Bringing you the latest news impacting our network from Congress and the Administration.
In this Edition:
PARTIAL GOVERNMENT SHUTDOWN MORE LIKELY
BUDGET RECONCILIATION 2.0 PACKAGE OUTLOOK
LEGAL BATTLES CONTINUE OVER FEDERAL FUNDS
CONGRESS, IRS INTENSIFY NONPROFIT OVERSIGHT
NEXT CAPITOL CONVERSATIONS: What to Expect in the Midterm Elections – 2/19 at 1:00 PM ET: REGISTER
WHAT WE’RE READING
Partial Government Shutdown More Likely
The Clock Is Ticking
Congressional leaders have until January 30 to reach a bipartisan deal to keep parts of the federal government open and funded to avoid a partial shutdown. A bipartisan funding deal was expected to pass this week and is now uncertain. Following the murder of Alex Pretti by federal immigration agents in Minneapolis over the weekend, Senate Democrats are opposing any funding bill that includes further support for the Department of Homeland Security (DHS).
What’s at Stake?
To date, Congress has enacted full-year funding for six of the 12 federal spending bills, while departments still awaiting funding include: Labor, Health and Human Services, Transportation, and Housing and Urban Development.
Recent House Action
Last week, the House passed a package funding those agencies which also rejected many of the deepest funding cuts and reorganizations proposed by President Trump. The bill also included language requiring HUD to renew Fiscal Year 2025 Continuum of Care grants for 12 months, and provisions prohibiting the IRS from targeting individuals or organizations based on political ideology.
House Homeland Security Provisions
The House also very narrowly passed the bill funding DHS amid increased Democratic objections to the Trump Administration’s immigration enforcement efforts.
Senate Negotiations Continue
Action on the two bills has moved to the Senate. If Senate leaders reach a bipartisan agreement on changes to the legislation, the House must vote again to approve the revisions—and at present, the House is in recess for the remainder of this week leading up to Friday’s shutdown deadline.
While the framework doesn’t include specific policy details, many of its proposals are similar to several that were tested in the first budget reconciliation package (H.R. 1). That said, in many cases, these provisions did not overcome procedural hurdles inherent in the reconciliation process. These provisions include:
Cutting the federal Medicaid matching rate for states that use their own funding to cover certain undocumented immigrants and lawfully present immigrants.
Delaying Medicaid and CHIP coverage and access where real-time verification of citizenship or immigration status is not initially available.
Eliminating Medicaid and CHIP eligibility for all lawfully present immigrants who remain eligible.
Codifying a change proposed by the first Trump Administration to the “public charge” rule, a determination that applies to individuals seeking admission to the United States or adjustment in status to legal permanent residency.
Eliminating the federal share of D.C. Medicaid
Reaction thus far
The proposal has received strong support from House conservatives, but major hurdles remain, especially given the slim Republican majority in the House of Representatives. House Republican leadership opinion is mixed, with House Budget Chair Jodey Arrington (R-TX) endorsing the framework, and House Ways and Means Chair Jason Smith (R-MO) signaling his doubts about the feasibility of passing another large party-line bill. Meanwhile, vulnerable GOP moderates are wary of further big health changes ahead of November elections. Speaker Mike Johnson has not endorsed the RSC plan outright, instead indicating interest in a narrower reconciliation bill this year, with GOP leaders working to build consensus in the coming weeks.
Legal Battles Continue Over Federal Funds
A federal judge issued a ruling on January 23 further blocking the Department of Health and Human Services (HHS) from freezing $10 billion in federal social services funding to 5 Democratic-led states: California, New York, Minnesota, Illinois, and Colorado. The ruling from U.S. District Judge Vernon Broderick extends by two weeks a temporary one issued earlier this month, set to expire on January 23, that blocked the federal government from holding back the money.
What’s at Stake?
If the funding freeze is allowed to move forward, $7 billion will be cut from the Temporary Assistance for Needy Families (TANF) program, $2.4 billion from the Child Care Development Fund (CCDF), and $870 million in social services grants.
Minnesota Medicaid Infringement
A targeted effort by the Centers for Medicare & Medicaid Services (CMS) to withhold the federal share of Medicaid funds from Minnesota is also playing out. The effort by CMS is predicated on alleged noncompliance with anti-fraud requirements by the Minnesota state agency that administers Medicaid.
Sanctuary Jurisdictions
A broader effort by the Administration to catalog and suspend some federal funding to 14 states and the District of Columbia based on their status as “sanctuary jurisdictions" is also set to begin on February 1. Such abrupt disruptions of funding create uncertainty, especially for local nonprofit organizations and the services they provide to communities and could result in reduced services or staff.
Congress, IRS Intensify Focus on Nonprofit Oversight
Federal scrutiny of nonprofit organizations continues on Capitol Hill.
Senate Action
Sens. John Cornyn (R‑TX) and Tim Sheehy (R‑MT) have reintroduced the No Tax Dollars for Terrorists Act (S.3554), which would authorize the U.S. Department of the Treasury to revoke the tax‑exempt status of nonprofits if they are found to be providing “material support—such as funding, services, or training—to terrorist organizations.”
House Action
A House companion bill (H.R. 6800), introduced in late 2025 by Rep. David Kustoff (R‑TN), has drawn significant opposition from nonprofits. Concerns include a lack of adequate due process protections, as well as potential misuse by current or future administrations to target nonprofits for political reasons.
Push for Stronger IRS Oversight
At the same time, Republicans on the House Ways and Means Committee are pressing the Internal Revenue Service (IRS) for stronger oversight of nonprofits. In a January 20 letter to the IRS Acting Commissioner, committee members urged the agency to take more aggressive action to ensure organizations are operating within their tax‑exempt purposes. Citing recent hearings, funding freezes, and alleged fraud cases involving Minnesota nonprofits, the committee noted that it has referred 11 organizations to the IRS for possible revocation.
Taken together, the efforts signal a growing federal appetite for heightened scrutiny of nonprofit activities—and renewed debate over how to balance national security concerns with protections for charitable organizations.
Midterm Elections: What to Expect – Join Us on February 19 for Capitol Conversations
Join us for expert analysis from Carrie Dann with the Cook Political Report to learn more about what to expect in the midterm elections, including the tightest House and Senate races, insights on redistricting efforts, and what it means for the nonprofit sector. Register now for the Capitol Conversations webinar on Thursday, February 19, at 1:00 pm ET.THIS WILL BE A LIVE-ONLY EVENT AND NOT RECORDED.
The discussion will feature:
Carrie Dann, Managing Editor, The Cook Political Report
The latest updates on Capitol Hill and beyond from Lutheran Services in America policy staff
NOTE: If you have already registered for an upcoming session, please note the updated registration link below. You must re-register using the new registration form for each individual session that you would like to attend.
For more information, please contact Sarah Dobson, Senior Director of Public Policy and Advocacy.
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