Congress Poised to Pass Final Fiscal Year 2016 Appropriations Bill and Substantial Tax Legislation

Summary

This 2,009 page compromise legislation includes the 12 annual appropriations bills and provides funding for federal agencies through September 30, 2016. It also includes a number of changes to existing policy, several of which are detailed below. To maximize the chances for Congressional approval, leadership developed a strategy that involves including $650 billion of tax incentives with the omnibus appropriations bill, also described below.

Because the current Continuing Resolution (CR) that is funding the government expires at midnight, we expect the Senate to approve a temporary CR that will allow both chambers to debate and pass the omnibus bill without shutting down the government. The House will take up the omnibus bill Friday and the Senate will consider it shortly thereafter if procedural hurdles to quick consideration of the bill are overcome. We expect the legislation will receive sufficient votes in the House and Senate to make it to the President’s desk for signature in the coming days.

“The passage of the Omnibus spending bill, while not the right way for the Congress to do business, at least will finally provide some certainty and stability in funding for the important priorities our country faces. Many compromises had to be made to finish this funding bill, and I hope constructive compromise might be habit-forming going forward for this Congress,” said former Senator Byron Dorgan, co-chair, Arent Fox’s Government Relations practice.

“More significant than any single spending policy it contains, this final appropriation package demonstrates the renewed capacity of congressional leaders to overcome deep divisions within the legislative branch to negotiate a painful and complicated compromise with a lame duck Administration. Avoiding a collapse and a government shutdown under the circumstances is a positive development, and the agreement addresses core priorities for federal spending. The passage of this package will raise confidence that Congress will be improving its legislative activity in the coming election year,” added former Congressman Phil English, also co-chair of the Arent Fox Government Relations practice.

Funding Levels

The Fiscal Year 2016 Omnibus Appropriations Act appropriates $1.067 trillion in base discretionary budget authority, including $548.1 billion in base defense spending and $518.5 billion in base non-defense spending. The Omnibus Appropriations Act also provides $73.7 billion for Overseas Contingency Operations (OCO), which is in addition to the base bill and includes $58.798 billion for defense operations and $14.895 billion for non-defense functions.

Cobbling together the final appropriations bill became easier with the recent enactment of bipartisan budget legislation that increased the statutory caps on domestic spending for this year and the next fiscal year, meaning that negotiators had a larger pie to divide than originally anticipated this Spring when the President released his Budget Request and the appropriators started drafting the 12 bills.

Highlights include:

• National Institutes of Health: The bill includes $32.1 billion for the National Institutes of Health (NIH), which is $2 billion than the 2015 enacted level and $900 million more than the House bill.
• General Services Administration: The bill includes $10.2 billion for the General Services Administration (GSA) Federal Buildings Fund (FBF),which is $957.7 million more than the 2015 enacted level and $1.8 billion more than the House-passed level. 
• District of Columbia: H.R. 2029 includes $729.8 million for the District of Columbia, which is $50.3 million more than the 2015 enacted level and $51.8 million more than the House-passed level.
• Food and Drug Administration: The bill includes $2.72 billion, an increase of $132 million over the fiscal year 2015 enacted level and $14 million below the President’s budget request. Total funding for the FDA, including revenue from user fees, is $4.68 billion. Within this total, food safety activities are increased by $104.5 million, and various medical product safety activities – including additional funds for the Combating Antibiotic Resistant Bacteria initiative, orphan product development grants, foreign high-risk inspections, and precision medicine – are increased by over $24.3 million.
• Department of Homeland Security: The bill provides DHS with $40.96 billion, which is an increase of $1.33 billion over the fiscal year 2015 enacted levels. $215 million to continue the consolidation campus in southeast Washington, DC is included in the bill. In addition, the legislation increases funds for Customs and Border Protection to $11 billion and funds Immigration and Customs Enforcement at $5.8 billion to support additional ICE agents and personnel, combat human trafficking, and immigration enforcement. Cybersecurity programs in the DHS National Programs and Protection Directorate would also receive $819 million, $100 million of which to address technology vulnerabilities at DHS.
• Centers for Disease Control: $7.2 billion for the Centers for Disease Control and Prevention (CDC) is included in the bill, which is $308 million more than the 2015 enacted level and $168 million more than the House bill.
• Centers for Medicare and Medicaid Services (CMS): $3.7 billion for CMS Program Management, which is the same as the 2015 enacted level, is included in the bill. The Omnibus continues a provision to prevent the CMS Program Management appropriation account from being used to support risk corridor payments.
• Education: Provides $415 million in additional funding for special education grants and $80 million increase for charter school grants. Pell Grants will be funded at the statutory maximum of $5,915 per student.
• Environmental Protection Agency: The EPA will receive $8.139 billion, which is equal to the 2015 enacted level but the Clean Water State Revolving Fund and the Drinking Water State Revolving Fund will receive $1.394 billion and $863 million, which are $55 million and $44 million less than the 2015 levels, respectively.

Policy Riders

One of the factors contributing to a delay in finalizing the omnibus appropriations bill was that the Republican majority had a large list of unrelated policy amendments that they sought to include on this last legislative vehicle of the year. While many of the most contentious proposed policy changes were not included in the bill due to White House and Congressional Democratic opposition, including language that would have penalized Planned Parenthood and repealed portions of the Dodd-Frank financial regulatory overhaul, some notable policy changes still made the cut, including:

• Energy: A provision to end the 40-year old ban on U.S. oil exports.
• Cybersecurity: The bill includes cybersecurity legislation to improve threat information sharing. This voluntary program provides liability protections for companies that share cyber threats with each other and the federal government through a civilian portal managed by the Department of Homeland Security.This provision will also improve federal network and information system security, require assessments on the federal cybersecurity workforce, and provide reporting and strategies on cybersecurity industry and criminal matters.
• Trade: The omnibus includes a repeal of mandatory country-of-origin labeling (COOL) requirements, which have been the subject of several World Trade Organization (WTO) rulings.
• Immigration: The bill includes the Visa Waiver Program Improvement and Terrorist Travel Prevention Act of 2015, which make changes to the existing visa waiver program.
• Healthcare: The bill includes a two-year delay of the excise tax on high cost health plans (Cadillac Tax), a one-year delay of the Health Insurance Tax (HIT) and a five-year extension of 9/11 Victim’s Compensation Fund (VCF) and extension of the James Zadroga 9/11 Health and Compensation Act through 2090.

The text of the FY 2014 Omnibus Appropriations bill and a summary of key programs and issues can be found here and here.

Tax Provisions

Among the most salient tax provisions are a permanent extension of the R & D tax credit and a five year extension of bonus depreciation (with a gradual phase down in later years from the current 50 percent level). Nonprofits can benefit from permanent extension of several charitable tax incentives, particularly one that permits favorable tax treatment of withdrawals made by senior citizens from their IRA accounts for the purpose of charitable donations. A summary of the tax provisions is available here.

“The tax extender package, while less ambitious than some had hoped, is ultimately a solid benefit for the national economy,“ said Mr. English. “The combination of a permanent R&D credit, permanently expanded Section 179 expensing, and an extension and broadening of bonus depreciation will incent increased investment in capital stock, innovation, and jobs. The moratorium on the medical device tax will preserve innovation in that space, while contributing to the broader benefits for the technology sector. Ultimately, this will make the tax code more predictable as Congress contemplates broader reform.”

“This compromise includes tax incentives that provide strategic relief for working families attempting to ascend the economic ladder and rebuild family assets in the wake of the Great Recession,” said Mr. English. “The changes from EITC and CTC balance the tax relief and provide hope for many struggling families.”