Cities to see impacts from debt-limit legislation; ARPA funds protected from clawbacks

Adapted from communication by NLC staff

With the fervor of the debt-ceiling negotiations now passed, and a default on the national debt averted, we bring you an analysis of the legislation’s impacts on cities, including confirmation that city ARPA funds will not be impacted.

Overview

Known as the Fiscal Responsibility Act of 2023, the legislation creates a suspension of the debt ceiling until January 1, 2025. This takes the “fiscal football” out of the hands of Congressional lawmakers until the 2024 post-election lame-duck session and prevents the debt ceiling from bubbling up as a campaign issue in 2024.

According to the Congressional Budget Office (CBO), the Act cuts discretionary spending over ten years by $1.3 trillion. Interest payments on the debt would be reduced by $188 billion over that period, for a discretionary savings of $1.5 trillion. The legislation puts in place fiscal year 2023 spending levels for fiscal year 2024 for non-defense spending. This means cities will not see a year-over-year increase in federal government spending; however, the $130 billion cuts for non-defense spending proposed by the House Republicans in their opening offer did not materialize. In fiscal year 2025, the bill will increase spending levels by 1% for non-defense spending. Finally, the bill contains non-enforceable budget targets for the next four years, meaning spending for cities could see an increase in fiscal year 2026 and beyond.

In a non-textual change to the bill, Senator Chuck Schumer and Minority Leader Mitch McConnell jointly entered a statement into the record that the Act "does nothing to limit the Senate's ability to appropriate emergency supplemental funds to ensure our military capabilities are sufficient to deter China, Russia, and our other adversaries." The statement goes on to say that domestic issues, such as Fentanyl or local emergencies such as wildfires and hurricanes, will get supplemental money as well. This essentially negates the budget caps set in place by the legislation.

Given the wide scope of the Act, and the political rhetoric swirling around the negotiations, misinformation about the legislation has circulated. We hope to clarify the Act’s city-related provisions with the following:

ARPA funding

The bill claws back money from the six COVID-19 spending bills, including the American Rescue Plan Act (ARPA). However, the bill does NOT rescind money that was transferred to local governments from the Treasury Department under the State and Local Fiscal Recovery Funds (SLFRF) provision. Local government SLFRF monies (city ARPA funds), whether spent already or not, WILL NOT be rescinded. Money given to cities under SLFRF is considered obligated by the federal government and not subject to rescission.

Inflation Reduction Act

The Inflation Reduction Act (IRA) provided money for increased customer service within the IRS, allowing more IRS employees to answer taxpayer calls during filing season. The bill cuts $10 billion of the $80 billion allocated in the IRA over eight years to the IRS, likely from funding for IT and enforcement to help bolster fiscal years 2024 and 2025 spending. For residents who experienced much higher answer rates on the phones this filing season, the funding cut will not mean a return to lower levels of customer service.

The original proposal from House Republicans to cut all non-defense discretionary spending by 22%, would have reduced IRA funding for energy and climate resilience programs by millions of dollars. This funding remains intact.

Permitting reform

Local governments often find the National Environmental Policy Act (NEPA) procedural process to be cumbersome and inefficient. Administrative burdens alone can be overwhelming for local governments whose resources are limited. Included in the final legislation is the BUILDER Act (H.R. 1577), which includes provisions to streamline NEPA, including:

• Codifying key elements of the One Federal Decision Framework, including development by the lead agency of a joint schedule, procedures to elevate delays or disputes, preparation of a single environmental impact statement, and joint Record of Decision to the extent practicable. 
• Setting deadlines for completion of NEPA review at one year for environmental assessments and two years for environmental impact statements, unless a deadline extension is agreed to by the project sponsor.
• Establishing page limits for environmental documents and paper reduction measures: 300 pages for complex projects and 150 pages for less complicated projects.

These are the same streamlining provisions that were included in the House-passed energy bill (H.R. 1) and which NLC has supported in the past.

The Act also redefines the scope of environmental reviews under NEPA to include "reasonably foreseeable environmental effects" of proposed agency actions and a "reasonable range" of alternatives to the proposed agency action.

Housing

Funding enacted in response to the COVID-19 emergency at the Department of Housing and Urban Development (HUD) will be subject to a small number of recissions that will have negligible impact on program participants. HUD rescissions include emergency funding for project-based rental assistance, Section 202 Housing for the Elderly, Section 811 Housing for Persons with Disabilities, tribal housing, fair housing activities, and assistance to rural homeowners. Direct grants to local governments, including Emergency Rental Assistance program funds and emergency Community Development Block Grant funds, are not subject to rescission, and appear to be protected from cuts related to the debt ceiling. Tenant-based rental assistance (housing vouchers) enacted in response to the pandemic are also protected from rescission.

Work requirements

The Act includes expanded work requirements for the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps. Currently, adults ages 18-49 are limited to three months of SNAP benefits every three years unless they are working or in a work or training program at least 20 hours a week. Some individuals are exempt from this requirement, such as those who live with children in the household, those determined to be physically or mentally unfit for work, pregnant people, and others determined to be exempt from the three-month time limit. During the Public Health Emergency, (PHE), which ended on May 11, the three-month time limit was suspended.

The additional work requirements included in the bill for SNAP will phase in higher age limits for those work requirements, bringing the maximum age to 54 by 2025. The expanded work requirements have a sunset date of 2030. The new requirements also exempt those who are veterans, homeless or under 24 and aging out of the foster care system.

House Republicans pushed for work requirements to be added to the bill and messaged the addition as a win. However, the CBO estimates that a net of 78,000 new individuals will receive SNAP benefits even with expanded work requirements and that spending on SNAP will go up $2.1 billion (net) over ten years. House Republicans believe that this analysis is not correct, and that the CBO is double counting veterans and others who will be newly exempt from work requirements.

The bill also includes expanded work requirements for the Temporary Assistance for Needy Families (TANF) program in most states. TANF provides cash assistance to families with children and is designed and implemented at the state level. Currently, states are required to ensure that 50% of TANF recipients are working, but states have the flexibility to reduce that threshold based on their caseload reduction as compared to 2005 levels. The Act updates the comparison to 2015 levels, which means that more states will have to increase their work requirements to meet this threshold. States can also lower their work participation rates by increasing their state contribution to the program.

Student debt relief

For municipal workers, the modifications that allow more people working in government to qualify for Public Service Loan Forgiveness will not be rolled back. Additionally, the Administration's plan to forgive up to $20,000 in debt for some student loan borrowers remains intact. However, a case is still pending before the Supreme Court on whether the Administration can forgive this debt. Per the Fiscal Responsibility Act, the Administration cannot further extend the pandemic-era freeze on student loan payments. The expiration of the pandemic emergency, which was the justification for the pauses, expired on May 11. Now, residents who had redirected their student loan payment dollars to pay down other debts or to spend in their local communities, will now have fewer discretionary funds to spend and will be infusing fewer dollars into the U.S. economy.