Reconciliation 3.0 Watch
By Humanrace Capital
For months, the consensus in Washington was that the reconciliation window had closed. Congress had spent its political capital on the One Big Beautiful Bill, the House was too divided, the Senate had too many competing priorities, and there was no obvious reason for Republican leadership to reopen a process that tends to create more internal fights than it solves.
Then airport workers stopped getting paid.
Budget continuation normally moves through appropriations, but that takes 60 votes in the Senate. Democrats refused to fund ICE for political reasons, and the standoff dragged on for 76 days.
Last week, everything moved. What happened around DHS funding, ICE, the Farm Bill, and the House budget framework is the clearest sign yet that reconciliation has become the preferred tool for passing budget bills without touching the filibuster. The next reconciliation process is shaping up as the vehicle for the priorities that did not fit into the stopgap DHS deal.
After the 76-day partial shutdown, President Trump signed legislation funding most of DHS, including TSA and the Secret Service. The deal deliberately left immigration enforcement out of the regular package. ICE and Border Patrol were pushed onto a second track.
The vote took hours of negotiation. A small group of Republican members used their leverage to extract commitments from leadership, and the fight was not only about ICE, CBP, and DHS. It pulled in the Farm Bill structure, E15 ethanol, and what would or would not be promised in the next reconciliation package.
The members who held up the vote were not protest votes. They were using a narrow House majority to force commitments on what comes next, and the next reconciliation package is expected to carry domestic policy items like taxes and healthcare into the midterms.
The DHS bill solved one problem and created the next. By funding most of DHS while routing ICE and CBP into reconciliation, leadership manufactured a new must-pass vehicle. Once that vehicle exists, every faction with votes starts loading it up.
That is why the Farm Bill matters here.
The House passed its five-year Farm Bill 224-200, but only after stripping out controversial pesticide liability language and pulling the E15 fight out of the bill. It now heads to the Senate. Year-round E15 is expected to be handled separately, with reporting pointing to a possible standalone vote after recess.
E15 became a point of emphasis among the broader negotiation. Farm-state members wanted year-round E15. Refiners and small refinery interests wanted protections. Leadership moved the Farm Bill without resolving any of it, which means E15 now sits on the pile alongside ICE, CBP, DHS, healthcare, and tax and spending offsets.
Congress is not moving one clean bill. It is stacking unresolved issues into a sequence of must-pass vehicles. The first vehicle reopened most of DHS. The second will likely fund ICE and CBP through reconciliation. The third, whether it gets called Reconciliation 3.0 or something else, is where members will try to cash in the commitments they traded for during the DHS vote.
That is where healthcare and tax reform come in.
The small group of members who held up the process secured commitments on domestic policy which was taken out of this version of the reconciliation bill to ensure Congress could fund all the agencies that were largely unfunded.
The broader implication is that Washington is again using tax and benefit accounts as the architecture for reform. It is expected to have $300B+ in defense budget, but outside of that Congress is planning for reform in tax-savings, retirement, and healthcare.
If the next reconciliation package broadens eligibility, expands account funding, or pushes more dollars into consumer-directed healthcare, the company formation opportunity downstream is significant.
That is why we stay close to the policy process. It helps us understand where the pendulum is moving and how to think about our portfolio companies and investments that play in regulated areas.