Debt Limit Agreement

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• On: 06/06/2023 13:31:02
• In: Politics
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By: Tony Roda, partner, Williams & Jensen

This article was originally featured in the June 2023 issue of The Monitor.

State and local governments, national and international financial markets, and anyone with a stake in the financial markets, federal programs, or the overall economy have been closely watching the negotiations and now formal Congressional proceedings of legislation to increase our nation's borrowing authority. Debt limits have been approached before, but each time Congress has met the deadline and either increased or temporarily suspended the debt limit.

While drama has surrounded some previous debt limit debates, political experts this year pointed to the unpredictability of the House Republican majority as the new dynamic that could lead to a default, which would be an unprecedented event in American history. However, on the evening of May 31, the U.S.  House of Representatives passed the Fiscal Responsibility Act, H.R. 3746, which will suspend the debt limit until January 2025, and then reset the actual dollar amount of the debt limit to the amount the Treasury Department has spent up to that date.

The measure was approved by a sizable bipartisan majority in the House, with 149 Republicans and 165 Democrats voting in support of the legislation. The agreement was negotiated by President Joe Biden and House Speaker Kevin McCarthy (R-CA). It had the strong backing of the leadership of both political parties, yet many of the most conservative and progressive House Members did not support the bill. Opposing the legislation were 71 Republicans and 46 Democrats, with four Members not voting.

In addition to the suspension of the debt limit, the legislation contains numerous spending and policy changes. The legislation will impose new spending caps for two years and an additional automatic one percent reduction in appropriated funding if all 12 regular spending bills are not enacted by January 1, 2024, as well as in the following year by January 1, 2025.

Unspent covid funding will be rescinded ($28 billion). Energy project permitting will be streamlined, both for green energy and traditional fossil fuel projects. Honoring an agreement with Senator Joe Manchin (D-WV) made when the two were negotiating the Inflation Reduction Act (IRA) during the last Congress, President Biden also agreed to include in the deal a provision to expedite completion of the Mountain Valley Pipeline project in West Virginia. Finally, new work requirements for certain federal assistance programs will be required, but Medicaid beneficiaries will not be affected. There are no retirement or pension-related provisions in the legislation.

Following suit and after defeating 11 amendments to the House-passed bill, the Senate on June 1 approved the measure by a 63-36 margin. Forty-six Democrats and 17 Republicans voted in favor of the bill. Clearly, the vote in the Senate was not as bipartisan as it was in the House. Four Democrats, one Independent, and 31 Republicans voted against the bill.

Treasury Secretary Janet Yellen had this to say following the bill's passage: “I am pleased that, under President Biden's leadership, Congress has passed bipartisan legislation to suspend the debt limit and prevent a first-ever default by the United States. This legislation protects the full faith and credit of the United States and preserves our financial leadership, which is critical to our economic growth and stability… Now, our focus is to continue to deliver on the President's economic agenda. Treasury will continue to effectively implement the Inflation Reduction Act, including the modernization of the IRS, to maximize economic benefits for American taxpayers, families, and workers.” President Biden signed the legislation on Saturday, June 3.

With the debt limit agreement in place, Congress now will turn to action on the annual appropriations bills, which are under new spending caps and deadlines. Consideration of some of these measures may prove controversial. On the retirement front, NCPERS and the public pension community are eagerly awaiting regulatory guidance from the Treasury Department and the Internal Revenue Service on the implementation of the recently enacted SECURE Act 2.0. We will also be closely monitoring any action on Social Security, including the Windfall Elimination Provision and Government Pension Offset penalties.  

Tony Roda is a partner at the Washington, D.C. law and lobbying firm Williams & Jensen, where he specializes in legislative, regulatory, and fiduciary matters affecting state and local pension plans. He represents the National Conference on Public Employee Retirement Systems and state-wide, county, and municipal pension plans in California, Colorado, Georgia, Kentucky, Ohio, Tennessee, and Texas. He has an undergraduate degree in government and politics from the University of Maryland, J.D. from the Catholic University of America, and LL.M (tax law) from the Georgetown University Law Center.