Written by Strategics Consulting on behalf of Central Pines Regional Council
Earlier this month, the U.S. House of Representatives voted 218 to 214 to pass the One Big Beautiful Bill Act (OBBBA or H.R. 1) as amended and passed by the U.S. Senate on Tuesday, July 1. The OBBBA is now headed to the White House for the President’s signature. President Trump signed the bill that delivers on many of his campaign promises in a ceremony on July 4, 2025.
The primary purpose of the legislation is to extend the provisions in the 2017 Tax Cuts and Jobs Act, increase funding for Defense and Border Enforcement and cut federal spending. The legislation also features a broad range of provisions that will directly influence municipal operations, public finance, infrastructure investments, health and human services, and economic development. The final version of H.R. 1 includes several key provisions impacting local governments, a few of the highlights are outlined below.
Summary of Budget Reconciliation Provisions Impacting Local Government
Municipal Bonds: Preserves the tax-exempt status for municipal bonds, maintaining the ability for local governments to finance critical infrastructure projects.
Opportunity Zones (OZ): Revises OZ tax incentives by updating the criteria for what qualifies as a low-income community, mandates greater inclusion of rural areas in OZ designations, and offers enhanced tax benefits for investments in those rural zones. The current OZ designations expire on December 31, 2026. Governors must designate new OZs based on the updated eligibility rules and will have that same opportunity every ten years to allow for changes in demographics.
New Markets Tax Credit (NMTC): Permanently extends the New Markets Tax Credit for private sector investments in low-income communities designated by the Community Development Financial Institutions Fund. The credit can be currently claimed for 39% of initial investment amounts over seven years.
Low-Income Housing Tax Credit (LIHTC): Permanently extends LIHTC program. The annual volume cap for Housing Credit allocations increases to 12 percent starting in 2026. The bond financing threshold decreases from 50 percent to 25 percent for four percent Housing Credit Properties placed in service also starting in 2026.
Secure Rural Schools (SRS): The Senate removed the House provision reauthorizing SRS through 2027, providing rural counties with essential funding to support schools, roads, and emergency services in areas where tax base is limited by the amount of federal land. The Senate passed stand-alone SRS reauthorization legislation on June 18, 2025.
Conservation Funding: Integrates up to $16 billion in Inflation Reduction Act conservation funding into the Farm bill baseline to expand U.S. Department of Agriculture conservation programs.
Medicaid Disproportionate Share Hospital (DSH): Reduces payments to DSH by $8 billion from FY2025 to FY2027.
Medicaid Cost Sharing: Imposes new out-of-pocket costs on low-income Medicaid expansion enrollees, potentially increasing uncompensated care in hospitals and clinics. Some services such as emergency and pregnancy care are exempted from cost-sharing requirements for the Medicaid expansion population.
Medicaid Verification and Redetermination Requirements: Adds several new administrative requirements for Medicaid eligibility operations. These include quarterly death checks for enrollees starting in 2028, monthly provider eligibility and death screenings starting in 2027, and twice-yearly eligibility redeterminations beginning in 2026.
Provider Tax Restrictions: Limits states’ ability to levy taxes on healthcare providers and lowers the existing threshold of six percent to zero for states that impose new or increased provider taxes. For Medicaid expansion states, the bill reduces the threshold by 0.5 percent every year starting in 2028 until it reaches 3.5 percent in 2032.
Rural Hospital Grants: Provides $50 billion in mandatory spending over five years for state grants to rural hospitals, which would include critical access, sole-community, or Medicare-dependent hospitals in rural areas.
Shortened Medicaid Presumptive Eligibility: Cuts retroactive Medicaid coverage from three months to one month.
Supplemental Nutrition Assistance Program (SNAP) State Cost-Share: Beginning in 2028, states may be responsible for funding a portion of SNAP benefits. The cost share is set up on a sliding scale and is tied directly to error rates. States with the highest error rates will incur a 25 percent cost share, while states with error rates below six percent do not incur any required cost share. States that exceed a six percent error rate must create a corrective action plan. Extends the work requirement age from 54 to 64 and the age exemption for parents with dependent children is lowered from 18 to 14.
State and Local Tax (SALT): Increases the SALT deduction cap to $40,000 for taxpayers earning below $500,000 for five years, with a yearly one percent increase in the income requirement. After five years, the SALT deduction cap reverts to $10,000.
Major Event Preparedness: Provides $1.6 billion for local and state preparation for the 2026 World Cup and 2028 Olympics through FEMA’s State Homeland Security Grant Program.
Clean Energy Tax Credits: Repeals and phases out specific clean energy tax credits enacted in the Inflation Reduction Act. Keeps clean electricity production and investment credits for technologies other than wind and solar. Maintains direct pay provisions but narrows eligibility.
Rescissions and Repeals:
Rescinds unobligated funds from the Housing and Urban Development Department’s Green and Resilient Retrofit Program.
Rescinds unobligated funds from the Environmental Protection Agency’s (EPA) Greenhouse Gas Reduction Fund.
Repeals the Energy Efficient Home Improvement Credit, and Residential Clean Energy Credit, and New Energy Efficient Home Credit.
Other Provisions
- Regulatory Process: Includes $100 million for the Office of Management and Budget to revise regulatory processes at the following federal agencies: Education, Energy, Health and Human Services, Homeland Security, Justice, Consumer Financial Protection Bureau, and EPA.
- Disaster-related tax deduction: Makes permanent an itemized deduction for personal casualty losses caused by a federally declared disaster.
- Debt Ceiling Increase: Raises the national debt ceiling by $5 trillion. The U.S. Treasury anticipates the nation will likely hit its current debt limit of $36.1 trillion by late July or early August. Projected by the Congressional Budget Office to increase the deficit by $3.3 trillion over the next ten years.
- Spectrum Auctions: Reauthorizes the Federal Communications Commission’s spectrum auction authority.
- Air Traffic Control: Invests $12.5 billion in upgrades to air traffic control systems at airports across the country, which could include some publicly owned airports.
- Workforce Pell Grant: Creates a new grant beginning July 1, 2026.
Next Steps
On Capitol Hill, Congress will ramp up work on FY26 spending bills after the July 4th holiday and is also expected to start preparing for a second round of budget reconciliation before the 2026 midterm elections. An additional recession package, as well as the surface transportation bill reauthorization, are also next on the agenda for lawmakers.
Strategics will continue to track the implementation of this major legislation and will provide additional analysis of the OBBBA as impacts to local governments are identified. Please reach out to us with questions and/or concerns.