Legislative Update: Congress Starts Second Session With a Crowded Agenda Focused on Appropriations

Congress Starts Second Session With a Crowded Agenda Focused on Appropriations

Congress returns this week to a crowded agenda, with House Republicans planning to resume work on fiscal year 2026 appropriations bills as their top priority, as the current continuing resolution funding the government expires on January 30.  After operating under stopgap funding throughout fiscal year 2025, lawmakers are attempting to reestablish regular order by resuming their role in setting detailed appropriations levels for federal agencies and programs.  It appears that neither party is seeking to use a government shutdown as political leverage at this time.

Congressional leaders unveiled the first package of bills, which includes the Commerce-Justice-Science, Energy-Water, and Interior-Environment measures (H.R. 6938). Congress will then turn to another minibus, composed of the Financial Services, Homeland Security, and State-Foreign Operations spending bills.   Finally, they plan to then take up the Defense, Labor-HHS, Education, and the Transportation-HUD bill.

The Energy and Water portion of H.R. 6938  significantly boosts funding for federal water infrastructure, increasing appropriations for the Army Corps of Engineers by roughly 20%.  The Corps would receive $10.4 billion—21% more than fiscal year 2025 and well above the administration’s request—with major increases for operations and maintenance, construction, and Mississippi River and tributaries flood control projects, all limited to congressionally authorized activities. The measure relies on updated budgetary treatment of the Harbor Maintenance Trust Fund to provide $3.5 billion outside discretionary spending caps, rejects the administration’s proposal to restructure trust fund accounts, and directs that funding decisions not be constrained by Office of Management and Budget metrics or administration policy preferences.

The bill reduces EPA funding by 3% to $8.8 billion and bars the implementation of numerous EPA regulations and standards, but provides $4.7 billion more than the administration’s request. Most EPA accounts and programs would see funding reductions. Within the environmental programs and management account, funding would total $3.1 billion, 3% below fiscal year 2025, with targeted cuts across enforcement, compliance, clean air and water programs, indoor air and radiation activities, legal and regulatory reviews, toxic risk prevention, and hazardous waste control, while funding for safe drinking water activities and pesticide licensing would be held flat at prior-year levels.

The measure would provide $4.4 billion in fiscal year 2026 for EPA state and tribal assistance grants, a modest 1% increase over fiscal year 2025 and $3.7 billion above the administration’s request.  Within this total, $3.3 billion would be allocated for infrastructure grants, and $1.1 billion for categorical grants, with funding for the Clean Water and Drinking Water State Revolving Funds held at fiscal year 2025 levels. Most other infrastructure and categorical grant programs would also remain flat, though the measure increases funding for wildfire smoke preparedness and provides small boosts for certain pollution control, air quality, and water system oversight grants, while reducing funding for recycling infrastructure by 30% to $3.5 million; Brownfields funding is maintained at current levels with a combined total of $170 million.

The measure also provides $72 million (equal to FY 2025) for the Water Infrastructure Finance and Innovation Act (WIFIA) program, which helps finance long-term, low-cost supplemental loans for the construction of regionally and nationally significant water infrastructure projects. The total includes $65 million to subsidize loans and $8 million to cover the program’s administrative expenses.

In its administrative provisions, the measure requires EPA to submit a report outlining a plan to qualify any fuel derived from waste plastic or waste tires as cellulosic biofuel under the Clean Air Act.

Other priorities include a vote on Congressional authority through the War Powers Act after President Donald Trump’s decision to use U.S. military force to capture Venezuelan President Nicolás Maduro.  Bipartisan Senate negotiators are continuing talks to revive expired Affordable Care Act tax credits, though key disagreements remain as the House advances a largely symbolic Democratic bill to extend the subsidies for three years. The House voted to move forward on the legislation with limited Republican support, with a final vote expected later this week, even as the Senate has already blocked a similar extension. In the Senate, discussions center on a potential compromise that would temporarily extend the credits while adding new guardrails, including limits on income eligibility and a ban on zero-premium plans.

The Senate’s schedule will also be shaped by executive branch confirmations and regulatory oversight. Votes are expected on several Trump nominees. Lawmakers are also preparing to consider additional resolutions under the Congressional Review Act, targeting Trump administration rules affecting EPA regulations.

Supreme Court Decision on IEEPA tariffs Could Reshape U.S. Trade Authority

The Supreme Court is expected to issue its first opinions of the year on January 9, marking the earliest opportunity for a decision in Trump v. V.O.S. Selections, which addresses whether President Donald Trump has authority under the International Emergency Economic Powers Act (IEEPA) to impose broad tariffs. While there is no indication the IEEPA ruling will be released immediately, the case has moved on an expedited timeline relative to typical Supreme Court proceedings, suggesting a decision could arrive earlier than the historical average of roughly 100 days following oral argument. Lower courts have ruled against the administration, finding that IEEPA does not authorize tariffs of this scope and duration and invoking the major questions doctrine to require clear congressional authorization, though dissenting judges at the Federal Circuit argued for broader executive authority under the statute.

Based on oral arguments and judicial signals to date, a majority of the Court appears inclined to rule against the administration, though the ultimate scope of any ruling remains uncertain. The Court could broadly bar tariffs under IEEPA or adopt a narrower holding that limits only tariffs of the scale imposed by the administration. Even if the tariffs are invalidated, refunds would not be automatic or immediate for most importers. The Court would likely remand the case to the Court of International Trade (CIT) to determine the mechanics of refunds, a process that could take several months to establish and years to fully implement.

In anticipation of a potential adverse ruling, nearly 1,000 importers have filed protective lawsuits with the CIT to preserve their ability to seek refunds. While the CIT has denied preliminary relief ahead of the Supreme Court’s decision, it has affirmed its authority to order reliquidation and refunds if the tariffs are found unlawful. Historical precedent suggests that refunds could ultimately be made broadly available, though distributed over an extended period. Importantly, recent comments from the CIT indicate an expectation that refunds would be accessible to a wide universe of affected companies if the IEEPA tariffs are struck down.

If the Court invalidates the IEEPA tariffs, the administration has signaled it may pursue alternative statutory authorities to reimpose tariffs, including Sections 122, 301, or the largely untested Section 338 of U.S. trade law. Of these, Section 301 is viewed as the most likely path, though it requires an investigation that would likely delay new tariffs until the latter half of the year and result in narrower coverage than the current IEEPA regime. While Section 122 tariffs could theoretically serve as a short-term bridge, political and procedural complications make that approach uncertain.

Political considerations may further constrain the administration’s next steps. Approval ratings on economic issues and tariffs are notably weaker and Republican lawmakers have shown increasing discomfort with tariff policy, including bipartisan votes to overturn prior actions. In this environment, congressional resistance and electoral dynamics may encourage the administration to delay or limit new tariff actions until after the midterm elections, even if alternative authorities are legally available.

Trump administration exits UN climate framework, deepening break with global efforts

President Donald Trump has announced that the United States will withdraw from the United Nations Framework Convention on Climate Change, as well as dozens of other international organizations that the White House argues promote “radical climate policies” and constrain U.S. sovereignty. The 1992 convention underpins global climate cooperation among 198 countries.  The U.S. was an original signatory under President George H.W. Bush.

Administration officials say the withdrawal is needed due to costly and ideologically driven global governance. Secretary of State Marco Rubio stated the organizations being abandoned seek to limit U.S. sovereignty and divert taxpayer resources without clear benefits. The move follows Trump’s renewed pressure on other countries to roll back emissions-cutting policies and comes as the administration has decided not to participate in recent U.N. climate negotiations, including last year’s COP talks in Brazil. It also coincides with the imminent U.S. exit from the Paris Agreement, which was negotiated under the UNFCCC framework.

Legal experts remain divided on whether a future president could rejoin the treaty without new Senate approval, given that the Senate ratified the convention unanimously more than three decades ago. Under the treaty’s terms, the U.S. withdrawal will take effect one year after formal notification is submitted to the United Nations.

Fragile House Margins Due to Deaths, Resignations, and Absences

The unexpected death of California Republican Doug LaMalfa and the resignation of Georgia Republican Marjorie Taylor Greene have highlighted the narrow and volatile nature of the House Republican majority. Republicans entered the 119th Congress with a slim edge following their 220–215 victory in the 2024 elections, but a series of deaths, resignations, and appointments to the Trump administration have steadily eroded that margin. With LaMalfa’s death and Greene’s departure, Republicans currently hold 218 seats to Democrats’ 213, a functional majority that is even tighter given health-related absences, including Rep. Jim Baird (R-IN), who is recovering from a serious car accident.

While a midyear shift in House control remains unlikely, it is no longer inconceivable, particularly given the timing of multiple special elections. Democrats are assured of gaining one seat following a January runoff in Texas’s 18th District, while Republicans are favored to retain Greene’s heavily Republican Georgia seat and LaMalfa’s California district under existing lines. Democrats are also expected to hold New Jersey’s 11th District after former Rep. Mikie Sherrill resigned to become governor. Assuming outcomes track district partisanship, Republicans could eventually return to a full 220–215 majority, though only after months of uncertainty and staggered elections.

Even if Republicans retain nominal control, Speaker Mike Johnson faces ongoing challenges governing with razor-thin margins, unreliable attendance, and internal dissent from members unwilling to consistently support the White House. As a result, legislative action is likely to remain difficult, reinforcing the reality that in the 119th Congress, even a single seat—or absence—can have outsized consequences for control and governance.

Class I Railroads Challenge Completeness of Union Pacific–Norfolk Southern Merger Filing

Several Class I railroads are urging the Surface Transportation Board (STB) to deem the Union Pacific–Norfolk Southern merger application incomplete and require the applicants to submit additional information before the board proceeds with substantive review. In filings focused on the adequacy of the 6,692-page application (not the merits of the merger itself) competitors argue that Union Pacific and Norfolk Southern failed to disclose the full merger agreement and omitted critical analyses required under STB rules. Several railroads contend that selective disclosure undermines the regulatory process and prevents a meaningful assessment of the transaction’s competitive and public-interest impacts.

Canadian Pacific Kansas City and Canadian National argue the application downplays likely downstream consolidation and inadequately analyzes competitive harms, despite the plausibility that a transcontinental merger could prompt further industry combinations. They also criticize the lack of underlying data supporting claims that the deal would shift more than two million truckloads to rail, noting that key third-party datasets were not provided and would be costly for intervenors to obtain independently. CN further asserts the filing fails to identify all shippers that would lose rail-to-rail options and omits information on overlapping lines, casting doubt on the applicants’ characterization of the merger as largely end-to-end.

Additional filings from CSX and BNSF highlight alleged deficiencies in projected market-share analyses and unresolved control issues involving terminal and belt line railroads already subject to board proceedings. CSX argues that truck-to-rail competition cannot substitute for the statute’s requirement to assess competition among rail carriers. The board is expected to decide later in January whether to accept the application as complete.

Trump to deliver February State of the Union

President Donald Trump is expected to deliver the first State of the Union address of his second term on February 24, following a formal invitation from House Speaker Mike Johnson. The address will come at a politically sensitive moment, landing just weeks before a January 30 funding deadline as lawmakers race to avert another government shutdown. Trump is expected to use the speech to outline his 2026 legislative priorities ahead of the midterm elections, building on earlier pushes such as making his 2017 tax cuts permanent and advancing proposals on crime, immigration, housing, and health care. He has also signaled plans to urge Congress to restrict large institutional investors from purchasing single-family homes. International issues are likely to feature prominently as well, following recent U.S. military actions in Venezuela and the capture of President Nicolás Maduro.

Industry Pushes Congress to Revive Bipartisan Permitting Deal Amid Mounting Tensions

Business and industry groups intensified pressure on Congress this week to finalize bipartisan permitting reform legislation, arguing that regulatory uncertainty is delaying major infrastructure, manufacturing, mining, and energy projects. Representatives from the U.S. Chamber of Commerce, the National Mining Association, the Data Center Coalition, and other trade groups conducted a coordinated “day of action” on Capitol Hill, urging lawmakers to capitalize on recent momentum after the House passed SPEED Act (H.R. 4776) sponsored by House Energy Subcommittee Chairman  Rep. Bruce Westerman (R-AR) to overhaul the National Environmental Policy Act (NEPA). Industry leaders emphasized that despite the compressed election-year calendar, Congress must move quickly to deliver a bill that President Donald Trump can sign into law, contending that reforms to judicial review and environmental reviews are essential to accelerating investment and job creation.

This week, Senate Environment and Public Works Chair Shelley Moore Capito (R-WV) announced that the committee will hold a second hearing on the Federal environmental review and permitting process on January 28.   At a U.S. Chamber of Commerce event, Capito emphasized that, given the looming midterms, it is essential to take swift action to negotiate a Senate compromise on permitting reform and encouraged industry to help get more Democrats on board to get it over the finish line.

Efforts to reach a bipartisan deal, however, have been complicated by late-2025 changes intended to preserve Trump administration actions that blocked offshore wind projects. Those revisions prompted clean energy groups to withdraw support and hardened Democratic opposition, particularly after the administration announced a pause on large-scale offshore wind leasing due to national security concerns. Senate Democrats, including EPW Ranking Member Sheldon Whitehouse (D-RI)  and Martin Heinrich (D-NM), the Ranking Member of the Senate Committee on Energy and Natural Resources, have argued that the administration’s approach undermines confidence that any permitting deal would be faithfully implemented, with Heinrich stating that changing the law is futile if the executive branch does not intend to follow it. Westerman and industry allies countered that congressional action is precisely needed to constrain executive overreach and provide durable, technology-neutral certainty across administrations.

Administrations Implement Additional Permitting Reforms with Shift in NEPA Oversight and Streamlining for Data Centers 

The policy debate over permitting continues to intensify as the White House Council on Environmental Quality (CEQ) finalized rules eliminating binding NEPA regulations that had guided agencies for nearly five decades, replacing them with nonbinding guidance. The final rule formally shift responsibility for environmental review procedures from the CEQ to individual federal agencies and was issued in response to more than 100,000 public comments.  Specifically, it rescinds regulations dating back to 1977 and follows a D.C. Circuit ruling finding that the council lacks authority to promulgate binding NEPA rules, as well as an Inauguration Day executive order directing the administration to replace those rules with nonbinding guidance. Administration officials argue the move will streamline permitting and accelerate approvals for infrastructure and energy projects, citing early agency actions to narrow NEPA applicability and expand categorical exclusions. Legal challenges are already underway, including litigation targeting the Interior Department’s expedited project approvals and interim NEPA procedures.

In related permitting news, the U.S. Army Corps of Engineers finalized its five-year reissuance of Clean Water Act nationwide dredge-and-fill permits, with a notable modification to streamline permitting for data centers and artificial intelligence facilities. The final package, published in the January 8 Federal Register, reissues 56 existing nationwide permits and adds one new permit, while declining broader industry requests to expand the overall program. In response to comments, the Corps modified Nationwide Permit 39 to explicitly include data centers, AI and machine learning facilities, and pharmaceutical manufacturing and storage as eligible commercial developments, allowing these projects to qualify for streamlined authorization while remaining subject to limits intended to ensure no more than minimal environmental impacts.