Congress continues to prepare a sixth and historic COVID-19 response package. Both chambers have passed budget resolutions, clearing the way for a package worth up to $1.9 trillion under an expedited process known as budget reconciliation. We will continue to track the progress of the package, but here’s where things stand and what state finance officials should know—
What is the State of Play?
The U.S. House of Representatives has been introducing and marked up various components of a bill throughout the month of February. The House will likely vote on one large comprehensive bill as early as Friday, February 26. Full bill text is available here.
Where Do Things Go After That?
Now that the Impeachment Trial of Former President Trump has concluded, the Senate has begun its own preparations for the bill. At the current moment, the Senate is preparing to move the House bill quickly to a floor vote and consideration of amendments. The Senate may also make changes to make the bill conform with the “Byrd Rule” that generally outlines what is permissible under budget reconciliation.
Congressional leadership continues to see the March 14 expiration of federal unemployment benefits as a soft deadline for additional congressional action on COVID-19, so the Senate is inclined to avoid a conference process by ensuring differences across chambers are resolved prior to final floor votes. Amendments made by the Senate would likely be taken back up and passed by the House.
So far, we know what’s moving through the House proposal, which largely tracks the high-level details we saw in President Biden’s proposal from last month. Below, we’ve outlined some key provisions of interest to states included in the House package:
State and Local Aid
One of the key provisions of the plan is the inclusion of $350 billion in aid to state, local, tribal and territory governments. The House Oversight Committee has released its proposal that would roughly provide 60 percent of the funds to states and 40 percent to local governments. These details only reflect the House position, but the Senate is not currently expected to make substantial changes to this section of the package. Additional information on the current House proposal can be found here.
States and the District of Columbia: $195.3 billion
- $25.5 billion equally divided — every state receives at least $500 million
- $169 billion based on the state share of total unemployed workers
- The District of Columbia would be made whole after being treated as a territory in previous coronavirus funding Acts
Local governments: $130.2 billion divided evenly between cities and counties.
- $65.1 billion to cities using a modified Community Development Block Grant formula
- $45.57 billion for municipalities with populations of at least 50,000
- $19.53 billion for municipalities with populations of less than 50,000 (would be based on through the States)
- $65.1 billion to counties based on population
Paid Sick Leave Tax Credit Extension for State and Local Governments
The Families First Coronavirus Response Act (FFCRA) included requirements for certain employers to provide employees with paid sick leave benefits related to COVID-19. FFCRA also provided private sector employers with a payroll tax credit to alleviate the financial burdens of the sick leave. The House proposal would extend eligibility for the refundable tax credit to be used by state and local employers who are currently ineligible.
The House version of the bill DOES include a provision to gradually raise the federal minimum wage to $15 per hour. It currently sits at $7.25. The provision will likely be passed on to the Senate, but it is important to note that the Senate Parliamentarian ruled that its inclusion is not germane to budget reconciliation. While the ruling does not close the opportunity for future minimum wage discussions under normal order, it does severely reduce the likelihood that it will be included in the final iteration of this COVID-19 package.
Various Other Provisions
NAST continues to track various other aspects of the proposal and will continue to update members as more information is provided and finalized.
- Expands the Child Tax Credit (CTC) to $3,000 per child ($3,600 for children under 6), and makes it fully refundable and advanceable.
- Allows families to claim up to half of their child care expenses, by expanded the Child and Dependent Tax Credit.
- Provides a $1,400 refundable tax credit for each family member that shall be paid out in advance payments.
- Instructs the Treasury Department to make payments to each “mirror code” territory (USVI etc.) for the cost of such territory’s CTC.
- Makes the Child and Dependent Care Tax Credit (“CDCTC”) fully refundable and increases the maximum credit rate to 50 percent.
- Extends the Families First Coronavirus Response Act paid sick time and paid family leave credits from March 31, 2021 through September 30, 2021.
- Increases the amount of wages for which an employer may claim the Paid Family Leave Credit in a year from $10,000 to $12,000 per employee.
- Extends the employee retention tax credit, as added by the CARES Act and expanded and extended in P.L. 116-260, through December 31, 2021.
- Revenue offset provision repeals the election for U.S. affiliated groups to allocate interest expense on a worldwide basis.
- Exempts Economic Injury Disaster Loan (EIDL) grants from tax and provides that such exclusion shall not result in a denial of deduction, reduction of tax attributes, or denial of increase in basis by reason of this exclusion from income.
- Provides a refundable payroll tax credit to reimburse employers and plans who paid the subsidized portion of the premium to COBRA assistance eligible individuals.
- Extends a CARES provision which provided a 50 percent subsidy for costs incurred by employers who provide unemployment benefits on a reimbursable basis, rather than via tax contributions through August 29, 2021.
- Increases the federal pandemic unemployment payment amount from $300 to $400 for weeks ending after March 14 and before August 29, 2021.
- Includes defined benefit multi-employer and single employer pension plan relief, including extended amortization and pension funding stabilization percentages, as well as a multi-employer relief provision modeled on prior House-passed legislation.
As we mentioned earlier in the year, Vice President Harris’ tiebreaking vote gives the Democrats a razor-thin majority in the Senate. While Democrats in the House can continue to pass priority legislation with relative ease, the Senate still has the filibuster, which functionally requires a 60-vote majority to pass most legislation under normal order. Under budget reconciliation rules, certain legislation can bypass the 60-votes requirement to invoke cloture (end debate) and pass with a simple majority. This technique was pivotal in the passage of the Tax Cuts and Jobs Act in 2017 and amendments to the Affordable Care Act in 2010.
But there are some catches. Reconciliation bills are limited to topics relating to federal revenue, spending, and debt, and the legislation must follow the guidelines set forth in the preceding budget resolution. The Byrd Rule or “Byrd Wash” further outlines these limitations. Both chambers passed a budget resolution earlier this month that would clear the way for $1.9 trillion in COVID-19 related spending. Historically, legislators have struggled to pass more than one reconciliation package per Congress. Technically, however, Congress can pass one reconciliation act per budget resolution— opening up the possibility for a second package once the 117th Congress passes its FY2022 budget. There is already discussion about a potential second reconciliation package later this year focused on infrastructure.