Deep Dive: US House Passes Reconciliation Bill -- What it Means for Counties

This article is part of MACo’s Policy Deep Dive series, where expert policy analysts explore and explain the top county policy issues of the day. Read all of MACo’s Policy Deep Dives.

Last week, the US House of Representatives narrowly passed the One Big Beautiful Bill Act (H.R. 1) by a vote of 215-214. The bill advances significant federal tax cuts, entitlement program changes, and regulatory rollbacks, and includes provisions with profound implications for state and local governments.

According to the National Association of Counties, the House-passed package presents a complex mix of opportunities and challenges for county governments.

Several provisions support local infrastructure, housing, and conservation programs, while others could increase state and local costs for Medicaid, food assistance, and administrative operations.

Opportunities for Counties

Municipal Bonds: The bill preserves the tax exemption for municipal bonds, a crucial tool that enables counties to finance critical infrastructure projects, such as schools, roads, and water systems, at lower costs.
Conservation Funding: The bill integrates $13 billion from the Inflation Reduction Act into the Farm Bill baseline, expanding USDA conservation programs. This move supports county investments in soil, water, and land stewardship, enhancing resilience to environmental challenges.
Renewable Energy Revenue Sharing: Counties would receive 25% of revenue from wind and solar energy produced on federal lands, mirroring existing revenue-sharing models for oil and gas.
Low-Income Housing Tax Credit: The bill increases the credits available for low-income housing by 12.5% and reduces the private activity bond financing requirement, enabling counties to expand their affordable housing initiatives.
Secure Rural Schools (SRS): Reauthorized through 2027, this program provides essential funding for counties with limited taxable land, supporting schools, emergency services, and rural infrastructure.
Major Event Preparedness: The bill allocates $1.6 billion for local and state preparations for the 2026 World Cup and 2028 Olympics, channeled through FEMA’s State Homeland Security Grant Program, providing vital support for counties hosting these events.

Significant County Concerns

Medicaid Work Requirements: Starting in 2029, able-bodied adults on Medicaid will face new work requirements, which are likely to increase administrative burdens for health departments and potentially reduce access to care for vulnerable populations.
AI Regulation Freeze: A 10-year moratorium would block counties from enforcing local AI regulations, limiting local governments’ ability to manage new technologies in public services.
SNAP Cost Shifts: The bill increases the state and county share of administrative costs for the Supplemental Nutrition Assistance Program (SNAP) from 50% to 75%, potentially straining state and local budgets and raising costs for essential services.
Provider Tax Restrictions: New caps on state provider taxes, which many counties use to fund Medicaid services, could jeopardize local health programs.
IRA Rescissions: The bill rescinds $262 million in unobligated Inflation Reduction Act funds, which could reduce grant opportunities for county-level energy efficiency, conservation, and infrastructure projects.

SALT Deduction

The proposed increase to the State and Local Tax (SALT) deduction cap to $40,000 for individuals earning under $500,000, and to $20,000 for married individuals filing separately who earn under $200,000.

These income limits would increase slightly each year through 2033. However, for those earning above the limits, the higher deduction would gradually be reduced, eventually dropping back to the current $10,000 cap.

On the surface, it offers relief for residents in high-tax states, such as Maryland, by allowing them to deduct a larger portion of their state and local taxes from their federal taxable income. However, this shift could have broader implications for local revenue.

The 2017 federal tax changes, which capped the SALT deduction at $10,000, led many Maryland taxpayers to switch from itemizing deductions to claiming the larger federal standard deduction. This shift inadvertently boosted state and local revenue, as fewer residents deducted state and local taxes on their federal returns, resulting in a broader taxable income base at the state level.

By raising the SALT cap, more Maryland taxpayers would likely revert to itemizing their deductions, claiming the higher SALT deduction, and reducing their overall federal taxable income. This change would not only lower their federal tax bills but also carry over to their Maryland state returns, where the SALT amount gets added back in.

The result? With more residents itemizing their deductions and claiming larger SALT write-offs, Maryland taxable income at the state and local level would shrink. This reduction could tighten revenue streams for counties, which rely on local income tax collections to fund essential services, such as public safety, education, and infrastructure projects.

What’s Next?

The US Senate will now take up the legislation and is likely to make significant changes. Under reconciliation rules, the Senate Parliamentarian can remove any provision that does not directly affect the federal budget.

Several Senators have already voiced opposition to the House-passed provisions, including Medicaid work requirements, clean energy rollbacks, and limits on local authority over artificial intelligence. If the Senate makes changes, the House must vote again to pass the final version.

Stay tuned to Conduit Street for more information.