December 7, 2023

Washington Wire: The Final Week of the 117th Congress



The Final Week of the 117th Congress 
Early on the morning of December 20, 2022, lawmakers on Capitol Hill unveiled a bipartisan $1.7 trillion FY 2023 federal government spending bill that includes $858 billion in defense funding and $772.5 billion for non-defense spending. Most expect both the House and Senate to vote and pass the bill this week. Well past the start of the 2023 fiscal year that began on October 1, 2022, Congress faces a December 23 deadline to pass this omnibus spending package combining a dozen bills to fund the federal government through September 30, 2023. Had lawmakers failed to come to an agreement this week, they considered passing a longer-term temporary measure funding operations at lower levels causing significant disruptions, particularly at the Defense Department. 
Lawmakers could not agree on including tax provisions sought by members of both parties. Democrats pressed for restarting and expanding the Child Tax Credit, while Republicans pushed for only including a provision to reinstate full immediate expensing for the bipartisan Research and Development credit, which is now amortized over five years as of January 1, 2022. This results in the status quo for businesses who had hoped for a fix for R&D, 163(j), and prevention of 100 percent Bonus Depreciation falling to 80 percent on January 1, 2023. Given the divided Congress starting in 2023, prospects for moving tax legislation appear slim next year.
The bill presented the first opportunity for Congress to fund the bipartisan CHIPS and Science Act of 2022 that President Biden signed into law on August 9, 2022, by providing $1.8 billion in new funding for implementation. It also includes $500 million for the new Regional Technology and Innovation Hub Program, both of which were authorized for the first time in the CHIPS and Science Act, and a 34 percent increase in funding levels for the National Institute of Standards and Technologies.
The omnibus includes an increase of $545 million from the FY 2022 amounts for the Employment and Training Administration which provides increased funding for the Workforce Innovation and Opportunity Act State Grants and the Strengthening Community College Training Grants. The bill also provides a total of $1.4 billion for Perkins CTE State Grants, an increase of $50 million, and increases by $500 the maximum Pell Grant to $7,395. For regulatory enforcement and other activities, the legislation increases funding for OSHA by $20 million and the NLRB by $25 million. President Biden is expected to sign the funding bill as soon as he receives it from Capitol Hill. 



DoD Contractors Can Seek Inflation Relief Under Defense Bill
The National Defense Authorization Act (NDAA) for fiscal year (FY) 2023 provides the Department of Defense (DoD) with the temporary authority to modify certain fixed-price contracts through a change to the law on extraordinary contractual relief (ECR), P.L. 85-804. Under this new law, an existing contract may be amended or modified when such actions are necessary to facilitate the national defense.
The NDAA gives the Secretary of Defense temporary authority, through the end of 2023, to adjust fixed-price contracts of contractors facing cost increases “due solely to economic inflation.”
Prime contractors can seek relief from the DoD for inflation-related cost increases for themselves as well as their subcontractors. If a prime contractor does not apply for relief, subcontractors can apply for themselves directly.
The provision in the NDAA also increases the approval thresholds under ECR, thus making it easier to be granted a greater amount of relief. Currently, any contract adjustment over $50,000 must be approved by at least an Assistant Secretary or their Deputy. The NDAA increases that threshold to contract adjustments above $500,000. Larger adjustments of $25 million or more currently must have Congressional approval. That threshold is increased to $150 million.
There are still a lot of questions regarding exactly what evidence contractors will have to present to prove that cost increases are “due solely to economic inflation.” Guidance on implementation is required by the DoD 90 days after passage, which would put the release sometime in March.



USTR Extends China 301 Exclusions
The Office of the U.S. Trade Representative has extended over 350 exclusions to the Section 301 tariffs on Chinese goods. The exclusions, which were previously reinstated in March 2022 after a targeted review of exclusions that had been previously granted and extended, have been extended for an additional nine months. The exclusions for the 352 products were originally set to expire at the end of 2022 but will now end on September 30, 2023. USTR is engaged in a statutorily mandated review of all of the tariffs on goods from China imposed by the Trump administration under Section 301 of the Trade Act of 1974. Comments are being accepted by USTR through January 17, 2023, on the effectiveness of the 25 percent and 7.5 percent Section 301 tariffs on more than 10,000 Chinese imports. The tariffs will remain in place as USTR continues its review.



UK Signs Another State-Level Trade Agreement
The United Kingdom has signed another state-level trade deal with South Carolina, continuing its “twin-track approach” towards trade, pursuing individual trade deals with states while waiting on the U.S. federal government to move forward with a comprehensive free trade agreement.
The signing of the “trade and economic development Memorandum of Understanding” with South Carolina on December 7, 2022, came as the UK Minister for Trade Policy Greg Hands was in the U.S. for a three-state, four-day, coast-to-coast tour to assess ways to “boost trade and investment ties with individual states.”
According to the MOU, the UK and South Carolina will prioritize two sectors for “facilitating increased trade opportunities”: The automotive sector, including electric vehicles and parts; and “life sciences,” which could include the pharmaceutical, biotechnology, and medical-related industries.
The MOU is the third signed between states and the UK, joining agreements signed by North Carolina and Indiana. The UK has also stated they aim to have an MOU in place with Utah in early 2023. The UK actions are a result of few in Washington or London believing the Biden administration will pursue a U.S.-UK free trade agreement in the coming year.

EPA Begins Review of NOx Standards
The Environmental Protection Agency (EPA) has taken the first step in the rulemaking process for the primary national ambient air quality standards (NAAQS) for nitrogen oxides (NOx). On December 9, 2022, the EPA issued a notice asking for public input on which studies it should include in a future integrated science assessment (ISA) on the harmful effects of exposure to NOx. The ISA is the basis for the primary NOx NAAQS rule.
Under the Clean Air Act, the EPA is required to review NAAQS every five years. The last review of the primary NOx standards occurred in 2018, during which the EPA decided to retain the limits set in 2010. Those standards set the one-hour NOx NAAQS at 100 parts per billion (ppb) of nitrogen dioxide (NO2) and retained the annual primary level of 53 ppb, originally set in 1971.
A NAAQS review typically takes years to complete, putting EPA behind schedule to produce a final rule by the statutory deadline of five years or by spring 2023. EPA also faces a February 9, 2024, consent decree deadline to propose secondary standards for NOx as part of a combined rulemaking that would also set secondary limits for sulfur oxides (SOx) and particulate matter (PM). EPA must finalize the combined rule by December 10, 2024. Primary NAAQS are required by the Clean Air Act to protect public health, while secondary standards are designed to protect the environment.