The coming months represent a pivotal window for the future of many government programs as well as projects that rely on tax credits or federal grants. The outcome of ongoing Congressional discussions about the esoteric budget reconciliation process could shape our communities for the next several decades. LOCUS, Smart Growth America’s coalition of real estate developers and investors who advocate for sustainable, equitable, walkable development, stands ready to support developers and smart growth advocates to understand how this process impacts opportunities for much-needed community development and housing investment. LOCUS can also help stakeholders engage directly with Congress to advocate for the protection and expansion of core programs and incentives.
Whether you’re interested in the outcome of the yearly appropriations bills for Fiscal Year 2025 (FY2025), the fate of Opportunity Zones and the Low Income Housing Tax Credit, or if the government is headed for a shutdown in March, now is a critical time to be following Congressional activity. With a new Republican majority in the Senate, Congressional Republicans are looking to enact several of their marquee legislative proposals quickly. One of the most powerful processes to do so is budget reconciliation, a legislative tactic that allows the party with a majority of votes in both chambers to avoid the filibuster’s 60 vote threshold in the Senate. Bypassing the 60 vote threshold creates a path forward for party-line bills at the simple majority threshold–but only if the majority can hold themselves together. In the last several years, Congressional Democrats have utilized the reconciliation process to pass the American Rescue Plan and the Inflation Reduction Act. During the last Trump Administration, Congressional Republicans used it to pass the 2017 tax bill.
What is budget reconciliation?
The budget reconciliation process is an optional budget enforcement mechanism authorized by the Congressional Budget Act of 1974 that allows Congress to consider certain legislation under an expedited process. To initiate the process, the House and Senate Budget Committees must pass a budget resolution that provides a set of instructions for the reconciliation negotiations. These instructions direct the relevant committees of jurisdiction to craft legislation that aligns with spending targets laid out in the budget resolution–whether increases or decreases in spending. The committees then prepare legislation and submit it to their respective budget committees, who in turn combine them into a comprehensive reconciliation bill or bills.
Right now, Congressional Republicans are working on the first step of this process, the budget resolution. It’s helpful to note that the budget resolution isn’t the “deal,” per se, it’s the idea or the framework of the deal. While the resolution will set the direction–increases or decreases in spending for particular policy areas–the actual tax provisions and funding cuts enacted would still need to be decided on and agreed to by both chambers in the second stage of the process.
The reconciliation process also has a few additional key requirements that can throw wrinkles into the best laid plans. First, to be safe from being stricken in the Senate, all text must have explicit budget implications, as determined by the Senate Parliamentarian. Under the Byrd Rule, as this process is known thanks to Senator Robert Byrd who championed the requirement, any Senator may raise an objection to a provision that has no budgetary effect or does not comply with the budget resolution.
One bill or two bills?
At this moment, there is still a good deal of uncertainty as to whether or not the Republicans will pass a budget resolution that instructs the relevant committees to create one “big beautiful bill” or the first of two bills. House Republicans are pushing a budget resolution that calls for one comprehensive piece of legislation that tackles a sweeping assortment of their policy priorities, including tax policy, defense spending, and border security funding. Many key smart growth opportunities, such as housing credits, have the potential to be addressed through tax policy. The Senate, by contrast, is preparing a two bill approach with a resolution pertaining to border, defense, and energy policy in the first round and a resolution and bill on tax policy in a second round. The Senate plans to vote this week on their resolution, while the House plans to bring theirs to the floor next week.
Republicans in the House and Senate are navigating active disagreement within their own ranks on how much needs to be cut and from where. While both the House and Senate Budget Committees were able to pass a resolution, the resolution that would kick off the House’s one bill approach calls for heavy cuts that may jeopardize its successful passage on the House floor. For example, the House Budget Committee-passed resolution calls for $880 billion in cuts over the next ten years from programs under the jurisdiction of the House Committee on Energy and Commerce, which would put the EPA’s Brownfields program at risk of cuts. Meanwhile, fiscal hawks have demanded even further cuts beyond what is already proposed. Senate Budget Committee Chairman Lindsey Graham has framed the Senate’s alternative two bill approach as a back up plan should the House effort fail to move forward in a timely manner.
Regardless of path, the two chambers will need to resolve their differences at some point because the House and Senate must ultimately pass resolutions with the same set of instructions in order to move to the next stage of the reconciliation process.
How does each legislative route shape the policy included in the legislation?
The timing and nature of the policy fight in reconciliation will be dictated by which legislative route is the final path forward. If a budget resolution instructs Congress to prepare one bill it would, for better or worse, tie all of the Republican policy priorities into one package, meaning tax provisions would be debated simultaneously with major funding cuts. In this situation, new or potentially restored smart growth initiatives, such as the brownfields redevelopment tax incentive or the Neighborhood Homes Investment Credit, would compete alongside existing programs and incentives for limited funding. Spending cut goals would threaten the topline funding for core programs while the merits of the Low Income Housing Tax Credit, the New Market Tax Credit, and select amendments or extensions to the Opportunity Zones program would also be considered. If Congress instead takes a two bill approach, the budget resolution would instruct Congress to first prepare a more limited bill, focused on identifying funding cuts without a larger tax debate occurring at the same time.
In addition, the future of the FY2025 funding bills remains uncertain and a government shutdown looms in mid-March. With reconciliation in the spotlight, the yearly appropriations bills have languished. Those measures have already been delayed several times and include baseline funding for core programs. If Congress chose to pass another continuing resolution, they may extend its effective period to a full year, functionally kicking all funding changes to Fiscal Year 2026. Doing so could mean no community projects (also known as earmarks) would receive funding, newly authorized programs would not be funded, and no programs would receive funding increases.
What’s next and what do we do?
Given the difficulty even agreeing to the idea of a bill, it is not a foregone conclusion that successfully passing a budget resolution means Republicans will be able to successfully deliver a reconciliation bill to the President’s desk. That said, Republican leaders have framed reconciliation as a primary way to deliver on many of President Trump’s campaign promises and the pressure to get at least a significant swath of those proposals across the finish line is strong.
The substance of what will be cut to reach the targets in either resolution is still unclear–the targets themselves are more of a conceptual values exercise that is difficult to fight in the abstract. This reality makes it challenging to successfully argue with any Congressional office that a given program should be protected because it’s currently unclear, to both stakeholders and members offices, what the specific threat to that program is relative to others. That will change once the resolution is agreed upon and the detailed negotiations begin, which makes now the time to ensure that you are in touch with your delegation and that they understand the importance and value of key smart growth tools in their district.
Moving forward, interested observers should closely track whether Congressional Republicans are able to pass a budget resolution and, if they do, quickly determine which programs of interest might be under threat of cuts given the scope and targets laid out in the resolution. Strong and direct advocacy on behalf of core incentives and programs like the Low Income Housing Tax Credit, the New Markets Tax Credit, the proposed Neighborhood Homes Investment Credit, the brownfields grant program, and other critical programs will be essential if they are to be protected or expanded in the final legislation.
In the next few months, the Republican majority in Congress could succeed in advancing many of President Trump’s priorities, but there will be a sustained battle on the politics and substance of the final package. For smart growth outcomes, the devil will be in the details we have not yet seen.
For additional information on the history and previous applications of the budget reconciliation process, see here.