Democrats Entering Crucial Period to Pass Reconciliation Bill Replacement for BBBA

While the Build Back Better Act (BBBA) as it was originally intended and drafted last year is dead (including its name: expect a new bill title to emerge this month), some of proposals from it remain viable in a revised budget reconciliation bill. Democrats are about to enter a crucial phase if they hope to pass revised legislation that includes clean energy provisions and could include some housing provisions.

The fate of those provisions–at least for this session of Congress–could be settled in the next few months.

It’s partly a product of the calendar: The U.S. Senate has three upcoming working periods during which an agreement would likely need to be reached, starting with the work period from April 25 through May 27. The later negotiations heat up, the tighter the window to pass legislation.

While it’s conceivable a bill could pass in August or later, the looming midterm elections in November make that a much steeper hill to climb. For stakeholders in the green energy and affordable housing worlds, the last, best hope for some provisions is the next few months.

Smaller Legislation

When Sen. Joe Manchin, D-West Virginia, announced in December that he would not support the BBBA, he ostensibly killed the $2.2 trillion legislation (scaled down from $3.5 trillion), which President Joe Biden supported and the House of Representatives passed.

Months later, the result is a focus on passing a smaller bill that contains some of the provisions. How much smaller is not entirely clear at the time of writing this column. It is obviously not going to be $2.2 trillion and probably not $1.5 trillion, a top-line amount to which Manchin had agreed with Senate Majority Leader Chuck Schumer, D-New York–a figure that was infamously memorialized in a document last July. Manchin appears to no longer support that overall amount given his concerns about inflation, which become more of an economic and political liability over the intervening months. However, it is unclear how much lower than $1.5 trillion Manchin is comfortable supporting now.

Beyond the top-line amount, the choices aren’t binary, they’re nuanced. Manchin’s opposition was enough to sidetrack the legislation, since the Senate has a 50-50 split. But Manchin wasn’t opposed to all provisions–particularly the most of the green energy proposals.

That is good news for those in clean energy. And possibly good news for those in affordable housing.

A revised bill could have provisions from the original legislation, but like the BBBA, it would have to be passed under budget reconciliation. The 50-50 split in the Senate means one senator (in this case, Manchin, but depending on the issue could also involve Sen. Kyrsten Sinema, D-Arizona) can throw a wrench in the works–so Democrats need Manchin’s support to pass reconciliation legislation.

It’s possible, but legislation that could pass would be slimmed down from the BBBA.

Most Likely to Survive

The House-passed BBBA contained $325 billion in clean energy tax incentives, including extensions and expansions of the renewable energy investment tax credit (ITC) and production tax credit (PTC); extending and modifying the Internal Revenue Code Section 25D tax credit for residential energy-efficient property; making additional technology eligible for the ITC; providing a direct-payment option for certain renewable sources; allowing ITC not to reduce low-income housing tax credit (LIHTC) basis and more. When Manchin voiced his opposition to the overall bill, he indicated a willingness to approve most of the clean energy provisions (with notable exceptions of an electric vehicle tax credit bonus for vehicles built in facilities with union labor and a $900-per-ton methane fee). That’s good news for clean energy supporters.

If you break the BBBA provisions into tiers based on the likelihood of them being included in new legislation, the clean energy provisions are in the top tier, along with such issues as reducing drug prices, Pre-K education and certain health care incentives. According to Bloomberg, Senate Finance Committee Chair Ron Wyden, D-Oregon, said his three priorities in a revised reconciliation bill are clean energy, health care and addressing tax avoidance, which could fit within the framework Manchin is proposing.

Should new legislation expand beyond the first tier of provisions–possible, but no guarantee–the next level includes a robust set of tax provisions, since Manchin (and Wyden) indicated interest in raising revenue. The expansion of the LIHTC and creation of the neighborhood homes tax credit (NHTC) are both candidates to be part of updated reconciliation legislation in that scenario. Having a significant tax title in the reconciliation bill also potentially opens the door to making the new markets tax credit (NMTC) permanent and including some historic tax credit (HTC) proposals as well.

Other housing provisions–including all of a proposed $156 billion in spending for housing and community development–seem unlikely to be part of updated legislation.

Again, though, this isn’t an all-or-nothing proposition. It’s possible that multiple provisions of the original BBBA could be part of new legislation, just at a reduced level. There could be additional housing and community development spending, just at a reduced level. Most likely to survive is the supplemental funding for the public housing capital fund.

As mentioned above, the overall top line amount for the bill is unclear, but the closer that amount is to $1.5 trillion, the more likely that the LIHTC, NHTC, NMTC and HTC provisions will be included, as well as any amount of supplemental housing and community development spending.

Timeline

A reconciliation bill has a statutory deadline of Sept. 30, which is when the current budget resolution expires. The practical deadline for such legislation is probably much earlier.

The Senate has three major working periods between now and late summer–and for reconciliation legislation to pass, early, significant progress would be helpful.

Following its Easter recess, the Senate will return from April 25 to May 27, when it takes the Memorial Day recess. Following that are two additional working periods–June 6-30 and July 11-Aug. 5. Since the last period ends after the House of Representatives begins its August recess, and because any revised reconciliation passed by the Senate would need be passed by the House, final action would need done by July 29.

Manchin has said he would like the revised reconciliation bill to go through the committee process, which would slow the pathway significantly given the 50-50 split in committee membership and would be a change from the American Rescue Plan, the most recent reconciliation bill that was passed without that step.

While it’s possible that the legislation could pass in September, the odds are very low to pass such legislation after the August recess. If the Senate Democrats hope to pass a bill that includes the issues that were addressed in the BBBA, the time to do it is soon.

Cost of No Passage

For Democrats in the Senate and the House, passage of some sort of legislation is important–both for the party and for their individual seats. With the midterm election in November, every House member and one-third of the Senate (including 14 Democrats) faces a ballot challenge. Even a slimmed-down version of the BBBA would be easier to campaign on for Democrats than no significant legislation.

In that scenario, it’s not the end of the road–particularly for tax provisions that expired at the end of last year, such as the PTC and the 12.5% increase in 9% LIHTC allocations; or provisions expiring at the end of this year, such as the 26% ITC, which is currently scheduled to step down to 22% in 2023. But the road becomes tougher.

Congress would likely consider tax extender legislation in late 2022 that could include an extension of the PTC, ITC and perhaps even some LIHTC provisions. But that extender legislation also would be considered after a midterm election that could change the power in the House and Senate, making it an attractive option to punt the decision to the next session of Congress that starts in January 2023.

At which time everything would start from scratch.