Unexpected Deal Renews Hope for Billions in Climate Funding

Less than two weeks after the prospects for billions in federal climate dollars flowing to states and cities appeared doomed, governors and others were ecstatic Thursday as hopes for a significant spending package were revived.

“It’s a great, great day,” John Reuter, the League of Conservation Voters’ vice president for state and local strategies, said in an interview, after Sen. Joe Manchin, a centrist West Virginia Democrat, announced Wednesday night that he and Democratic Senate Majority Leader Chuck Schumer had reached a deal on a sprawling bill that includes $369 billion for climate and energy programs, as well as tax policy changes and health care provisions. 

With the package needing the support of all 50 Senate Democrats, there are no guarantees yet that it will pass. 

Still, Reuter said, “I’m absolutely thrilled we’re back on the precipice of this.”

The funding in the now-dubbed Inflation Reduction Act of 2022 is considerably slimmed down from the $555 billion in climate funding passed in the House’s version of the so-called Build Back Better plan that Manchin helped block in the Senate.

But, importantly for states and local governments, Schumer and Manchin’s deal would still provide them $4.75 billion to implement plans to reduce greenhouse gas air pollution. The new proposal would create $250 million in grants to help states, local governments and tribes develop those plans, which was also the same figure as in the House bill.

Associations representing states, counties and cities were still working through the 725-page legislation. But, according to the legislative text, it would provide billions in state and local grants for a variety of climate and equity measures, like creating programs to give homeowners rebates to make their homes more energy efficient, raising funding to $3 billion to improve walkability, safety, and affordable transportation in neighborhoods, increasing also to $3 billion funding to reduce air pollution in ports, and $7 billion for clean electricity, from sources like solar, in low-income communities.

“It’s less money. It went down by over a hundred billion,” Reuter said, lamenting as a “bummer” that funding in the House bill to improve drinking water, including $9 billion to reduce lead contamination in schools and childcare facilities did not appear to be in Schumer and Manchin’s legislation. 

“Clearly there will be more to fight for after this bill,” he said. But, he added, “I think Congress needs to pass this bill. This will be the most significant piece of environmental and climate legislation in history. It’s a huge step forward.”

Reuter was speaking as he walked his dog in Seattle, where the 94-degree heat on Tuesday set a record high for the day. “The heatwave this week is showing why this is needed and the cost of inaction,” he said.

Despite the lower amount for climate, Reuter’s excitement was echoed by Tom Cochran, CEO and executive director of the U.S. Conference of Mayors. The bill “will invest in the future of our country by actively supporting the fight against climate change, turning the tide on inflation and helping communities thrive,” he said in a statement.

The bill also drew praise from Casey Katims, executive director of the U.S. Climate Alliance, a bipartisan group of 24 governors who have pledged to take action on climate change.

“It’s time for Congress to swiftly pass this legislation and for President Biden and our states to further utilize our authority across all levels of government to speed America's transition to a net-zero economy,” Katims said in a statement. “Wildfires are raging, lakes are disappearing, and people are dying due to extreme heat — we have no time to waste.” 

That was a turnaround from the despair less than two weeks ago, when Katims like other climate activists were angered by Manchin’s announcement that he would not support including climate provisions in the package.

“Inaction in the face of record drought, heat, wildfires, and flooding fueled by our changing climate is absolutely inexcusable,” he tweeted at the time.

Washington state Democratic Gov. Jay Inslee, who ran for president on a climate platform, had also blasted Manchin, as well as the recent U.S. Supreme Court decision weakening the Environmental Protection Agency’s power to regulate emissions.

“The combination of 50 Republicans, the Republican Supreme Court, and this guy have knee-capped the U.S in fighting climate change,” Inslee tweeted.

But on Thursday, Inslee said in a statement, “the nation, and the world can rightfully feel a new surge of hope…These investments are necessary to fight climate change.”

In addition to the climate funding, Schumer and Manchin’s deal would spend $64 billion on an issue important to state health officials. The funding would extend for three years American Rescue Plan Act subsidies that, according the Kaiser Family Foundation, opened up lower Affordable Care Act health insurance premiums for about 3.7 million Americans.

With the subsidies due to expire at the end of the year, state health officials have said that millions would lose coverage if Congress does not extend them.

After taking into account tax policy changes and other provisions, the bill would reduce the federal deficit by about $300 billion, according to estimates that Democrats released, a demand of Manchin’s in order to gain his support for the proposal. 

A major offset to the proposed spending in the package would be $288 billion raised by a provision that would allow Medicare to negotiate the price of drugs with pharmaceutical companies, saving the federal government money. The rest of the package would be funded by the adoption of a 15% minimum tax for corporations, the closing of a loophole that reduces the taxes paid by investment managers, and increasing Internal Revenue Service enforcement.

Despite the applause, however, Reuter acknowledged it’s still not a sure thing the bill will pass, especially given how similar efforts have failed in recent months.

“This has had more wild twists and turns than any roller coaster I can imagine,” he said. 

With Republicans blasting the deal for raising taxes and increasing government spending, Schumer said he will try to pass the bill through a process called reconciliation, which requires the support of all 50 Democrats.

Sen. Kyrsten Sinema, an Arizona Democrat who joined Manchin in opposing the bigger Build Back Better plan, has been silent on whether she would back the proposal.

In addition, Manchin signaled in a statement on Tuesday that he opposes rolling back a $10,000 cap on a federal tax deduction people can claim against state and local taxes they pay. “Our tax code should not favor red state or blue state elites with loopholes like SALT,” Manchin said in a statement on Wednesday announcing the deal with Schumer.

The “SALT” deduction is mainly important to wealthier taxpayers in states with higher taxes, like New York, New Jersey and California. A block of Democrats opposed to the cap tried getting it lifted as part of the Build Back Better talks last year.

A spokesman for Sen. Bob Menendez, a New Jersey Democrat who took part in the earlier negotiations, indicated in a statement to Route Fifty that he is committed to still pushing on the issue. “While he’s pleased to see that there may be an opportunity to pass a broader package that includes climate and tax provisions, in addition to health care, there are issues impacting New Jersey families that should be addressed, namely lifting the SALT cap,” the statement said.

Schumer at a press conference said he would "love" to  address the SALT cap in the package. But noting Manchin's opposition, he said, "You've got to get a bill done."

Despite the uncertainty, Reuter noted a major element of the package would build on an Energy Department initiative announced this week intended to connect more participants in the Low Income Home Energy Assistance Program to solar power, potentially lowering their electric bills.

According to the bill, the package would create a $4.5 billion high-efficiency electric rebate program for states and tribes. Grants would be awarded to state energy offices and tribes to create a rebate program for low-income households and multi-family buildings to buy energy-efficient appliances and other equipment.

It would also create $4.3 billion in grants to state energy offices to create the HOMES rebate program. The program would provide rebates to homeowners for whole-house energy-saving retrofits. States are encouraged to provide as much of the rebates as practical to low- or moderate-income households.

Other examples of funding that could be directed to state and local governments under the bill include: $2.6 billion to assist coastal areas dealing with extreme weather and other effects of climate change; hundreds of millions of dollars to transition heavy duty vehicles like buses and garbage trucks to cleaner models; $1.5 billion in grants to states, localities and nonprofits for planting trees, with an emphasis on underserved areas; and funding for states and local governments to adopt building codes that meet high energy conservation standards.