WASHINGTON — As lawmakers pushed to finalize a roughly $900 billion stimulus deal, congressional leaders remained divided on Thursday over a handful of issues whose outcome could help determine the course of a sputtering economic recovery.
Democrats were mounting a last-ditch effort to provide emergency aid to states, which they argued was critical to helping governments weather the pandemic and avoid huge layoffs and cuts in services that could reverberate through the economy. Republicans were working to limit the power of the Federal Reserve to provide credit to businesses, municipalities or other institutions in the future, both by rescinding money earmarked to support Fed lending programs and preventing the central bank from restarting them using different funds.
Both disputes could carry heavy consequences for President-Elect Joseph R. Biden Jr., who will take office facing a cascade of fiscal and health crises throughout the country. Those could be even more dire if Congress fails to provide at least some assistance to cash-strapped states before the end of the year. And Democrats warned that reining in the Fed’s ability to restart lending programs could close off crucial avenues for his administration to help struggling sectors of the economy.
With a Friday deadline looming to prevent a lapse in federal funding, leaders remained optimistic that they would ultimately find a resolution to both fund the government and provide economic aid, although their wrangling could bleed into the weekend and lead to a brief government shutdown while they complete work on the stimulus package.
Both chambers were preparing to remain in session as the holidays approached. In an institution that is largely successful only under deadline pressure, it was unclear whether lawmakers would agree to yet another stopgap spending bill or allow the government to shutter while they rushed to finish the critical legislation.
Senator John Thune of South Dakota, the No. 2 Republican, said it was likely that at least one lawmaker would object to any short-term extension to prevent a shutdown, saying that many “want to keep pressure on the process until we get a deal.”
“Government shutdowns are never good,” Mr. Thune said. “If it’s for a very short amount of time on a weekend, hopefully it’s not going to be something that would be all that harmful.”
The emerging package was expected to include direct payments of $600 for American families and children — half the amount of the stimulus checks issued last spring — as well as an extension of more generous unemployment programs. The plan is expected to include a revival of enhanced federal unemployment benefits, though the amount would be shaved from the previous $600 per week to about $300, along with billions of dollars for small businesses, vaccine distribution and schools.
“We need to complete this work and complete it right away,” said Senator Mitch McConnell of Kentucky, the majority leader. “The Senate is not going anywhere until we have Covid relief out the door.”
Negotiators, according to officials briefed on the discussions, were still haggling over how many weeks the unemployment benefits should last, who should be eligible for a direct stimulus check, and how to allocate funds for other objectives, including struggling theater and performance venues.
To get the deal through, lawmakers are poised to omit a sweeping coronavirus liability shield for businesses, a top Republican priority, and a direct stream of aid to state and local governments, one of Democrats’ major demands. But Democrats were pushing to provide some disaster relief funds for state and local governments through the Federal Emergency Management Agency, to secure more money for states to spend on health expenses, and to buy them additional time to use funds allocated in the $2.2 trillion stimulus law.
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Republicans opposed the moves, arguing that there were not enough restrictions on how the money was to be spent and objecting to siphoning funds reserved for natural disasters.
But one of the biggest emerging fights was over the Fed’s emergency lending programs, which were rolled out earlier this year to help provide credit to companies and municipalities. The programs, which were backed with $454 billion that was allocated to Treasury in the previous stimulus package, were set to end on Dec. 31, after Treasury Secretary Steven Mnuchin announced they would sunset and asked the Fed to return any unused funds.
Senator Patrick J. Toomey, Republican of Pennsylvania, moved to restrict those programs even further by including language that would prevent the Fed from restarting five loan programs — or anything that resembled them.
“The core of the deal is done — there is now this effort, frankly by the Democrats to increase the FEMA match, and Pat Toomey to emasculate the Federal Reserve,” said Senator Mark Warner, Democrat of Virginia “These 11th-hour issues are pretty big. They were issues that neither side, in a month plus of negotiations, ever brought up beforehand.”
The maneuvering put the fate of Congress’ relief package back in doubt at a critical juncture, as coronavirus cases surge, unemployment insurance claims remain high, and a spate of weakening data points underline that American households and businesses are contending with near-term economic pain even as vaccines stoke hopes for a future rebound. Without renewed government support, millions could be staring down a bleak pandemic winter with little help at their disposal.
The language Mr. Toomey and other Republicans are pushing for would rescind funding earmarked to support Fed credit for small and medium-sized businesses, state and local governments and big corporations. More alarming to Democrats, it would also bar the Fed and Treasury Department from restarting new versions of critical loan programs enacted this year.
That would take off the table a useful tool for Mr. Biden as he takes office amid a continuing economic slump — and it angered Democrats, who had blasted Steven Mnuchin, the Treasury secretary, for his decision last month to close the Fed programs at the end of the year.
Mr. Toomey denied that he was trying to hurt the incoming Biden administration or tank the economy. But he conceded that his measure was intended to prevent Democrats from taking advantage of the Fed’s emergency loan programs as a way to get cheap credit to favored borrowers. The programs were meant to keep markets from breaking down, Mr. Toomey argued, not to help municipalities or disadvantage oil and gas companies relative to green-energy competitors.
“It would be a terrible idea to morph these programs into something else,” Mr. Toomey said in a call with reporters. Under some Democrat’s plans, he warned, “the Fed wouldn’t be the lender of last resort, it would be the lender of first resort.”
Mr. Toomey, who said the new language is “the most important thing” to him, said it was also widely supported by Senate Republicans and by Mr. Mnuchin. A senior administration official confirmed that the Treasury secretary supported it.
Democrats condemned the move, which would leave the Biden administration with even fewer tools to fight the economic mess it will inherit.
“This is a significant last-minute request from Senate Republicans that goes well beyond anything they have asked for in the past,” said Bharat Ramamurti, a Democratic member of the congressional oversight commission tasked with overseeing the Fed’s programs. It would “radically limit the ability of the Biden administration and the Fed” to provide credit and support markets next year, he said.
Reporting was contributed by Zolan Kanno-Youngs from Washington and Nicholas Fandos from New York.
