Capital Thinking Update - February 14, 2011

    View Author 14 February 2011

    General Legislative

    The Senate will reconvene on February 14 to resume consideration of S. 223, the Federal Aviation Administration reauthorization bill. The House will reconvene on February 14, with votes scheduled for 6:30 PM on H.R. 514, which will extend expiring provisions of the USA PATRIOT Improvement and Reauthorization Act of 2005 and the Intelligence Reform of Terrorism Prevention Act of 2004 relating to access to business records, individual terrorists as agents of foreign powers and roving wiretaps until December 8, 2011.

    Budget, Appropriations


    • House Appropriations Chair Announces Spending Cuts. On February 9, House Appropriations Chairman Harold Rogers (R-KY) released a partial list of cuts proposed to meet the FY2011 spending limit set last week by House Budget Chairman Paul Ryan (R-WI). On February 10, in response to pressure from rank-and-file conservatives to adhere to the “Pledge to America” promise to reduce discretionary spending by $100 billion in one year, Republican appropriators were forced to head back to the drawing board and come up with an additional $26 billion in cuts from levels in the President’s FY2011 budget proposal. On February 11 Republican House Appropriators released revised reduction figures and the complete text of the bill. The measure would reduce total discretionary spending by approximately $58 billion compared to FY2010 funding levels under which the government is currently operating, $100 billion less than the President's proposed FY2011 budget. House leaders intend to start debate on the legislation on February 15.  


    • President’s FY2012 Budget Release. On February 14, President Obama will deliver his FY2012 budget proposal to Congress.



    • K-12. The House Committee on Education and the Workforce held a hearing on February 10 on the challenges and opportunities in the day-to-day operation of America’s classrooms. Chairman Kline (R-MN) emphasized the importance of improving the value of education spending, noting that despite large increases in federal spending since 1980, student achievement has not improved.
    • Higher Education. Senator Harkin (D-IA) called for an end to deceptive recruiting practices of for-profit colleges on the Senate floor this week. He has held three hearings in the Senate Health, Education, Labor, and Pensions Committee on for-profit schools to date and is planning another on February 17. While Senate Democrats and the White House are focused on tightening regulation of for-profit colleges, House Members pushed back this week, calling into question findings in a GAO report on the issue. As part of the proposed cuts to FY2011 spending bills House GOP lawmakers circulated February 9, higher education programs stand to lose a total $12.3 billion according to education groups. Institutions of higher education are also concerned about potential cuts to the Pell grant program for low-income college students.


    • K-12. In partnership with several education and teacher associations, the Department of Education is hosting a conference in Denver February 15 – 16 to “identify ways that collaborative labor-management relationships, policies and agreements can more directly drive student achievement.” School districts from 40 states were invited by lottery to attend.
    • Higher Education. The National Economic Council and the Office of Science and Technology Policy recently released a whitepaper on the Administration's innovation strategy. As part of its comprehensive study on the economic competitiveness and innovative capacity of the U.S., the Department of Commerce is seeking feedback on that strategy, with comments due April 1, 2011. At a recent meeting of the Education Department's advisory committee on higher education accreditation, members identified issues needing the most attention, including reducing regulatory burden, more clearly defined roles in quality assurance and promulgating better data on colleges' performance.




    • Funding. The President will release his FY2012 budget proposal on Monday, February 14. It is expected to reflect budgetary constraints, with reductions to numerous DOE accounts, while also proposing new initiatives such as incentives for energy efficiency upgrades. Meanwhile, House Republican leaders have proposed a series of significant funding reductions to DOE programs as part of the FY2011 Continuing Resolution, to keep the federal government operating beyond March 4 when the existing Continuing Resolution expires. These include reductions to a broad range of energy efficiency and renewable energy programs, the DOE Loan Guarantee Program and nuclear funds, just to name a few.
    • Climate Change. Following a hearing before an Energy and Commerce Subcommittee in which Administrator Lisa Jackson answered a barrage of questions on the agency’s regulatory activities, it remains unclear how House Republicans will attempt to block EPA regulations of greenhouse gas emissions. (House Energy and Commerce Subcommittee Chairman Shimkus (R-IL) is expected to invite the Administrator to testify at another hearing this week.) The first available legislative opportunity for House Republicans to act will come with floor consideration of the short-term Continuing Resolution later this week. If successful, it will likely contribute to a further slowdown with the Democrat-controlled Senate reaching agreement on current fiscal year funding levels.
    • Congressional hearings. On February 15, the House Subcommittee on Environment and the Economy will hold a hearing on “Environmental Regulations, the Economy and Jobs” to examine “how and whether federal regulatory agencies are conducting the type of economic analysis necessary for policymakers to understand how regulations affect employers’ ability to retain workers and hire new ones, and avoid unnecessary cost burdens.” Interior Secretary Ken Salazar will testify before the House Natural Resources Committee regarding the Administration’s FY2012 budget proposal on March 3.


    • Offshore Wind. The Departments of Energy and Interior announced a National Offshore Wind Strategy agreement aimed at “standing up” projects along the Atlantic Coast. The joint strategy will help overcome challenges facing the deployment of offshore wind energy, including reducing deployment costs and accelerating project timelines. The Interior Department also designated four Atlantic Coast wind areas to leverage joint review efforts. Public comments on Interior’s notice of intent to prepare an environmental assessment for Mid-Atlantic Wind Energy Areas (along New Jersey, Delaware, Maryland and Virginia) for commercial wind lease issuance and site characterization activities are being accepted through March 11.
    • Offshore Drilling. The Interior Department is soliciting comments through March 28 on a comprehensive Environmental Impact Statement proposed for all Central and Western Planning Area sales in the Gulf of Mexico for 2012-2017. The Area sales affect Texas, Louisiana, Mississippi and Alabama.
    • Hydraulic Fracturing. EPA has submitted a draft study plan to the Science Advisory Board for review. The agency’s independent panel of scientists is slated to meet publicly March 7-8, to “review and provide advice on the scientific adequacy and appropriateness of EPA’s Draft Hydraulic Fracturing Study Plan that will assess the potential impacts of hydraulic fracturing on drinking water resources.”  Initial research results and findings are expected by the end of next year, with an additional report following further research anticipated in 2014.



    • Fish and Wildlife. On Tuesday, February 15, the Senate Environment and Public Works Committee intends to hold a hearing to confirm the nomination of the Department of Interior’s Director of the U. S. Fish and Wildlife Service. Mr. Daniel Ashe was nominated for the position on December 3 by President Obama. Mr. Ashe is currently serving as the Service’s Deputy Director and has been a senior manager with the Service for more than 15 years. Mr. Ashe’s background includes working on issues involving migratory birds and the most effective ways to help fish and wildlife populations adapt to changing environmental conditions while accommodating for climate change. Mr. Ashe worked as a professional staff member on the former U.S. House of Representatives Committee on Merchant Marine and Fisheries prior to joining the U.S. Fish and Wildlife Service.
    • Pesticide Spraying. On Wednesday, February 16, the House Agriculture Committee, in conjunction with the House Transportation and Infrastructure’s Subcommittee on Water Resources and Environment, intends to hold a hearing titled, “Reducing the Regulatory Burden Posed by the Case ‘National Cotton Council v. EPA.’” In this case, the court overturned EPA’s rule governing the spraying of pesticides on waterways and adjacent fields.


    • Lead Smelters. EPA has issued a Notice of Public Rule Making (NPRM) concerning a Risk and Technology Review (RTR) for primary lead smelters. This review will meet EPA's obligation under the Clean Air Act (CAA) to conduct a residual risk review and technology review. Under the residual risk provision of the CAA, EPA must evaluate maximum achievable control technology (MACT) standards within 8 years after promulgation and promulgate standards if required to provide an ample margin of safety to protect public health or prevent an adverse environmental effect. Under the technology review provision of CAA, EPA is required to review MACT standards and to revise them as necessary (taking into account developments in practices, processes and control technologies) no less frequently than every 8 years.
    • Nanoscale Materials. EPA has issued a Notice of Public Rule Making (NPRM) to develop a significant new use rule (SNUR) under the Toxic Substances Control Act (TSCA) for nanoscale materials. Many nanoscale materials are regarded as chemical substances under TSCA. This action would require persons who intend to manufacture, import or process these substances for an activity that is designated as a significant new use by this proposed rule to notify EPA at least 90 days before commencing that activity. The required notification would provide EPA with the opportunity to evaluate the intended use and, if necessary, to prohibit or limit that activity before it occurs to prevent unreasonable risk to human health or the environment.
    • Emissions Standards for Oil and Natural Gas. EPA has issued a NPRM to develop National Emission Standards for Hazardous Air Pollutants (NESHAP) with regard to the oil and natural gas industry. NESHAPs regulate hazardous air pollutants from new and existing stationary sources. Two NESHAPs for the oil and natural gas industry were promulgated in 1999, and the Clean Air Act requires that these be reviewed every 8 years and revised as appropriate.


    Financial Services


    • Small Business Legislation Introduced. House Judiciary Chairman Smith (R-TX) introduced the Regulatory Flexibility Improvements Act of 2011 (H.R. 527), designed to ease the financial burden of federal regulations on small businesses. The legislation would provide the Small Business Administration’s Office of Advocacy new rulemaking authority to ensure that federal agencies are complying with a law that requires they be flexible in taking regulatory action against small businesses. Similarly, the bill would require agencies to assess “indirect” impacts on small businesses in addition to the “direct” effects already required. The legislation was referred to the House Judiciary and House Small Business Committees for consideration.
    • Senate Banking Committee to Hear from Regulators on Dodd-Frank Implementation. The Senate Banking Committee will hold a hearing on February 17 for a progress report six-months after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Witnesses will include Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corporation Chairman Sheila Bair, Securities and Exchange Commission (SEC) Chairman Mary Schapiro, Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler and Office of the Comptroller of the Currency Acting Comptroller John Walsh.\
    • House Financial Services Committee to Review OTC Derivatives. On February 15, the full Financial Services Committee will hold a hearing titled “Assessing the Regulatory, Economic and Market Implications of the Dodd-Frank Derivatives Title.” The hearing will have two panels. The first panel is expected to include SEC Chairman Mary Schapiro and CFTC Chairman Gary Gensler. The second panel is expected to include industry representatives, including a swap data repository, a swap dealer, a corporate end-user, an exchange and a swap execution facility.
    • House Agriculture Subcommittee to Review OTC Derivatives. On February 15, the House Agriculture Subcommittee on General Farm Commodities and Risk Management will review implementation of Title VII of the Dodd-Frank Act. Witnesses are expected to include representatives of the alternative investment industry, the futures industry, pension funds, energy traders and swap execution facilities.
    • House Subcommittee to Discuss Interchange Fees. The House Subcommittee on Financial Institutions and Consumer Credit will hold a hearing titled “Understanding the Federal Reserve’s Proposed Rule on Interchange Fees: Implications and Consequences of the Durbin Amendment” on February 17.


    • Treasury Department Releases GSE Reform Plan. On February 11, the Obama Administration published its report to Congress: “Reforming America’s Housing Finance Market.” The proposal includes three primary suggestions on how to wind down Fannie Mae and Freddie Mac and reduce the government's current footprint in housing finance. The plan also lays out reforms to continue strengthening the mortgage market through stronger consumer protection, increased transparency for investors, improved underwriting standards and other critical measures.
    • Joint Committee to Discuss “Flash Crash.”  The Joint CFTC–SEC Advisory Committee on Emerging Regulatory Issues will hold a public meeting on February 18 to discuss matters relating to its recommendations regarding the market events of May 6, 2010 and other matters relating to the on-going work of the committee.


    Health Care


    • House Vote to Block Health Reform Funds. House Republican leadership has indicated that they will bring up a measure to block funding for the Affordable Care Act when the House takes up the Continuing Resolution in the coming week. The House is expected to consider a package that would take the first step at reducing the deficit and fulfilling Republicans’ campaign promise to roll back spending to 2008 levels by cutting current spending by $100 billion. The original resolution included smaller reductions, but appropriators increased spending cuts in response to pressure from fiscal conservatives. The package would replace the current Continuing Resolution that is set to expire March 4 and would extend spending authority through September 30.

      The proposal includes a number of controversial cuts that are expected to be the focus of a relatively active amendment process, including reductions in the WIC supplemental nutrition program and cuts in funding for the FDA, NIH and CDC. Representative Pence (R-IN) also plans to offer an amendment that would strip federal funding for Planned Parenthood.  We anticipate the resolution ultimately to be approved by the House, but face ongoing challenges in the Senate.
    • House Education and Workforce Hearing. The House Committee on Education and the Workforce Subcommittee on Workforce Protections will hold a hearing on February 15, titled, “Investigating OSHA's Regulatory Agenda and Its Impact on Job Creation."
    • Senate Finance Hearing. The Senate Committee on Finance has scheduled a hearing on February 15, with Department of Health and Human Services (HHS) Secretary Kathleen Sebelius to discuss the President’s FY2012 budget proposal.
    • House Energy and Commerce Hearing. The House Committee on Energy and Commerce Oversight and Investigations Subcommittee has scheduled a hearing on February 16, on “Health Care Issues Involving the Center for Consumer Information and Insurance Oversight.” The hearing is a follow-up to the January 20, 2011 letter from the committee to the CCIIO seeking information about the office’s authority, structure and recent decisions to grant widespread waivers of the Affordable Care Act’s requirements.
    • House Ways and Means Hearing. The House Committee on Ways and Means has scheduled a hearing on February 16 to examine the President’s FY2012 budget proposal with HHS Secretary Kathleen Sebelius. Secretary Sebelius will discuss the details of the President’s HHS budget proposals that are within the committee’s jurisdiction.
    • House Judiciary Hearing. The House Committee on the Judiciary has scheduled a full committee hearing on February 16 to discuss the constitutionality of the individual mandate.


    • HHS Proposed Rule on College Health Plans. HHS released a proposed regulation clarifying that many of the consumer protections and insurance reforms required by the Affordable Care Act would also apply to student health insurance plans including no lifetime limits and no exclusions based on pre-existing conditions. The rule would allow limits on annual benefits of no less than $100,000 for plans in effect before September 23, 2012. HHS is seeking public comment on outstanding issues including application of medical loss ratio requirements.


    • Health Care Lawsuits. A group of 74 House Democrats, including Representatives Weiner (D-NY), Pallone (D-NJ), Stark (D-NY) and Murphy (D-CT), are requesting Supreme Court Justice Clarence Thomas to recuse himself from any cases challenging the national health reform law. In a letter sent to the judge, the Congressmen call into question the financial ties of Judge Thomas’ wife to the Affordable Care Act, claiming her financial gain from the legislation creates a conflict for impartiality.
      Meanwhile, a group of 28 Republican Governors are pressing President Obama to encourage expedited review of the ongoing lawsuits challenging the constitutionality of the individual mandate and Medicaid expansions. The Governors highlight the regulatory challenges and expense associated with implementing national health reform and urge fast action through the appellate system to offer certainty on how to proceed.
    • Institute of Medicine. The Institute of Medicine Committee on Geographic Adjustment Factors in Medicare Payment is scheduled to meet on February 17 and 18. This will be the committee’s fourth meeting to examine issues related to geographic adjustment factors in Medicare.




    • Update on Form 1099 Reporting Repeal in House. At a February 9 hearing before the House Small Business Committee, lawmakers and panelists advocated for repeal of the enhanced Form 1099 reporting rules enacted as part of the Patient Protection and Affordable Care Act. Representative Lungren (R-CA) argued that the enhanced reporting regime will encourage businesses to purchase goods and services from large retail chains rather than small businesses in order to avoid the additional paperwork mandated by the new law. Ranking Member Velázquez (D-NY) agreed with Lungren's assessment but expressed concern that his legislation to repeal the Form 1099 requirement (H.R. 4) is not offset. While repeal of these Form 1099 requirements appears to be a foregone conclusion, with both the Senate and the President expressing their desire to remove the provision, the manner of the repeal, including whether any offset is used, will be important.


    • Switzerland Concerned About FATCA Rules. The Swiss government wrote in a report on international tax matters that the new Foreign Account Tax Compliance Act (FATCA) imposes a "comparatively high administrative burden," and that the new law amounts to a unilateral imposition of law by the U.S. with which all foreign countries are supposed to comply. The Swiss government is particularly concerned about FATCA's mandatory reporting and withholding rules because of its significant financial activity with the U.S. In addition, groups, such as the Association of Swiss Registered Investment Foundations, have made suggestions to the U.S. Treasury Department and the IRS concerning the application of the FATCA rules. For example, the group has suggested that Swiss registered investment foundations should be treated as posing a low risk of tax evasion and, consequently, that payments to these retirement plans should be exempt from withholding under the new law. The application of FATCA and its potential to affect foreign investment in the U.S. are of primary concern to the Treasury and IRS as they develop regulations to implement the new withholding and reporting regime.


    • Budget Forecast. Republicans expect the President's FY2011 budget, to be released on February 14, to address tax reform. Others have speculated that the budget may propose more limited reform, such as the elimination of certain targeted tax expenditures or an endorsement of some of the less controversial elements of the plan proposed by the National Commission on Fiscal Responsibility and Reform, including certain spending caps.
    • Deficit Reduction. This week, Senator Jeff Sessions (R-AL) expressed his doubts that President Obama will take the lead on deficit reduction or tax reform, suggesting there is little hope that a compromise on deficit reduction can be achieved. The President has not endorsed any particular deficit reduction plan and is not expected to include any plan in his budget. Most plans, such as the plan offered by the President's National Commission on Fiscal Responsibility and Reform, involve a combination of spending cuts and tax reform and include a reduction in income tax rates, along with the elimination of tax expenditures.
    • Tax Reform. At a hearing of the House Budget Committee on February 10, Chairman Ryan (R-WI) stated that economic growth will proceed with a restoration of low taxes, reasonable regulations and spending restraint. By contrast, Representative Doggett (D-TX) argued that Congress should attempt to curb international tax evasion before considering budget cuts. Congressional Budget Office Director Douglas Elmendorf, testifying at the hearing, indicated that most economists believe a simplified tax code that employs lower tax rates and fewer expenditures would constitute more fair and efficient tax system.
    • Finance Committee Member Kyl Will Not Seek Reelection. Senator Kyl (R-AZ), member of the Senate Finance Committee, will not seek reelection in 2012. Senator Kyl, who has served on the Finance Committee since 2001, has advocated for expanded estate tax relief, and his recent estate tax proposal with former Senator Lincoln (D-AR) helped set the stage for the two year estate tax cut that was part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Senator Kyl says he will work on tax policy issues, entitlement reform and immigration reform during the remainder of his term. In addition to Senator Kyl, the Finance Committee will lose Senator Conrad (D-ND), who also will not seek reelection in 2012.



    • Wireless and Spectrum Initiatives. President Obama unveiled further details on February 10 about the Administration's plan to fund the expansion of next-generation wireless service in rural areas – his “National Wireless Initiative” – during a speech in Marquette, Michigan. The White House intends to raise as much as $28 billion auctioning spectrum that would be voluntarily surrendered by broadcasters and reinvesting some of the proceeds into high-speed wireless access. Of the $28 billion, $10.7 billion would be set aside to build a national, interoperable public safety network. Another $3 billion would be used to fund innovations in wireless technologies and applications. Meanwhile, the plan calls for $5 billion in one-time funding for the Federal Communications Commission's (FCC) Universal Service Fund, which the Commission independently voted to overhaul as a “Connect America Fund” by shifting the focus to broadband coverage at its February 8 open meeting (see below).

      Broadcasters, who relinquished a significant amount of spectrum during the digital television transition, are wary of incentive auctions and question whether the surrender of airwaves to the government for commercial wireless use will truly be voluntary. They also see their spectrum as a resource to retain in order to spur their own technological innovation. Responding to the President’s announcement, House Energy and Commerce Committee Chairman Upton (R-MI) cautioned that additional subsidies for broadband expansion may not be wise at a time when the House is intent on exercising fiscal restraint. However, Senate Commerce Committee Chairman Rockefeller (D-WV) praised the President for embracing the need to reallocate spectrum for a national public safety network, a concept that would be realized in legislation he recently introduced. Chairman Rockefeller’s committee will take a closer look at building a nationwide network for first responders during a February 16 hearing. Also last week, House Homeland Security Committee Chairman King (R-NY) and Ranking Member Thompson (D-MS) introduced their public safety bill, the Broadband for First Responders Act, which would allocate the 10 MHz of spectrum known as the D block to a public safety broadband licensee; require that a public safety broadband network be built to survive most large-scale disasters; provide priority access to first responders; and fund the construction and governance of a public safety network. Funding for the construction of the network will come from an auction of globally homogenized Advanced Wireless Services (AWS) spectrum. Under this legislation, there will be a single licensee for the full 20 MHz of public safety broadband spectrum. In order to achieve interoperability, the measure contemplates migrating public safety entities from using spectrum above 420 MHz and below 512 MHz to radio spectrum licensed to public safety services in the 700 and 800 MHz bands. In addition, the bill would reallocate 1755-1780 MHz spectrum for commercial use.
    • Net Neutrality. Republican opposition to the FCC net neutrality rules continues. The House Energy and Commerce Communications and Technology Subcommittee, chaired by Representative Walden (R-OR), has scheduled a hearing on this issue for February 16. At the same time, full Committee Chairman Fred Upton (R-MI) may attempt to cut funding for the rules’ implementation via the Continuing Resolution to fund the government through FY2011 that will come to the House floor next week. Chairman Upton has reiterated his confidence that there is “bipartisan support” for the passage of a resolution of disapproval under the Congressional Review Act. Senator Hutchison (R-TX), Ranking Member of the Senate Commerce Committee, has already said she would introduce a similar resolution in the Senate.
    • Performance Rights. Congressional attempts to make radio stations pay performers for playing their music failed last year, but the effort may return for an encore. The Performance Rights Act, which would have created a royalty for music played on AM and FM radio, may be reintroduced in the Senate Judiciary Committee this year; only this time, perhaps not as a stand-alone bill. It may become a rider on some other bill or a legislative bargaining chip as the music industry attempts to win this long-sought goal. House Judiciary Committee Ranking Member Conyers (D-MI) said that the committee will be active on the issue, although it will be a more challenging undertaking than it had been during the 111th Congress.
    • Intellectual Property/Patent Reform. In the wake of the February 3 Senate Judiciary Committee approval of S. 23, the Patent Reform Act of 2011, the House Judiciary Committee is beginning its consideration of patent reform. The committee has scheduled its initial hearing on the subject for February 11. At this time, however, there is no companion bill in the House Judiciary Committee.

      In other intellectual property news, on February 8, President Obama signed an Executive Order establishing two new interagency intellectual property enforcement advisory committees. The committees, required under the 2008 Prioritizing Resources and Organization for Intellectual Property Act (PRO-IP ACT), will be chaired by U.S. Intellectual Property Enforcement Coordinator Victoria Espinel. The committees are:
      • Senior Intellectual Property Enforcement Advisory Committee: Comprised of members of President Obama’s Cabinet, the committee will advise Ms. Espinel on the government-wide IP strategy her office is required to publish every three years under the PRO-IP Act. Its first meeting will take place within 90 days of the Executive Order.
      • Intellectual Property Enforcement Advisory Committee: Comprised of agency heads responsible for intellectual property enforcement, including the Patent and Trademark Office, U.S. Trade Representative and OMB, this committee will assist in the development of a joint strategic enforcement plan as required by the PRO-IP Act, including gathering information about enforcement efforts carried out by the federal government and making recommendations on how to better coordinate local, state and federal law enforcement on the issue.


    • Universal Service Fund. At its February 8 open meeting, the FCC adopted a notice of proposed rulemaking to deliver broadband to rural America and spur investment and job creation by reforming the Universal Service Fund (USF) and intercarrier compensation (ICC) system while cutting waste and inefficiency. The NPRM proposes near-term support for broadband deployment in unserved areas, as well as a long-term transition from current high-cost USF support and ICC mechanisms to a single Connect America Fund. In response to the FCC’s action, House Energy and Commerce Subcommittee on Communications and Technology Vice Chair Terry (R-NE) noted that he intends to move forward with legislation because “we know they can’t do anything without us [Congress],” using as base legislation his proposal introduced last year with former Representative Boucher (D-VA).