Policy Week in Review - Government Funding Comes Together, Iran Strikes, Blanche Nomination Stalls

In This Edition: 

• Congress Likely to Approve Funding and Avoid a Government Shutdown 

• Iran Launches a Surprise Attack and President Trump Responds

• Predicting the Odds of Reconciliation and Military Funding Before the Midterms 

• Confirmation for Attorney General Stalled

• Split Fed Keeps Rates Level Amid Defections

• Congress’ Long Laundry List of Legislation Before Midterms - Full List Below

• President Trump Invokes the Defense Production Act for “Critical Minerals and Materials”

Congress Likely to Avoid Another Government Shutdown

After perpetuating the longest government shutdown in American history last year, Democrats are working to avoid a repeat this fall. Senate Appropriations Committee Chair Susan Collins (R-ME) and her counterpart, Ranking Member Patty Murray (D-WA) are working together on a bipartisan continuing resolution (CR) that will fund the government through December 4, 2026. 

Several indicators point to a government funding deal getting done early: 

• The House already passed a clean CR. 

• The Senate has been drafting its CR in a bipartisan process.

• Senator Murray said this week that “good bipartisan work” is being done.

• Sen. Collins has been positive about progress. 

• Reasonable Senate Democrats do not want to rock the boat while winning in the polls.

• Other priorities, like an extension of highway funding, may be attached. 

A Senate deal on a CR seems imminent. That would tee up a procedural vote on Monday. The House would then vote on the same bill when it returns the week of August 31. This would take a shutdown off the table well before the September 30 deadline. 

Iran Launches Surprise Attack on U.S. Base and Trump Responds 

Amidst a pause in fighting intended to give diplomats room for negotiations, Iran’s Islamic Revolutionary Guard Corps (IRGC) on Wednesday launched a surprise ballistic missile attack at a U.S. military base in Jordan. According to U.S. Central Command (CENTCOM), all Iranian missiles were successfully intercepted. 

CENTCOM later confirmed that U.S. and Saudi forces had conducted precision strikes “against Iran-aligned terrorists that the Islamic Revolutionary Guard Corps (IRGC) directed to attack U.S. forces and Saudi energy infrastructure,” with more than 30 IRGC-directed drone attacks having occurred over 72 hours. Following the strikes, the Popular Mobilisation Forces (PMF) - an Iranian-backed umbrella organization of Shia Muslim militias in Iraq - stated that 20 of its fighters had been killed.

President Trump made a forceful statement following the IRGC’s attacks, declaring on Wednesday that “[w]e'll be hitting them hard” while still allowing room for talks with Iran to continue. Prior to the IRGC’s attack, Iran had rejected an Omani proposal to divide control of the Strait of Hormuz between the two states. 

The IRGC claimed on Thursday that it had attacked three U.S. fighter jets, although the U.S. military denied those claims. A drone strike on two gas tankers in Egypt has raised additional security concerns, particularly as it relates to the Suez Canal and Sumed pipeline, both important for Saudi oil exports. As of Thursday, no one had claimed responsibility for the drone strike, but it could indicate the conflict is spreading to other areas of the Middle East.

On Thursday, the U.S. issued additional sanctions against Mahan Air, an Iranian air carrier, which the administration said transports IRGC personnel and weapons. The President is meeting with his cabinet at Camp David this weekend to discuss the war and how to proceed.

Predicting the Odds of Reconciliation Ahead of the Midterms 

Common wisdom in D.C. is that a partisan budget reconciliation bill with funding for the military is not likely before the midterm elections. Punchbowl News, for example, recently wrote that the current Senate priorities “leaves reconciliation likely to slip to the lame-duck session — if there’s enough interest in it then.”

While reconciliation in September certainly presents many challenges for the White House, we believe that the chances of a reconciliation spending bill are being underestimated. There are some tangible reasons a third Republican reconciliation budget is possible in September:  

Why Republican Reconciliation in September is Still Viable: 

• The House kept the scope of the budget narrowly focused on simple policy items. 

• $95 billion in the bill (military, farm aid, voting reform grants) is not highly controversial.

• The Senate can add additional spending to appeal to more Senators. 

• Senate Budget Committee Chairman Ron Johnson (R-WI) said that emergency military spending does not have to be offset which essentially eliminates a major hurdle. 

• Senators are talking about increasing the amount of money for defense to $120 billion. 

• A CR next week would focus the Senate’s attention on a passable reconciliation budget.

• The need for funding the military will only intensify as the conflict with Iran continues. 

The Senate is on the precipice of its recess, and tempers are flaring on the Hill. When Republicans return in September, there is a good chance that conditions will allow for more Senators to focus more productively on reconciliation. That said, there are real political issues blocking reconciliation that must be overcome. 

Major Roadblocks Still Exist: 

• Senator Susan Collins (R-ME) might be looking to break away from Trump on a signature bill as she faces reelection in a bluer state. 

• Senator Lisa Murkowski (R-AK) was the deciding vote in favor of Reconciliation 1.0 for tax cuts but voted against Reconciliation 2.0 for Homeland Security funding. 

• Senator Rand Paul (R-KY) voted against reconciliation for tax cuts and opposes deficit spending. 

• Senator Thom Tillis (R-NC) is retiring and is currently threatening to proactively fight reconciliation legislation with SAVE America Act components.

• Senators are wary about holding a “vote-a-rama” and taking tough amendment votes.

Confirmations for High-Profile Administration Nominees 

A number of high-profile nominees are in the final stages of their confirmation processes, some having a more clear path forward than others.

• Director of National Intelligence (DNI): On Tuesday evening, the Senate voted to confirm Jay Clayton to serve as DNI, 51-47, on a party-line vote. Clayton’s nomination could break the logjam around FISA reauthorization, which has stalled since June.

• Centers for Disease Control and Prevention (CDC): On Thursday, the Senate Health, Education, Labor and Pensions (HELP) Committee voted to confirm the nomination of Dr. Erica Schwartz to serve as Director of the CDC, 12-10. Her final confirmation is expected in the coming days.

• Secretary of Labor: Acting Secretary of Labor Keith Sonderling’s nomination was also approved by the Senate HELP Committee on Thursday, by a vote of 12-11. He is expected to be easily confirmed in the coming days.

• Attorney General: The Senate Judiciary Committee delayed a vote on Todd Blanche’s nomination to serve as Attorney General, with Senators John Cornyn (R-TX) and Thom Tillis (R-NC) still opposed to his nomination over assurances (or lack thereof) of the dissolution of the so-called anti-weaponization fund and audit immunity for the President. On Thursday, President Trump floated the idea of withdrawing the nomination until 2027, when Cornyn and Tillis will no longer hold their Senate seats. Cornyn responded by saying via Twitter that “POTUS is mistaken if he believes concerns about the provisions in his tax lawsuit settlement are limited to me and Senator Tillis.” A meeting on Thursday with Blanche seemed to go more positively, and the Senate Judiciary Committee hopes to be able to hold a vote early next week.

Split Fed Keeps Rates Level Amid Board Dissension 

On Wednesday, the Federal Reserve voted 9-3 to keep interest rates steady. Three members preferred raising interest rates by ¼ of a percentage point (Beth M. Hammack, Neel Kashkari, and Lorie K. Logan). According to observers, concerns regarding lack of action to address inflation sent the stock market to its worst day in over a year.

Congress’ Long Laundry List Before the Midterms

There are 95 days until the midterm Congressional elections on November 3, 2026. Lawmakers running for re-election are anxious to score legislative victories before the election, but time is running out. Any issues not addressed before September will likely be punted into a “Lame Duck” session as Congress goes home to campaign.

With time running out and the House already on the campaign trail, some issues will undoubtedly have to be ignored. Here’s a look at the mounting laundry list of agenda items piling up in Congress.

Funding the Government and Avoiding a Shutdown: Speaker Mike Johnson (R-LA) and the House started the funding process early by passing a continuing resolution (CR) last week. Now the Senate is reportedly following suit. There is growing optimism on Capitol Hill the Senate will pass a bipartisan version of a CR next week and a shutdown will be averted. 

Surface Transportation Programs: Federal funding for roads and bridges through the Highway Trust Fund (HTF) expires on September 30. The HTF is facing a $147 billion shortfall over the next five years, and the White House has presented Congress with a laundry list of reforms. Congress needs to move a short extension to continue debate. That extension could be a part of the Senate’s CR until December 4, 2026. 

Farm Bill Extension: The $495 billion “Farm Bill” authorizes and funds assistance to farmers, crop price support, crop insurance, and the food stamp program. The five-year bill expires this fall. The House passed its version but another short-term extension will be necessary. 

Funding for War with Iran: The Pentagon has reiterated that it needs emergency money for military operations in Iran in order to secure the Strait of Hormuz. The Department of War requested $67 billion in “urgent” military spending in June. Republicans in the House used partisan budget reconciliation (more below) to provide funding, but the Senate is moving slowly. 

Reconciliation 3.0: President Trump continues to urge the Senate to take up partisan budget reconciliation in order to fund key Republican priorities before the midterms. The House-passed budget resolution included the following funding: 

• $73 billion for defense ($60 billion) and intelligence ($13 billion) in Iran. 

• $12 billion in federal aid for farmers. 

• $10 billion for states to implement SAVE America Act provisions. 

The Senate has been resistant to taking up the reconciliation budget in August. However, reports suggest that the Senate is talking to the White House about expanding the scope to include a debt limit increase and priorities for vulnerable Senators. These additions would make reconciliation easier to pass in the Senate and increase the odds of a breakthrough in September.

National Defense Authorization Act (NDAA): The NDAA authorizes annual Pentagon spending. The House passed its version of the bill last week, 216-212.The Senate NDAA includes a total of $1.15 trillion in authorized spending for 2027, including $1.098 trillion for the Department of War and $52 billion for defense activities within other agencies. Despite support from the ranking Democrat on the Armed Services Committee, Democrat Leader Schumer blocked the bill earlier this month.  

Reauthorizing FISA’s Section 702 Surveillance Authority: Reauthorization of Section 702 of the Foreign Intelligence Surveillance Act (FISA) remains stalled and blocked by Democrats in the Senate with the appointment of Bill Pulte to serve as Acting Director of National Intelligence. The Senate confirmed a permanent replacement, Jay Clayton, earlier this week, although the party line vote on his confirmation may signal that it is not enough to assuage Democratic concerns over reauthorizing the program.

CLARITY Act: The bill establishes two distinct federal regulatory structures for both digital currencies that are pegged to the U.S. dollar and other cryptocurrencies that are traded as commodities. Senate Republicans released updated legislative text last week, which sparked renewed momentum for passage. However, the momentum didn’t last long, and Senate Majority Leader John Thune indicated the bill will not pass before the August recess. However, the odds of the bill being signed before the new year remain high. Thursday, a bipartisan ethics proposal from Senators Thom Tillis (R-NC) and Ruben Gallego (D-AZ) was sent to the White House.

Russia Sanctions: On Tuesday, the Senate voted 86-12 on a procedural vote to advance a broad sanctions bill on Russia, which would impose sweeping sanctions on Russian military and political leaders, oligarchs, state-owned enterprises, and foreign defense companies working with Russia. It also empowers the U.S. Trade Representative (USTR) to impose sanctions of up to 100% on the top five countries purchasing Russian oil and gas. A key priority of the late Senator Graham (R-SC), the bill has the backing of the White House and is expected to pass the Senate. House Democrats, however, have expressed opposition to granting President Trump additional tariff authority.

Export-Import (EX-IM) Bank Reauthorization: The EX-IM Bank provides government-subsidized loans and federal financing to American companies competing overseas. It expires on December 31 and will not be able to give loans after that time. The EX-IM Bank has been criticized in the past as corporate welfare but enjoys bipartisan support and could even be expanded. 

Railway Safety Act: Passage of the Railway Safety Act is a top priority for Vice President JD Vance. The bill increases safety requirements for rail carriers and trains transporting hazardous materials. Vance was a supporter of the bill while serving in the Senate after a train derailment in Ohio in 2023. The House Transportation and Infrastructure Committee voted to add the legislation to the five-year surface transportation reauthorization in May. A stand-alone effort to pass the legislation could materialize if the surface transportation bill lingers into 2027.

Kids Internet and Digital Safety (KIDS Act): The bill includes new social media platform rules meant to keep children from accessing detrimental material. There are competing versions of the bill, with the main point of contention surrounding whether the federal law should supersede a patchwork of existing state laws. 

President Trump Invokes DPA for Critical Minerals and Materials

On Thursday, President Trump signed a presidential determination designating recoverable critical minerals and materials (CMM) as necessary to promote national defense and granting the Department of Commerce the authority to “institute export restrictions on CMMs.” According to the determination, recoverable CMM are defined as: “black mass, end-of-life, rare-earth permanent magnets or other goods that have fully completed the manufacturing process; swarf; and other waste and scrap containing critical minerals and materials.”