Legislative Update: Congress Returns With High-Stakes Agenda on Spending and Defense

Congress Returns With High-Stakes Agenda on Spending and Defense  

Congress returned from its August recess this week, facing a packed agenda, with lawmakers needing to distinguish between essential “must-do” measures and optional “want-to-do” items. The most pressing tasks are the FY26 spending bills and the FY26 National Defense Authorization Act (NDAA), which are likely to dominate the legislative calendar.

With just four weeks left before federal funding expires on September 30, Congress faces the urgent task of passing a stopgap measure to avoid a shutdown. Despite these urgent timelines, the legislative calendar is constrained by multiple recesses for religious and federal holidays. The fall session is thus expected to be marked by high-stakes negotiations over funding priorities, political positioning ahead of the midterms, and continued clashes between Congress and the White House over fiscal authority.

The situation has been complicated by President Trump’s use of a “pocket rescission” to block $5 billion in foreign aid, a maneuver that freezes funding until it expires at the fiscal year’s end. This technique, which critics argue is a form of unlawful impoundment, signals the administration’s intent to assert greater executive control over spending. OMB Director Russell Vought has defended the move as constitutional and part of a broader strategy to expand White House authority, reinforced by updated budget guidance that grants agencies more latitude in deferring funds. By targeting foreign aid, Trump has chosen a politically safer battleground, while setting a precedent for extending such tactics into more contentious areas of federal spending.

The maneuver has faced pushback from some Republicans, including Senate Appropriations Chair Susan Collins (R-ME) and Senator Lisa Murkowski (R-AK), who both condemned it as unlawful. Former budget officials, including several Republicans, also warned Congress against normalizing the practice. Still, widespread resistance from the GOP is unlikely, given the party’s broader deference to Trump. This dynamic complicates negotiations over FY26 spending, as Democrats question the utility of striking bipartisan deals that may be undercut by unilateral executive action.

The likely outcome is a reliance on continuing resolutions, which provide the administration greater flexibility compared to full appropriations. While congressional leaders are weighing extensions into late 2025, the White House has signaled a preference to delay action into 2026. Trump’s decision to prioritize fiscal control over bipartisan dealmaking increases the risk of brinkmanship and could fuel additional political clashes as the midterm elections approach, particularly if the administration expands pocket rescissions beyond foreign aid to more politically sensitive areas.

Meanwhile, Democrats are opposing all House GOP spending bills because of proposed cuts to nondefense spending and the inclusion of objectionable policy provisions. Sen. Patty Murray (D-WA), the top Democrat on the Senate Appropriations panel, signaled support for a short-term continuing resolution (CR) paired with three relatively uncontroversial full-year FY26 spending bills, provided the package avoids partisan policy riders, deep cuts, or a yearlong extension. Her stance aligns with Republicans’ emerging strategy, led by Sen. Susan Collins (R-ME) and Rep. Tom Cole (R-OK), to pass Military Construction-VA, Agriculture, and Legislative Branch bills alongside a CR covering the rest of the government. Murray stressed the importance of preventing another “slush fund” CR that gives the Trump administration broad spending authority, underscoring Democrats’ demand for congressional control over appropriations.

While House Speaker Mike Johnson (R-LA) faces pressure from conservatives to push a longer-term CR with spending cuts, both Cole and Senate GOP leaders have suggested a shorter extension into November, with the possibility of negotiating additional bills later. House and Senate Democrats, including Rep. Rosa DeLauro (D-CT), voiced willingness to negotiate in good faith. At the same time, Senate Republicans like John Thune (R-SD) emphasized avoiding another full-year CR. The debate over the duration of the stopgap measure remains the key sticking point, but the bipartisan interest in advancing at least some full-year bills marks a notable shift from recent years’ gridlock.

National Defense Authorization Act (NDAA)

The FY26 NDAA remains a must-pass measure, although flat funding under a likely continuing resolution limits the topline. Both chambers must reconcile differences in their bills, including provisions to reform Pentagon procurement.   The Senate held a procedural vote on its NDAA this week, giving senators more of a chance to shape the final bill this year than last year, when the upper chamber did not pass its own NDAA. Early-filed amendments encompass a broad range of issues, including housing policy.  The bipartisan ROAD to Housing Act passed unanimously by the Senate Banking, Housing, and Urban Development Committee, which would establish a new Department of Housing and Urban Development program for home repairs, increasing housing opportunity zones, accelerating home building, increasing housing incentives, affordability, and access, could also be a candidate to be a noncontroversial amendment to the NDAA that has broad real estate and home industry support.

Extenders

Several major programs are set to expire at the end of FY25, necessitating reauthorization to prevent disruption. These include Medicare telehealth flexibilities, community health center funding, select Farm Bill programs, and the National Flood Insurance Program. Lawmakers may attempt to bundle these into a broader bipartisan healthcare or spending package. However, partisan tensions—particularly over Republican efforts to cut Supplemental Nutrition Assistance Program (SNAP) benefits—could undermine bipartisan cooperation on the Farm Bill. The traditional balance between nutrition and agricultural interests is under strain, and failure to resolve it may result in short-term extensions tied to stopgap funding measures.

Nominations

Republicans are preparing to accelerate Senate confirmations in response to Democrats’ continued obstruction of Trump’s nominees. Majority Whip John Thune (R-SD) has suggested a rule change allowing multiple nominations to be voted on simultaneously, which would significantly weaken Democrats’ leverage. Such a change reflects broader Republican unity behind Trump and their determination to streamline the confirmation process ahead of the 2026 midterms.

Additional “Wish List” Legislation

Republican leaders have floated the possibility of a second reconciliation bill, building on the earlier One Big Beautiful Bill Act (now rebranded as the Working Families Tax Cuts). Proposals for the sequel include Medicaid reforms and deeper federal spending cuts, but momentum is weak. Still, the idea remains popular with conservative factions, including the Republican Study Committee, which has formed a working group.  Other possible measures include enhanced ACA premium subsidies that expire at the end of calendar year 2025, putting pressure on lawmakers to act. The subsidies are broadly popular among voters, and even some Republicans. Nonetheless, many conservatives remain opposed, complicating the path forward under unified GOP control.   There is also a significant push to establish a federal regulatory framework for digital assets, but progress may be slow. The bill requires Democratic backing to clear the 60-vote Senate threshold, and jurisdictional overlap with the Senate Agriculture Committee complicates matters further. While crypto legislation is a priority for some Republicans, it lacks the urgency of fiscal deadlines and may slip behind higher-stakes negotiations on spending and defense.

 

Energy-Water Appropriations Scheduled for House Vote

This week, the House is considering the FY26 Energy-Water Development Appropriations Act (H.R. 4553) under a structured rule that allows only specified amendments to be considered. The bill provides a net total of $61.0 billion.  The bill provides $9.9 billion for civil water projects of the Army Corps of Engineers, $1.2 billion (14%) more than FY 2025.  Included in the total is $6.1 billion (11% more than FY 2025) for operations and maintenance of corps’ water projects, and $2.6 billion (38% more) for construction activities. According to appropriators, the measure’s totals include almost $2.0 billion for flood and storm damage reduction activities and $397 million for construction projects on the inland waterway system. Funds could only be used for projects that are authorized. It is estimated to provide $6.2 billion more than President Trump requested. The committee says the measure includes $901 million in earmarks (also known as Community Project Funding) for 94 specified projects, the vast majority of which are Corps of Engineers projects.

Also, the Harbor Maintenance Trust Fund was modified in previous legislation to exempt certain trust fund expenditures from discretionary budget caps. It’s estimated that those budgetary rules would apply to $3.5 billion of Corps spending from the trust fund under the measure. The measure rejects the administration’s proposal to create a new Harbor Maintenance Trust Fund account and to shift studies and projects among accounts and business lines; instead, it funds all activities in the accounts in which funding has traditionally been provided.

Finally, the measure also provides $5 million (31% less than FY 2025) for the Corps’ Water Infrastructure Finance and Innovation Program (WIFIA), under which the Corps helps finance loans for building or repairing non-federal dams and levees.

 

Congress Revives Debate on NEPA Reform

Efforts to streamline environmental reviews for infrastructure projects have resurfaced as a major congressional priority, with Republicans and some Democrats pushing to overhaul the National Environmental Policy Act (NEPA). Former Sen. Joe Manchin’s (D-WV) failed 2022 attempt to lay the groundwork for continued discussions, and the GOP’s unified control of Congress has given new momentum to the issue. In July, House Natural Resources Chairman Bruce Westerman (R-AR), joined by Rep. Jared Golden (D-ME), introduced the SPEED Act (H.R. 4776), which narrows the scope of what qualifies as a “major federal action” under NEPA, reduces paperwork requirements, limits judicial review, and restricts opportunities to revisit completed reviews. Business and energy groups, including the National Association of Manufacturers and the American Council on Renewable Energy, have voiced support. The House Natural Resources Committee has scheduled a hearing next week on the bill and two other permitting reform bills.

On the Senate side, Environment and Public Works Chair Shelley Moore Capito (R-WV) and Ranking Member Sheldon Whitehouse (D-RI) have expressed interest in a bipartisan compromise but have yet to introduce legislation. Capito emphasized that reforms should help critical projects—such as energy infrastructure, housing, and transportation—without weakening environmental or health protections.

Despite this renewed momentum, significant obstacles remain. Republicans essentially seek to scale back NEPA and curtail judicial intervention, while Democrats emphasize transmission line permitting to speed renewable energy deployment. Liberal Democrats and environmental groups strongly oppose Westerman’s proposal, warning it would shield polluters and undermine climate protections, while Sen. Whitehouse cautioned that President Trump’s interventions against offshore wind projects raise doubts about the administration’s good faith in implementing any compromise. The recent halt to Orsted’s nearly completed Revolution Wind project underscores these concerns and could make Democrats reluctant to agree to reforms that risk being applied unevenly. While bipartisan interest in permitting reform has rarely been stronger, the combination of partisan divides, environmental opposition, and mistrust of the administration’s energy policy may once again prevent legislation from advancing.

 

Court Decisions Allow EPA to Rescind Billions from EJ and Climate Grants

A federal district court upheld the Environmental Protection Agency’s (EPA) authority to cancel $2.5 billion in environmental justice block grants created under the 2022 Inflation Reduction Act (IRA), dismissing environmentalists’ class-action suit in Appalachian Voices v. EPA. Judge Richard Leon ruled that the plaintiffs’ claims under the Administrative Procedure Act and constitutional provisions lacked merit, and determined that the Court of Federal Claims—not the district court—was the proper venue for disputes over the grant programs. The decision represents a major win for the Trump administration, which had already moved to terminate environmental justice offices and rescind unobligated funds through executive orders and the “One Big Beautiful Bill.”

Separately, another federal appeals court ruling cleared the way for the EPA to rescind nearly $20 billion in climate grants awarded under the Greenhouse Gas Reduction Fund (GGRF), a program created by the IRA. The decision reverses a district court injunction that had temporarily blocked the rescission after several nonprofit recipients challenged the EPA’s move as unlawful. Writing for the majority, U.S. Circuit Judge Neomi Rao argued that the dispute was contractual and belonged in the Court of Federal Claims, not the district court, and emphasized that the public interest favored government oversight of the multi-billion-dollar program. The EPA, under Administrator Lee Zeldin, defended the clawback by citing concerns over misconduct, conflicts of interest, and the unprecedented financial structure of the grants, which designated Citibank as the federal agent managing funds rather than the U.S. Treasury.  The case now shifts toward further litigation in the Court of Federal Claims.

 

EPA Advances WOTUS Revision to Align with SCOTUS’ Sackett Ruling

The EPA advanced its proposal to revise the definition of “waters of the United States” (WOTUS) under the Clean Water Act by sending the draft rule to the Office of Management and Budget for interagency review. The rule, which EPA and the Army Corps of Engineers aim to finalize by the end of 2025, is designed to align federal regulations with the Supreme Court’s Sackett v. EPA decision that narrowed federal jurisdiction over wetlands. The proposal responds to concerns raised during EPA’s listening sessions with states, farmers, developers, and landowners, who sought greater clarity on jurisdictional waters and relief from regulatory uncertainty. EPA has said the rule will streamline permitting, reduce costs, and ensure consistent application of federal oversight while respecting the Court’s limits on CWA authority.

Stakeholder feedback shaped the draft, with many calling for clearer rules that will withstand legal scrutiny and reduce litigation risks. Industry groups emphasized challenges stemming from inconsistent definitions, particularly on agricultural lands and in construction projects. Some participants emphasized the importance of federal-state cooperation, urging the EPA to delegate more decision-making authority to states.

 

EPA Advances Proposal to Ease TSCA PFAS Reporting

The EPA submitted a draft proposal to the White House Office of Management and Budget (OMB) to revise the Toxic Substances Control Act (TSCA) rule governing PFAS reporting and recordkeeping. The move signals the Trump administration’s intent to ease the Biden-era requirements, which industry groups had criticized as costly and overly burdensome. Under the original rule, manufacturers and importers were required to disclose extensive information on PFAS use, disposal, exposures, and hazards dating back to 2011, but deadlines have been repeatedly delayed due to technical challenges with EPA’s reporting system. EPA Administrator Lee Zeldin has pledged to collect essential data “without overburdening small businesses and article importers,” reflecting the administration’s more industry-friendly stance. Industry groups have welcomed the shift, renewing their calls for narrower reporting obligations and exemptions for imported articles, research and development uses, and small PFAS volumes. The upcoming revisions could set up a clash between industrial and environmental stakeholders, with OMB review expected to conclude within 90 days before EPA advances its revised proposal.