Debt Ceiling Deal: How Will it Impact the Health and Energy Sectors?

At a Glance

• Discretionary spending level caps could affect stakeholders who receive funding from NIH, CDC, HRSA and other agencies.
• Organizations pursuing currently unobligated funds may be impacted by the recission of $28 million in COVID-related funding.
• Several provisions are aimed to accelerate the permitting process for energy projects.

As congressional leaders focus on passing an agreement negotiated over the weekend by the Biden administration and House Speaker Kevin McCarthy that would increase the debt limit through early 2025 and prevent a potential default in the next few days, our team has summarized key provisions relevant to health care and energy sector stakeholders.

Discretionary Spending Levels

The agreement sets caps for discretionary spending (defense and non-defense) for FY 24 and FY 25. The non-defense FY 24 level will be $703.65 billion and the FY 25 non-defense level will be $710.69 billion, which are increases slower than the rate of inflation, but not as drastic as capping at FY 22 levels. It also calls for a 1% reduction in spending if Congress does not enact all 12 spending bills by January 1 of the calendar year, which would be three months after the October 1 start of the federal fiscal year.

Implications: The spending levels are more generous than what House Republicans wanted — and this is one reason why more conservative members of the caucus are indicating they are not on board with the terms. If enacted, the levels contained in the agreement mean limited opportunities for growth in federal programs. While the agreement does not establish departmental or agency levels, the caps mean congressional appropriators will have to make tough decisions, including acting to reduce spending in some areas to achieve growth in others. This point would be particularly important for stakeholders who receive funding from agencies like the National Institutes of Health (NIH), Centers for Disease Control and Prevention (CDC) and the Health Resources and Services Administration (HRSA), among others, that are funded out of the non-security category of the budget.

Additionally, establishing budget levels for FY 24 and FY 25 should help facilitate development of specific appropriations bills for both years. But the limited overall spending levels will make that challenging, specifically in terms of setting allocations for each of the dozen spending bills.

Pay-Go Requirements for Administrative Actions

The agreement requires federal departments and agencies to propose offsets for any regulatory actions that would increase spending by $1 billion over 10 years or $100 million in a single year.

Implications: The provision could limit rulemaking and other executive actions. It could also make some programs vulnerable if departments and agencies are incented to propose cuts to programs they do not support or strongly support to advance their own priorities. Implementation will be something to watch closely.

Health Provisions Overview of the Debt Agreement

Recission of Multiple COVID Funding Pots

The agreement rescinds funding for several programs established or increased via the American Rescue Plan (Public Law 117-2) and other COVID-response laws. Programs addressed under this section include the Public Health and Social Emergencies Fund, the provider relief fund (Sec. 9911 of the ARP), and activities within the CDC and the National Institute of Allergy and Infectious Diseases (NIAID). Specific accounts affected include those focused on addressing COVID supply chain issues, global health, the health care workforce, the national health services corps, teaching health centers, family planning, and mental and behavioral health programs. Several provisions excepted some funding levels or allocated funds to specific purposes, such as CDC funding focused on infectious disease response activities.

Implications: While the targets are unobligated funds, stakeholders that may have been interested in pursuing funding from these categories or in discussions with agency officials about awards using these yet unobligated funds should review and assess the potential impact. Overall, the total amount rescinded is about $28 billion.

Work Requirements

The agreement does not include work requirements for the Medicaid program, taking out of the legislation one item of particular concern to many providers and patient advocates. It does extend Supplemental Nutrition Assistance Program (SNAP) work requirements from age 49 to age 54 but exempts veterans, homeless persons and those transitioning from foster care, and it limits the size of the population states can exempt from work requirements.

Energy Provisions Overview of the Debt Agreement

While the agreement reached by Speaker McCarthy and the White House doesn't include wholesale permitting reform for energy projects, there are some provisions which are aimed at accelerating the permitting process. The three main provisions, described below, could provide a starting point for more substantive bipartisan legislation in the future.

Permitting Timelines

The proposed legislation imposes a two-year timeline for environmental reviews that are required for energy projects, both oil/gas and renewable, as well as energy-infrastructure related projects.

Implications: This is a significant reduction from the nearly four to five years it currently takes for some of the largest projects and represents a key Republican priority that was included in earlier permitting reform proposals.

Agency Review

The deal changes the current review process from a patchwork of reviews from multiple agencies, requiring that a single agency assume responsibility for the review's timeline. This includes the ability for developers to sue agencies that don't adhere to the review's timeline.

Implications: A similar provision was included in the 2021 Bipartisan Infrastructure Law for infrastructure projects and was considered low hanging fruit within the larger permitting debate. While falling short of reforming how the agencies conduct their reviews, it gives developers more certainty when planning projects.

Mountain Valley Pipeline: Surprisingly, the proposed legislation expedites the remaining permits for the Mountain Valley Pipeline, an energy infrastructure project which will deliver natural gas from West Virginia through Virginia into the Southeast. The pipeline, which has been beset by court battles, was lobbied heavily for by Sens. Manchin (D-WV) and Capito (R-WV).

Implications: Environmental groups are already making noise, with groups like the Sierra Club calling for a rejection of the legislation. But the administration has said that the pipeline is critical for securing energy security, and the inclusion of the pipeline is a major win for Senator Manchin, largely seen as one of the most vulnerable incumbents in next year's election.

Conclusion

If enacted, the agreement sends a signal that even during a polarized time, agreements are possible. The agreement may also offer signals as to what else could be possible as Congress heads toward the summer with a number of other issues on its agenda. For example, on the energy side, while there were significant items left out of the legislation, including transmission and a more comprehensive overhaul of permitting, bipartisan consensus has largely prevailed in setting a starting point for future legislation. At the same time, the spending constraints could make the annual appropriations process more challenging even with the incentive to complete the bills by the start of the new year to prevent a 1% reduction. And both parties will still be navigating challenges from emboldened factions on their extremes, a dynamic that will continue to make compromise challenging.