconciliation bill. They are: (1) individual committees in one or both chambers draft and report out legislation to change laws within the committee’s jurisdiction related to spending, revenue or the debt limit as directed by the reconciliation instructions; (2) the House and Senate Budget Committees compile all of the reported reconciliation legislation into an omnibus reconciliation package, which the committee reports out to the full chamber; (3) the chamber considers the reconciliation package (in the House, the bill must first go through the Rules Committee to set terms of the floor debate, which will likely lean towards a “closed” rule that eliminates most amendments); (4) differences are resolved between chambers (if needed); and (5) the President signs the reconciliation package into law.

Where Are We in the Current Process?

The Senate passed the FY 2022 budget resolution on August 11, 2021 and the House passed the same budget resolution on August 24. House and Senate committees are now directed to draft legislation to meet their specific spending or revenue goals by September 15, 2021. This deadline is not binding, but we would expect the relevant committees to report out reconciliation legislation in September or early October (since the House and Senate are currently scheduled to be on recess until September 20 and September 13, respectively). While both houses will be on recess for much of this timeframe, committees are meeting informally or will hold remote markups to develop their pieces of the reconciliation bill. Additionally, there is a narrow window of eight weeks between September 15 and the end of the year where both houses are in session, which adds additional constraints to an already tight timeline.

While the budget resolution does not prescribe how the committees are to achieve their budgetary goals, the Senate Budget Committee circulated a memorandum which includes some nonbinding direction for the Senate committees. For example, the memorandum directs the Health, Education, Labor, and Pensions (HELP) Committee to focus on health equity and pandemic preparedness, and the Finance Committee to focus on corporate and international tax reform and healthcare savings. The memorandum also lists a Carbon Polluter Import Fee, which would likely require companies selling steel, iron, and other carbon-intensive materials to the US to pay a fee, as a potential offset within the Senate Finance Committee’s jurisdiction.

Unlike the nonbinding reporting deadline, committees are bound by the budgetary goals set out in the budget resolution’s reconciliation instructions. Compliance with each committee’s budgetary goal is measured on a net basis, meaning the legislation can include measures to reduce and increase spending, provided the legislation, taken as a whole, meets the committee’s budgetary goal.

The $3.5 trillion spending package includes but is not limited to the following committee instructions:

• $726 billion for the HELP Committee to address some of Democrats' top priorities, including: universal pre-K for 3- and 4-year-olds, child care for working families, tuition-free community college, funding for historically black colleges and universities, investments in primary care and health equity, and an expansion of the Pell Grant for higher education.
• $1 billion in deficit reduction for the Senate Finance Committee, which will ultimately mean enacting more offsets than investments. The instructions include offsets for corporate and international tax reform, “tax fairness” for high-income individuals, and the Carbon Polluter Import Fee. Senate Finance has been instructed to address the expansion of Medicaid and Medicare, State and Local Tax (SALT) cap relief, and addressing health equity concerns through racial justice health investments.
• $107 billion for the Judiciary Committee, including instructions to address "lawful permanent status for qualified immigrants" and other border security measures.
• $37 billion for the Committee on Homeland Security and Governmental Affairs to improve cybersecurity infrastructure, border management investments, and federal investments in green materials procurement.
• $83 billion for the Committee on Commerce, Science, and Technology to investment in research, manufacturing, and economic development, among other priorities.
• $135 billion for the Committee on Agriculture Nutrition and Forestry, including instructions to reduce carbon emissions and address drought concerns.
• $332 billion for the Banking Committee, including instructions to invest in public housing and provide rental assistance while addressing the growing concern of housing affordability and equity.
• $198 billion for the Energy and Natural Resources Committee and $67 billion for the Committee on Environment and Public Works with instructions largely related to clean energy development.
• $25 billion for the Small Business and Entrepreneurship Committee with instructions to expand small business access to credit, investment, and market opportunities.
• $18 billion for the Committee on Veterans Affairs (VA) Committee to upgrade VA facilities.

In the House, consideration of a reconciliation bill is governed by special rules reported from the House Rules Committee. The special rules generally set a timeframe for general debate to one or three hours and limits the number of amendments that will be in order. Generally, the number of amendments is limited to one or zero amendments. While the House Budget Committee s cannot make substantive changes to the bill, substantive amendments are in order at the House Rules Committee before moving to floor consideration. Most substantive changes at the Rules Committee would likely be legislative fixes demanded by various Democratic factions who need those specific items included in order to vote for the bill.

In the Senate, once the committees report out their reconciliation bills, the Senate Budget Committee will package the bills in an omnibus reconciliation bill without “any substantive revision.” The Budget Committee will normally hold a business meeting before voting to report the omnibus bill to the full chamber, but no amendments may be offered during this markup.

The Senate Budget Committee will also put the omnibus bill through a “Byrd Bath” to determine whether any provisions are extraneous to achieving the budget resolution’s budgetary goals. Since the Budget Committee cannot make substantive changes to the omnibus bill, the Committee will submit for the record a list of provisions considered to be extraneous. Any Senator may raise a point of order against provisions deemed to be extraneous during floor consideration. Once the Budget Committee reports the omnibus bill to the chamber, the bill becomes available for consideration by the full chamber.

Consideration of a reconciliation bill in the Senate is limited to 20 hours, with debate on any amendment limited to two hours, and debate on any second-degree amendments, debatable motions, and appeals limited to one hour. After the 20 hours of debate has expired, senators may continue to offer amendments without debate. Similar to the budget resolution, members may offer amendments during the continuous amendment debate process dubbed as the “vote-a-rama.” But adopted amendments may be stripped from the bill before final passage through a “wrap-around amendment.” A wrap-around amendment generally restores the budget resolution to the version reported to the full chamber to protect the privilege of the bill. As a result, amendments offered during the “vote-a-rama” are usually purely used for messaging and they are often designed to exploit policy differences between leadership and vulnerable members who are up for reelection.

What is Allowed in a Reconciliation Bill?

Reconciliation bills are focused on budgetary changes and governed by lots of rules. Each relevant committee must meet its savings or not exceed its spending target, and the reported legislation must fall squarely within the committee’s jurisdiction. Examples of provisions allowed include: (1) changes to tax policy, provided the changes are not so specific as to resemble an earmark; (2) new direct spending, provided the spending is mandatory; and (3) changing mandatory spending, provided the changes do not affect social security.

Changes not allowed are those that: (1) do not have a budgetary score or where the budgetary impact is merely incidental to policy provisions; (2) make changes to social security; (3) include policy changes outside a committee’s jurisdiction; and (4) increase the deficit outside the ten-year budget window. For example, the Senate parliamentarian ruled increasing the federal minimum wage through the reconciliation had “merely incidental” budgetary effects during consideration of the American Rescue Plan in March. But the Byrd Rule does not define what “merely incidental” means. so. the Senate parliamentarian has a lot of discretion in determining whether a provision can be included in the reconciliation bill. During the coming months, we expect Senate staff to make arguments to the parliamentarian arguing the budgetary impact of their provision outweighs the non-budgetary elements of their provision. We expect the Senate parliamentarian will have to make several close calls, similar to the minimum wage decision.

Senate majorities are not without options should they disagree with a ruling from the parliamentarian, though they exercised those options only rarely to date. For instance, a Majority Leader may fire the parliamentarian,¹¹ or a majority of senators may overrule a particular ruling.

Conclusion

While the timeline to pass the next reconciliation package may run into the fall or winter of this year, committees are busy drafting their parts of the package. This is a crucial part of the process where stakeholders can provide input to relevant member, committee, and leadership offices. Democrats are expected to include many of their long-term priorities, with the reconciliation package’s outline including every category in President Biden’s proposed American Families Plan.  

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.