Policy Week in Review - SCOTUS Issues Major Decisions, USMCA is Not Renewed, and FY 2027 Funding Kicks Off

Key Takeaways

• The Supreme Court issued a number of major decisions this week, outlined below. 

• Federal housing program reforms and an investor purchase ban will become law within the next two weeks. 

• As we anticipated, the President did not renew the USMCA trade agreement.

• USMCA will now be subject to annual reviews and renewals.

• House Republicans are searching for a plan to enact the SAVE America Act in reconciliation by tying state grants to enactment of voter ID laws.

• The new SAVE America Act plan could be tied to $87 billion for Iran operations and done together.

• Combining these funding streams would increase the likelihood of passage under reconciliation if the bill were narrowly focused.

• Meanwhile, the House is moving appropriations with defense spending increasing 27% over last year.

• The increases (table below) are opposed by Democrats.

• The schism means a continuing resolution will be necessary to keep the government running on September 30.

• Negotiations with Iran are moving slowly because Iran will not yield control of the Strait. 

SCOTUS Wraps Up Term with Big Decisions

The Supreme Court ended a momentous term this week as it issued its final opinions before the next term begins on October 5. Although SCOTUS backed many of President Trump’s priorities, it also broke with the President on issues such as birthright citizenship and mail-in voting. High-profile decisions include the following:

• The Court ruled 6-3 that President Trump’s decision to end temporary protected status (TPS) for Haitians and Syrians was not reviewable by the courts.

• The Court ruled 6-3 that an alien standing in Mexico has not “arrive[d] in the United States” within the meaning of the phrase under the Immigration and Nationality Act of 1952 and therefore is not entitled to the legal protections of an asylum seeker. 

• The Court ruled 7-2 that the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) preempts state-level failure-to-warn laws.

• The Court ruled 5-4 to strike down limits on birthright citizenship, holding that the children of those in the country unlawfully or on temporary visas still satisfy the citizenship clause of the 14th Amendment.

• The Court ruled 6-3 to uphold state laws that restrict transgender athletes from participating in girls’ and women’s sports. 

• The Court ruled 6-3 that the President can lawfully remove heads of independent agencies.

• The Court ruled 5-4 that the President cannot remove members of the Federal Reserve.

• The Court ruled 5-4 that election officials may count mail-in ballots cast by election day that arrive after election day to be counted.

• The Court ruled 6-3 that the Federal Election Campaign Act’s (FECA) political-party coordinated expenditure limits violate the First Amendment.

Housing Reform Bill Sent to the White House and the Clock Begins

Last Wednesday, the President canceled a signing ceremony for the 21st Century ROAD to Housing Act, stating that he would not sign the bill until Congress passes the SAVE America Act. The President’s strategy to use bipartisan legislation as leverage to pass voter ID laws left some in Congress wondering what would happen to the legislation which is meant to streamline approvals to build homes and cap the number of single family homes that investors can purchase. 

On Monday, Speaker Mike Johnson (R-LA) officially transferred the bill as-passed by the House and Senate, to the White House, kicking off a ten-day clock for President Trump to either sign or veto the legislation. If the President takes neither action in ten days (minus Sundays), the bill will automatically become law. Given the fact that the White House supported the bill in Congress the President will not formally veto. As we predicted last week, Speaker Johnson said that he expects the bill to become law one way or another.

Appropriations Process Begins with Hope of Avoiding Shutdown

The House has released and begun work on all of the twelve FY 2027 appropriations bills that will be necessary to fund federal government agencies next year. After the longest shutdown in history last fall, there are legitimate fears of another shutdown when current funding expires on September 30, 2026.

Last year the shutdown was precipitated by the unsuccessful effort by Democrats to extend COVID-era enhanced subsidies for Obamacare. This year, the disagreements are centered around increased military spending and the combined topline discretionary funding levels. 

Republicans are pushing for major increases in defense and military spending next year. The Defense Appropriations bill for 2027 includes $1.072 trillion in spending for the military. This would represent an increase of $233 billion or 28% above last year's appropriations for the Department of Defense. This amount does not include that Iran supplemental ($87 billion) or the emergency military budget request ($350 billion) which would bring total spending to the President’s stated goal of $1.5 trillion. 

The higher levels of spending for defense agencies are driving up the topline appropriations amount to record levels. Discretionary budget authority for all twelve bills under the Republican plan would be $1.85 trillion in FY 2027. That would be the highest total in history and an increase of $226 billion or 12% over last year. 

Democrats have objected to the Republican spending plan. Their disagreement is not over the topline spending level. Instead, Democrats are upset that non-defense agencies receive a slight spending cut. Based on the allocations in the House, funding for the ten non-military bills totals $627 billion which is a slight reduction of 1.6% from last year. 

Democrats want to see non-military funding increased at the same rate as military funding. The dispute has stalled the appropriations process in the Senate where 60 votes are needed to pass appropriations bills because of filibuster rules. That means at least eight Democrats will need to get on board. That is unlikely before September 30 which means a continuing resolution will be necessary to keep the government running. That will need bipartisan support too. 

U.S. Chooses Not to Renew USMCA

As we have predicted for months, on Wednesday, the Trump administration publicly announced that it would not be extending the United States-Mexico-Canada-Agreement (USMCA) in its current form. According to a senior administration official, the President “chose not to rubber stamp a USMCA renewal without addressing existing issues.” Notably, this does not mean the USMCA has ended or that the U.S. has formally withdrawn from the agreement, but instead means that the parties will “conduct additional annual joint reviews until all parties agree to extend the agreement for another 16-year period … until USMCA terminates” in 2036. 

According to the statement from the Office of the U.S. Trade Representative, “[t]he United States will continue to engage with Mexico and Canada to address the Agreement’s shortcomings and our trade deficits with these countries. However, the Agreement remains in force pending resolution of these issues or until the Agreement’s termination.” A meeting with Mexico is expected the week of July 20 to continue further negotiations. 

Supplemental Spending and Reconciliation 3.0 

When Congress returns from the Fourth of July recess it will quickly have to settle the debate over how to address the White House’s $87 billion supplemental spending request, which includes $67.1 billion for operations in Iran.

Senate Majority Leader John Thune (R-SD) still says that he wants to try to move the bill forward under regular order meaning he would need 60 votes in the Senate. There are two main reasons that Thune prefers regular order: 



• Members of the Appropriation Committee in the Senate have grown tired of the process of using reconciliation to appropriate money to agencies. These high-ranking Senators see reconciliation as a method of subverting their control of the normal spending routine.

• Taking the supplemental to the floor under regular order will force the Democrats to go on the record with their opposition to vital emergency funding for troops and farmer

The problem with the strategy is that it requires at least eight of 47 Dem votes in the Senate to support President Trump's war funding request. The prospects of garnering Democratic support for the spending request are very low in the middle of a heated election year.

Democrats in Congress have consistently opposed the war in Iran. As the party has been pulled further left by primary voters during this election cycle, Democratic leaders have strongly opposed the President’s war funding request. Even if other Democratic priorities are added to the bill it is very hard to envision a scenario where Democrats support funding for President Trump ahead of midterms in November.

Assuming Plan A – regular order consideration of the supplemental – fails in the Senate, we predict that Republicans will move to reconciliation. 

A narrower spending package has a better chance to clear the minefield of reconciliation budget hurdles. This fact was demonstrated by the immigration security reconciliation bill.

As we previewed in April, House Republicans are floating a plan to enact voter ID by giving grants to states to enact new laws. If Republicans pivot to a reconciliation package that includes the Iran supplemental and funding to carry out the SAVE America Act, they would have a good shot at passing another major GOP priority in late July or September. 

“Freedom to Fix” Memorandum Signed

Also this week, President Trump signed a Presidential Memorandum directing the Environmental Protection Agency (EPA) to publish guidance clearly stating what individuals may do to fix their own vehicle emissions systems, while remaining consistent with the Clean Air Act. The Memorandum also urges the EPA to “deprioritize civil enforcement actions against individuals, who, in good faith, attempt to fix their own vehicles.” The Memorandum cites "crushing environmental regulatory burdens” under the Biden administration and argues the new guidance will help reduce repair costs for many Americans.

President Trump Provides Emergency Tariff Relief on Fertilizer

On Monday, President Trump declared an emergency with respect to the availability of fertilizer to American farmers, noting that U.S. production of phosphate fertilizer is “insufficient to support domestic agriculture food production after accounting for exports.” In the interim, the President authorized a temporary suspension of anti-dumping and countervailing duties on phosphate fertilizer from Morocco. The suspension will last for eight months, or until the emergency declaration is terminated. The move comes after fertilizer imports were significantly slowed during the closure of the Strait of Hormuz. 

U.S. and Iran Engage in Indirect Negotiations in Qatar

The United States and Iran held “indirect technical talks” in Doha this week focused on commercial shipping in the Strait of Hormuz, negotiating through intermediaries. U.S. envoys Steve Witkoff and Jared Kushner met with Qatari Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani on Tuesday before meeting with Qatari Emir Sheikh Tamim bin Hamad Al Thani on Wednesday. Iran met with Sheikh Mohammed on Wednesday. Vice President JD Vance struck a note of cautious optimism about the talks, commenting that “[i]t's still pretty early, but talks are going well.”

One complicating factor in peace talks is an internal struggle in Tehran about what to prioritize; civilian leaders under Iranian President Masoud Pezeshkian are reportedly pushing for billions of dollars of frozen assets to be released to begin rebuilding the Iranian economy, while the Islamic Revolutionary Guard Corps (IRGC)’s top priority is to maintain full control of the Strait of Hormuz. Iranian officials have signaled that they would impose tolls on the Strait in mid-August following the 60-day negotiation window. U.S. officials have made clear that any release of funds would depend on Iranian cooperation with negotiated terms, including keeping the straits open and navigable. 

The IRGC’s attempts to maintain its grip over the Strait of Hormuz and desire to institutionalize charging tolls or fees for passage has been a major cause of consternation during negotiations. Speaking from Abu Dhabi last week, Secretary of State Marco Rubio decisively stated that “[n]o country is allowed to charge tolls or fees on an international waterway … That’s existing international law. That’s the way it is in international waterways all over the world, and that’s the way we expect it’ll be here.”