Congress returns to Washington this week to focus on high profile issues, unfinished business from last month, and FY2014 appropriations. The backdrop for legislative activity will continue to be how to deal with sequestration in FY2014.

Immigration reform: Last month the Senate, after many weeks of negotiations, passed an immigration reform bill. However, a path to citizenship for illegal immigrants included in the Senate bill has been called a “nonstarter” by House Speaker John Boehner (R-OH). Many House conservatives reject comprehensive immigration reform arguing that Congress should instead pass a series of bills addressing individual issues. Senate democrats (and the White House) resist this approach making it unlikely that a compromise agreement can be reached this month.

Farm bill: Last month, the Senate passed a $955 billion farm bill. However, the House surprisingly rejected (195Y – 234N) its $940 billion version of the bill with 172 Democrats and 62 Republicans voting no. The dissenting Democrats were angry over deep cuts to food stamp funding, while Republicans wanted larger cuts to the food stamp program. The Senate bill does not include deep cuts to food stamps funding and the president has threatened to veto a bill that contains such cuts. The House now must decide whether to redraw its bill or move ahead to a conference with the Senate without its own bill.

College Student Loans: Congress failed to act last month to avoid a doubling of interest rates on new subsidized Stafford college loans that went into effect on July 1. Interest rates on existing loans and unsubsidized federal loans taken out by students were not affected. The disagreement centers on whether or not interest rates on affected loans should be a fixed rate. Senate Democrats want to fix student loan rates and Republicans (and to some degree President Obama) want to tie rates to market rates (e.g., the 10-year Treasury bond rate). There is still time for Congress to reverse this increase. However, Congress must act before students sign new loan agreements and make it apply retroactively. Both sides appear confident that an agreement can be reached soon.

FY2014 budget resolution and sequestration: The annual congressional budget resolution sets funding targets so the appropriations committees can begin work on the president's budget request.  Earlier this year, the House and Senate passed budget resolutions for FY2014 that address sequestration in decidedly different ways. The House set total FY2014 discretionary funding at $967 billion, a figure that complies with the amount set in the Budget Control Act (BCA), after sequestration. However, the House target does not comply with the BCA requirement that the sequestration cut is equally shared between defense and nondefense budgets, largely sparing the defense budget from sequestration.

The Senate resolution sets its funding target at $1.058 trillion, which is the BCA total before sequestration. Therefore, the Senate in effect assumes that some sort of deal will be reached that includes a combination of $91 billion in cuts that will treat defense and nondefense funding relatively equally. So far, the House and Senate have not appointed a conference committee to resolve the differences in the two approaches to sequestration. It is unlikely that any movement will occur on resolving this showdown until September when another debt ceiling breach is looming.

FY2014 appropriations: Unwilling to wait for the budget committees to resolve their differences, the House and Senate Appropriations Committees began the process to mark up FY2014 Appropriations bills that adhered to the funding targets set in their respective budget resolutions. The House Appropriations Committee (HAC) has moved aggressively to compete the 12 appropriations bills. To date, The House has passed two FY2014 appropriations bills—Homeland Security and Military Construction/VA—and the HAC has approved another four bills (Agriculture, DoD, Energy and Water, and Transportation/HUD). The full House may consider the Energy and Water bill this week and HAC subcommittees will mark up the Legislative bill today and the Commerce/State/Justice and Financial Services bills tomorrow. In addition, House Majority Leader Eric Cantor (R-VA) has indicated he wants the full House to take up the FY2014 DoD appropriations bill before the August recess.

The Senate Appropriations Committee (SAC) so far has approved four FY2014 appropriations bills (Agriculture, Energy and Water, Military Construction/VA, and Transportation/HUD) and is scheduled to complete action on the Labor/HHS/Education bill on Thursday. However, the full Senate has not considered any FY2014 appropriations bill to date and there is little indication that it will bring any appropriations bill to the floor before September. The upshot is some sort of a Continuing Resolution is almost a given. Whether or not it will be for some or all bills or for a short time or a full year will depend on the pace of negotiations to resolve sequestration for FY2014.