Key Points of the Fiscal Responsibility Act of 2023
Amidst debt ceiling crisis fears, President Biden signed the Fiscal Responsibility Act of 2023 (“FRA”) on Saturday, June 3rd. The main function of the Act was to prevent the United States from defaulting on its debt obligations. The Bill was passed following tough negotiations and signed just two days before the government was predicted to run out of adequate funds. The Bill did not raise the debt ceiling, but instead suspended it entirely until January 1, 2025. The suspended ceiling will allow the United States government to continue to operate and borrow money to service its debts.
As with most pieces of legislation, the bill has many underlying elements. We have tried to outline below some of the details that may be most relevant to clients as we continue to learn more about the government’s plans to address the country’s debt levels:
Student Loan Repayments: Federal student loan repayments have been paused since March 2020 due to the COVID-19 pandemic. The FRA, however, prevents the extension of the pause beyond August. The Act confirms a hard deadline for the pause to end on August 29th, with first billing dates starting in late September or October. The Fresh Start program as well as other loan forgiveness programs will still be available and can be found at studentaid.gov.
Social Security and Domestic Spending: The bill did not introduce any major changes to Social Security, Medicare, or Medicaid. However, it raised the work requirement age from 49 to 54 for food stamp eligibility, meaning that under the Supplemental Nutrition Assistance Program, or “SNAP”, individuals up to age 54 will have to work or participate in qualifying activities at least 20 hours per week. Veterans, homeless individuals of all ages, and adults under age 25 who were previously in foster care will be exempt from these requirements.
Increased Military Spending: The bill aims to increase access for veterans to food stamps, and notes that Veteran’s health benefits are exempt from any discretionary spending cuts. Military spending overall will increase to $886 billion in 2024, and to $895 billion in 2025, with the increase supporting the Department of Defense’s largest-ever investments in readiness and procurement, as well as research and development.
Energy and Environment: The bill amends the review process under the National Environmental Policy Act (NEPA) to streamline the application process for upcoming projects. NEPA’s scope will be limited to exclude projects with “no or minimal Federal funding” or “with no or minimal Federal involvement”. While these changes are expected to facilitate the development of a wider range of environmental and energy products, their true impact on the Biden Administration’s overarching climate objectives is yet to be fully determined. The FRA also issued permits for the Mountain Valley Pipeline, a natural gas pipeline running 304 miles from West Virginia to southern Virginia. A notable provision is that these permits are immune to judicial review.
Reports of the debt ceiling agreement indicate that there are several informal spending changes to be implemented in future legislation to increase savings. Most of the savings are to come from cutting almost $250 billion from nondefense discretionary spending caps over the next two years. These would include rescinding unused COVID-19 relief and further cutting IRS funding. From here, Congress must pass 12 smaller, individualized budget bills. This is a change from the one “omnibus” bill that has become more common.
Comfort can come from the fact that the agreement allows our nation more time to address the larger problems while taking steps toward cutting down spending. In fact, the Congressional budget office estimates the new bill will ultimately reduce government spending by $1.5 trillion over the next decade, though many find this figure to be overly optimistic. In short, the United States is not at risk of defaulting until 2025, at which point the spending caps are repealed, and the budget will be decided at Congress’s annual budget meeting.