Capital Thinking Update - February 7, 2011

    View Authors 7 February 2011
    General Legislative

    The Senate will reconvene on February 7 at 10:00 AM to resume consideration of the Federal Aviation Administration reauthorization bill. The House will reconvene at 2:00 PM on February 8, following a District work period. 


    Budget, Appropriations

    LEGISLATIVE ACTIVITY

    • Senate Announces Earmark Moratorium. On February 1, Senate Appropriations Committee Chairman Daniel Inouye (D-HI) announced that the committee will implement a moratorium on earmarks for the current session of Congress. The moratorium will apply to both the FY2011 (current fiscal year) and FY2012 (begins October 1) bills. The House will also continue the moratorium imposed by Republicans last year. The exact definition of ‘earmark’ as it will be used in the process remains unclear. Some members feel authorized projects should not be considered earmarks. In his statement, Chairman Inouye noted the Appropriations Committee will review its policy and advise as to its interpretation of the Senate rule defining earmarks so that “every member has a precise definition of what constitutes an earmark.”
    • House Budget Chair Announces Spending Limits for FY2011. On February 3, House Budget Chairman Paul Ryan (R-WI) announced a FY2011 spending limit of $1.055 trillion – a $74 billion cut from the President’s non-security budget request and $35 billion below last year’s levels. The House will take up the measure next week utilizing an open amendment process that will allow members to offer proposals to further reduce or restore funding. House leadership intends to take up the measure for a floor vote the week of February 14.

    OTHER BUDGET, APPROPRIATIONS NEWS

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

     

    Education

    LEGISLATIVE ACTIVITY

    • K-12. On February 10, the House Committee on Education and the Workforce will hold a hearing titled, “Education in the Nation: Examining the Challenges and Opportunities Facing America's Classrooms.” No witnesses have yet been named, but Republicans on the committee have committed to the ideals of restoring local control, empowering parents and protecting taxpayers as they seek to reform federal education policy. In the Senate, the committee of jurisdiction has been focused primarily on the debate surrounding health care reform repeal.
    • Higher Education. On February 3, House Budget Chairman Paul Ryan (R-WI) announced overall discretionary spending caps for FY2011. His proposal calls for a 16 percent cut from 2010 levels in spending for the budgetary division that includes the National Science Foundation and NASA, a 10 percent reduction for the Energy Department and a 4 percent cut in the unit that includes the National Institutes of Health and the Education Department.

    REGULATORY ACTIVITY

    • Higher Education. The Department of Education released a report on February 4 predicting that loan-default rates for students of for-profit colleges would double under the new standard set to take effect next year, which will require colleges to track borrowers for three years once they begin repayment, as opposed to the current two year timeframe.

     

    Energy

    LEGISLATIVE ACTIVITY

    • Climate Change. A House subcommittee will hold a February 9 legislative hearing regarding the “Energy Tax Prevention Act of 2011” discussion draft recently released by House Energy and Commerce Committee Chairmen Fred Upton (R-MI) and Ed Whitfield (R-KY) and Senate Environment and Public Works Committee Ranking Member James Inhofe (R-OK). They hope the draft measure “[w]ill prevent EPA from imposing by regulation the massive cap-and-trade tax that Congress rejected last year. We firmly believe federal bureaucrats should not be unilaterally setting national climate change policy, and with good reason: EPA’s cap-and-trade tax agenda will cost jobs, undermine the competitiveness of America’s manufacturers, and, as EPA has conceded, will have no meaningful impact on climate. In other words, all cost with no benefit.” President Obama has vowed to veto any such measure should it pass Congress.
    • FY2012 Budget. Energy Secretary Stephen Chu and Interior Secretary Ken Salazar will testify before the Senate Energy and Natural Resources Committee on February 16 – two days after President Obama submits his FY2012 budget proposal to Congress – regarding their budget priorities for the upcoming fiscal year. The Administration’s budget is expected to include a proposal to incentivize commercial and institutional energy efficiency upgrades, which it will likely recommend be “paid for” by repealing tax provisions that support the domestic oil and gas industry. Because renewable and energy efficiency proposals that used similar “pay fors” failed to gain traction in the Democratic-controlled 111th Congress, it seems highly unlikely that the initiative would be agreed to by the 112th Congress, with a Republican-controlled House and an even slimmer Democratic margin in the Senate. 

    REGULATORY ACTIVITY

    • Offshore Wind. The Bureau of Ocean Energy Management is expected to issue a rulemaking by month end to streamline the noncompetitive renewable energy leasing process for offshore projects. The goal is to establish a consistent process, reduce confusion and prevent delays by working within the Interior Department’s existing regulatory authority to reduce anomalies and the total time involved in the leasing and permitting process.
    • Offshore Moratorium. U.S. District Court Judge Martin Feldman ruled that the Interior Department is in civil contempt for re-issuing a nearly identical, second drilling moratorium after the initial deepwater moratorium issued after the Deepwater Horizon disaster in the Gulf of Mexico was found to be unlawful. The judge also ruled that the Department may need to reimburse the plaintiff, an offshore services company, for their litigation expenses. This came as some members of Congress continue to press the Department to begin permitting deepwater projects nearly four months after the second moratorium was lifted, gas prices continue to rise and the unfolding turmoil in Egypt and across the region raises concerns about the vulnerability of the nation’s dependence on foreign oil.
    • Hydraulic Fracturing. On Monday, House Energy and Commerce Committee Ranking Member Henry Waxman (D-CA), along with committee members Edward Markey (D-MA) and Diana DeGette (D-CO), wrote to EPA Administrator Lisa Jackson urging her to review the extent to which service providers have used diesel in their hydraulic fracturing operations in ways that they believe are inconsistent with either a Memorandum of Agreement signed with EPA or pursuant to applicable provisions of the Safe Drinking Water Act. The letter did not mention that the industry recently sued EPA for seeking to impose new requirements for the use of diesel under the act without following the Administrative Procedure Act in purporting to promulgate the new requirements. The letter arrived as the EPA is in the final stages of developing a work plan that will lay out how it intends to study hydraulic fracturing addressed at potential risks to water supplies, as mandated by Congress in a FY2010 spending bill. During a Congressional hearing, the Administrator indicated that her agency had not prejudged whether federal regulations are needed and thus, whether EPA might try to regulate in an area that has traditionally been the province of state governments.

     

    Environment

    LEGISLATIVE ACTIVITY

    • Interior and Forests. The Senate Energy and Natural Resources Committee stated that it intends to hold hearings the first week of March concerning the Department of Interior and the Department of Agriculture’s (Forest Service) budget requests for Fiscal Year 2012.
    • Oil Spill. This week, on February 11, the House Committee on Transportation and Infrastructure, Coast Guard and Maritime Transportation Subcommittee, intends to hold a hearing on improving oil spill prevention and response. The subcommittee will review the recommendations from the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling.
    • EPA Oversight. House Energy and Commerce Chairman Fred Upton (R-MI) and Ranking Member James Inhofe (R-OK) of the Senate Environment and Public Works Committee have introduced a bill that may block the EPA from regulating greenhouse gases under the Clean Air Act and restrain the agency from implementing new restrictions on emissions. Democrats are concerned the bill would prevent states from imposing stricter standards and prevent the improvement of existing standards. The legislation would not reverse the rulemaking that already had been completed as part of the effort to reduce tailpipe emissions of greenhouse gases from cars and trucks, since those rules had been agreed to by the industry, the Obama Administration and the state of California.

    REGULATORY ACTIVITY

    • Petroleum Refinery Operations. The Office of Management and Budget is in the process of reviewing a proposed survey by the EPA that would be sent to all 152 refineries in the United States concerning emission sources and monitoring at plants. The information gathering is part of a process required of the EPA under the Clean Air Act to review emissions standards every eight years. EPA is currently accepting additional comments on the information collection request until March 4.
    • Drinking Water. EPA intends to develop a national standard for perchlorate in drinking water due to concerns about potential damage to the thyroid and hormone production.
    • Volatile Organic Compounds. EPA also intends to propose regulation concerning 16 volatile organic compounds (VOC) that may cause cancer. This would include trichloroethylene (TCE) and tetrachloroethylene (PCE), in addition to other regulated and unregulated contaminants that are produced from industrial operations.

     

    Financial Services

    LEGISLATIVE ACTIVITY

    • HFSC Leadership Requests Information on Dodd-Frank Resource Demands. On January 28, House Financial Services Committee Chairman Spencer Bachus (R-AL) and Oversight and Investigations Subcommittee Chairman Randy Neugebauer (R-TX) asked the leaders of the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and other financial regulatory agencies for information on the costs to each agency of implementing Dodd-Frank Act required regulations and the projected annual expenses. The letter specifically requests information on the staffing needs for the agencies to carry out the mandates set forth in the Dodd-Frank Act and any new contracts entered into to purchase equipment, lease office space or hire consultants.
    • House Agriculture Committee to Consider OTC Derivatives Implementation. On Thursday, February 10, the House Agriculture Committee will hold a hearing to review implementation of title VII of the Dodd-Frank Act, which relates to over-the-counter derivatives. These markets fall under the jurisdiction of the SEC and the CFTC, the latter of which falls under the Agriculture Committee’s oversight.
    • House Budget Committee to Address Economy, Bernanke to Testify. On Wednesday, February 9, Federal Reserve Chairman Ben Bernanke will appear before the House Budget Committee (Representative Paul Ryan (R-WI), Chairman). This is the first of two hearings scheduled by Chairman Ryan focused on the economy and jobs and the impact of the federal budget on both. On Thursday, February 10, Congressional Budget Office (CBO) Director Doug Elmendorf will appear before the committee.
    • House Subcommittee to Review Federal Reserve Policies. On Wednesday, February 9, the House Financial Services Domestic Monetary Policy and Technology Subcommittee, chaired by Representative Ron Paul (R-TX), will hold a hearing titled, “Can Monetary Policy Really Create Jobs?” The hearing is expected to examine the impact of Federal Reserve policies on job creation and the unemployment rate.
    • House Subcommittee to Discuss GSE Reform. On Wednesday, February 9, the House Financial Services Capital Markets Subcommittee, chaired by Representative Scott Garrett (R-NJ), will hold a hearing titled, “GSE Reform: Immediate Steps to Protect Taxpayers and End the Bailout.” The hearing is expected to focus on immediate steps that Congress can take to begin Fannie Mae and Freddie Mac’s transition out of federal conservatorship. This is the first of several hearings expected to explore legislative solutions to wind down the operations of the GSEs.
    • House Oversight Subcommittee to Consider State and Municipal Debt. On Wednesday, February 9, the House Oversight Subcommittee on TARP and Financial Services, chaired by Representative Patrick McHenry (R-NC), will hold a hearing titled, “State And Municipal Debt: The Coming Crisis?”  The hearing comes, in part, in response to recent statements by municipal bond market analyst Meredith Whitney that the $3 trillion municipal bond market could face 50 to 100 municipal bond defaults in the next year, which would result in billions of dollars in losses to investors.

    REGULATORY ACTIVITY

    • FDIC Open Meeting. On Monday, February 7, the Federal Deposit Insurance Corporation will hold an open meeting to consider several proposals. The agenda is expected to include a proposed rule on incentive-based compensation arrangements and required banker training on deposit insurance coverage.
    • SEC Dodd-Frank Rulemaking Open Meeting. On Wednesday, February 9, the SEC will hold an open meeting to consider proposed rules relating to the implementation of the Dodd-Frank Act. The Commission is expected to consider proposed amendments to rules and forms under the Securities Act of 1933 and Schedule 14A under the Securities Exchange Act of 1934 and to replace references to credit ratings with alternative criteria.
    • CFTC Dodd-Frank Rulemaking Open Meeting. On Friday, February 11, the CFTC will hold an open meeting to consider proposed rules relating to the implementation of the Dodd-Frank Act.

    OTHER FINANCIAL SERVICES NEWS

    • TARP Bank Repayments Set to Break-Even. On Wednesday, February 2, Fifth Third Bancorp repaid the $3.4 billion capital injection received as part of the government’s $700 billion Troubled Asset Relief Program (TARP). This repayment brings TARP’s bank investments close to the break-even point, and any future repayments from banks will result in profit for the Treasury Department. The TARP, which also includes investments in other industries, is expected to cost taxpayers from $25 billion to $29 billion, far less than original estimates from both the Obama Administration and the CBO.

     

    Health Care

    LEGISLATIVE ACTIVITY

    • Health Reform Repeal Activities. While Senate Republicans succeeded in forcing a health reform repeal vote in the form of an amendment to the Federal Aviation Administration bill last week, they failed to overcome a budget point of order that requires 60 votes. In the meantime, legislation aimed at piecemeal repeal efforts continue to be introduced, including a bill sponsored by Senators John Barrasso (R-WY) and Lindsey Graham (R-SC) that would allow states to opt out of certain elements of the health reform law. Senators Ron Wyden (D-OR) and Scott Brown (R-MA) introduced a bill that would allow an earlier start for state health care coverage innovation waivers under the Affordable Care Act. Congressman Brian Bilbray (R-CA) is also expected to introduce legislation in the coming week to repeal the medical device tax included in the health reform law. Bilbray’s bill will bring the medical device tax repeal bill tally to five, in addition to legislation already introduced by Congressman Erik Paulsen (R-MN), Congressman Jim Gerlach (R-PA), Senator Orrin Hatch (R-UT) and Senator Scott Brown.
    • House Judiciary Hearing. The House Committee on the Judiciary Subcommittee on the Constitution has scheduled a hearing on Tuesday, February 8 to examine H.R. 3, the No Taxpayer Funding for Abortion Act.
    • House Energy and Commerce Hearing. The House Energy and Commerce Subcommittee on Health, chaired by Representative Joe Pitts (R-PA), will hold a legislative hearing on the “Protect Life Act” Wednesday, February 9. The hearing is entitled “H.R. ____, a bill to amend the Patient Protection and Affordable Care Act to modify special rules relating to coverage of abortion services under such Act.”
    • House Education and Workforce Hearing. The House Committee on Education and the Workforce has scheduled a hearing on Wednesday, February 9 titled, “The Impact of the Health Care Law on the Economy, Employers, and the Workforce.”
    • House Ways and Means Hearing. The House Committee on Ways and Means has scheduled a hearing on Thursday, February 10 to examine what impact national health care reform will have on the Medicare program and Medicare beneficiaries.

    REGULATORY ACTIVITY

    • Accountable Care Organizations. The much anticipated regulations providing guidance and clarification of the Medicare Shared Savings Program authorized by the Affordable Care Act are working their way through the clearance process. The regulations were expected to be released this week, but it could be another few weeks according to agency staff.
    • National Patient Safety Initiative. The Administration appears poised to announce a new patient safety initiative aimed at reducing the number of preventable readmissions and hospital acquired conditions in the nation’s hospitals. The National Patient Safety Initiative would be administered by newly established Center for Medicare and Medicaid Innovations as established by the Affordable Care Act, and intends to work with states and private sector stakeholders to “reward” hospitals meeting high standards of care. According to the Administration, the initiative would tie $70 billion in hospital payments to delivery of quality patient care, with six percent directed to public reporting of errors, reducing readmissions and hospital acquired conditions in the early years that would grow to nine percent by 2015.

    OTHER HEALTH NEWS

    • Health Reform Lawsuits. Virginia’s Attorney General Ken Cuccinelli has requested the Supreme Court to expedite consideration of the state’s lawsuit regarding the constitutionality of the health reform law. Given the resources necessary to implement the Affordable Care Act, anxious states are expected to support an expedited timeline. Bypassing the appeals process is rarely successful, and the Department of Justice will oppose the motion in order to ensure the case is fully considered by the lower courts before advancing to the Supreme Court. The federal government has also appealed the recent ruling in Florida by U.S. District Court Judge Roger Vinson in the challenge brought by 26 states where the ACA’s individual mandate and Medicaid expansions were found unconstitutional. In his ruling, Judge Vinson also emphasized that the statute did not include a severability clause, and therefore the entire law is null and void. The Fourth Circuit Court of Appeals is expected to hear the case in May.
    • Blumenthal Steps Down.  President Obama’s National Coordinator for Health Information Technology, David Blumenthal, has announced that he will be leaving the post this spring to return to Harvard University. In his duties as the Health IT “Czar,” Dr. Blumenthal has overseen the national transition from paper to electronic health records, including $27 billion in incentive payments authorized by the 2009 economic stimulus package.

     

    International, Defense, Homeland Security

    • Trade Developments. Senate Majority Whip and Finance Committee Member Jon Kyl (R-AZ) has threatened to place a hold on renewal of Trade Adjustment Assistance (TAA), a popular program with both pro- and anti-trade Democrats, unless he sees sufficient progress from the Obama Administration on a timeline for submission to Congress of the pending U.S.-Colombia Free Trade Agreement (FTA). Meanwhile, Senate Finance Committee Chairman Max Baucus (D-MT) continues to balk publicly about considering the pending U.S.-Korea FTA (KORUS) before the Administration addresses his concerns about insufficient U.S. access to the Korean beef market. Senator Baucus instead has recently increased his public advocacy for the Colombia and Panama FTAs. On the House side, U.S. Trade Representative (USTR) Ron Kirk will testify on U.S. trade policy before the Ways and Means Committee on February 9. Ambassador Kirk is expected to provide some more specifics on the Administration’s timeline for the FTAs, elaborating on President Obama’s comments before the U.S. Chamber of Commerce on February 7. In addition, the House may take up a three-month extension of TAA and the Andean Trade Preference Act sometime before they are due to expire on February 12. Again, though, the fate of TAA, assistance designed to retrain U.S. workers affected by trade dislocations, appears tied to larger Senate-Executive Branch discussions over the pending FTAs.
    • Budget Developments. The Republican Majority on the House Appropriations Committee has proposed a more than $1 billion reduction from the President’s request for the Homeland Security budget for the remainder of FY2011. Committee Chairman Hal Rogers (R-KY) and Homeland Security Appropriations Subcommittee Chairman Robert Aderholt (R-AL) have yet to provide specifics on how they plan to allocate the $42.5 billion in proposed homeland security spending. Similarly, House Appropriations has allocated $47 billion for the State Department/Foreign Operations budget for the remainder of FY2011, a significant reduction from the President’s request of $56.8 billion. The Senate Democratic majority, particularly Appropriations Committee members, already have begun to question the House Republicans’ proposals. New Senate Foreign Operations Appropriations Subcommittee Ranking Member Lindsey Graham also has signaled his intention to fight significant reductions in well-used U.S. foreign assistance. Senator Graham specifically has voiced caution regarding proposed reductions to the planned allocation in $1.5 billion in foreign aid for Egypt. Senate Foreign Operations Appropriations Subcommittee Chairman Pat Leahy (D-VT) disagrees on that point, already stating that he does not plan to move forward any further foreign assistance to Egypt until the current crisis abates.

     

    Tax

    LEGISLATIVE ACTIVITY

    • Deficit Commission Bill Expected by March. Senators Mark Warner (D-VA) and Saxby Chambliss (R-GA) will introduce a bill to enact the proposals put forth by the President's National Commission on Fiscal Responsibility and Reform. Those proposals would reduce the federal deficit by approximately $4 trillion over the next 10 years and would eliminate all tax expenditures in exchange for a reduction in personal income tax rates. Staff members for Warner and Chambliss indicated that the bill could be amended, specifically mentioning the possibility of retaining the mortgage interest deduction. Senate Budget Committee Ranking Member Jeff Sessions (R-AL) said Republicans may offer their support for a short-term extension of the debt limit in return for consideration of a long-term deficit reduction plan like the Warner-Chambliss proposal.  Senator Mike Crapo (R-ID), a member of both the Senate Budget and Finance Committees, said he is considering the possibility of using a bipartisan reconciliation package to get some parts of the bill past both chambers of Congress. Senator Max Baucus (D-MT) indicated that there will be multiple tax reform hearings in the near future to discuss Warner-Chambliss and other proposals.
    • Senate Amendment to Repeal Enhanced Form 1099 Reporting. On February 2, the Senate voted 81-17 to waive a budget point of order and adopt an amendment from Senator Debbie Stabenow (D-MI) to repeal the enhanced Form 1099 reporting requirement enacted as part of the Patient Protection and Affordable Care Act. The amendment was offered on the legislation to reauthorize the Federal Aviation Administration. Stabenow's amendment is paid for by rescinding $44 billion in appropriated, but unspent, federal funds; although the amendment provides that the funds cannot come from the Social Security Administration or the Departments of Defense or Veterans Affairs. It is noteworthy that the House has adopted budget rules that allow repeal of the health care reform laws without paying for repeal. H.R. 4, the Small Business Paperwork Mandate Elimination Act of 2011, introduced by Representative Daniel Lungren (R-CA), would repeal the Form 1099 requirements (it would not be paid for). House Ways and Means Committee Chair Dave Camp (R-MI) indicated that he will soon mark up legislation to repeal the reporting requirements.
    • Update on Tax Reform. At a Senate Budget Committee hearing on February 2, panelists told lawmakers that some form of VAT or consumption tax should be part of tax reform, saying that the VAT is used in virtually every other country, is not complex and reduces incentives for income shifting. A national consumption tax, however, has proven unpopular in Congress and with the Administration. Panelists at the hearing stated that a VAT would enhance U.S. competitiveness in the global economy and reduction of the U.S. corporate tax rate would be compromised if an income-based tax system was maintained, rather than conversion to a VAT. Lawmakers denounced the notion of conversion to a VAT, with Senator Jeff Sessions (R-AL) expressing reservations about the panel’s recommendations and even expressing his willingness to pay for a cut in the corporate tax rate as part of the tax reform process.
    • Bill to Ban Tax Patents. On February 3, the Senate Judiciary Committee approved legislation that would prohibit the U.S. Patent and Trademark Office from issuing new patents for tax strategies. The measure prevents patents for "any strategy for reducing, avoiding, or deferring tax liability."  The ban is included in the Patent Reform Act of 2011, which makes other changes to the U.S. patent laws. The committee approved the bill 15-0 (Senators John Cornyn (R-TX) and Tom Coburn (R-OK) did not vote). Currently, there are over 150 patent applications pending for tax strategies, while 130 have already been granted. The committee has acknowledged the concerns of certain tax preparation software companies that may be affected by the ban and urged these companies to work with Congress in addressing the issue.
    • Expanded Incentives Promoting Energy Efficiency. On February 3, President Obama proposed a revision of the incentives offered for making commercial buildings more energy efficient. The Better Buildings Initiative aims to improve the efficiency in commercial buildings by 20 percent over the next decade. As part of the initiative, tax code section 179D, which allows a tax deduction for taxpayers that retrofit commercial buildings for more energy efficient operation, would be changed to allow a credit that is tied to the amount of measurable improvement in energy efficiency resulting from the retrofit. Administration officials estimate that use of the retrofit credit could increase tenfold over the current use of the deduction.
      Supporters of the initiative, including officials from the Alliance to Save Energy and the American Council for an Energy-Efficient Economy, have stated that they will work to convince skeptical lawmakers of the need to support the program. The President's proposal would be paid for by ending tax incentives for oil and gas companies - an offset that has been included in each of the President's budgets and is expected to be a part of the 2012 budget (though some in Congress, such as Senator Jeff Bingaman (D-NM) doubt the offset will gain any support). In addition to the Obama proposal, Representative Sander Levin (D-MI) has expressed support for other energy-efficiency measures, such as the section 48C advanced energy manufacturing credit as well as the provisions allowing credits for purchase of heavy-duty hybrid and natural gas vehicles.

    REGULATORY ACTIVITY

    • Treasury Working on Guidance for Tax Splitter Transactions, FATCA Rules. At a February 3 PLI seminar on international tax issues, Treasury's international tax counsel, Manal Corwin, stated that guidance on foreign tax "splitter" transactions should be comprehensive and holistic and, accordingly, Treasury does not expect to address aspects of the new law in a piecemeal fashion. The statutory language of section 909 of the tax code, which was enacted in August 2010, requires taxpayers to pay U.S. tax on income that gives rise to foreign tax credits before those credits can be utilized. Both practitioners and the government have acknowledged that the statute presents a number of issues that complicate its application and that guidance is necessary. With respect to FATCA, Corwin stated that Treasury is working on guidance and that many comments were received from practitioners. She noted, however, that U.S. withholding agents had not offered many comments to be used in formulating regulations. Multinational companies that may be affected by the tax credit splitter and FATCA rules are awaiting guidance on both these issues.

     

    TechComm

    LEGISLATIVE ACTIVITY

    • Public Safety. As the Senate Commerce Committee prepares for a spectrum hearing on February 16, Senator John Kerry (D-MA) wrote to Federal Communications Commission (FCC) Chairman Julius Genachowski last week noting his support of reallocation of the D block spectrum to public safety use. Senantor Kerry, Chairman of the Communications Subcommittee, questioned Genachowski in the letter about how to make the reallocation to public safety use “economically and operationally effective.”  Specifically , Kerry asked the Chairman: (1) whether the FCC has the resources necessary to centrally administer how the spectrum will be used by public safety to ensure a system is built and operational across the country; (2) whether public safety agencies hold other spectrum that they could return (perhaps unlicensed use or narrowband spectrum) that could be auctioned or released for commercial purposes including enhanced unlicensed uses so as to meet some of the spectrum crunch for commercial services; and (3) what is the proper distribution of costs for maintenance of the system between the federal, local and state governments and can the commercial sector pick up some portion of that cost by leasing unused spectrum from public safety? Kerry supports voluntary incentive auctions to generate revenue necessary to cover what is “an admittedly high cost” that reallocation to public safety use creates and providing the FCC the authority to conduct such auctions. Kerry noted his efforts, along with Senator Olympia Snowe (R-ME), to better manage spectrum and to release more spectrum that government agencies or private firms hold. The two Senators are expected to introduce a comprehensive spectrum bill in coming weeks. The bill is expected to draw from an initiative they introduced in the 111th Congress, the Spectrum Measurement and Policy Reform Act, which tasked the FCC and the National Telecommunications and Information Administration (NTIA) to perform spectrum measurements to determine actual usage and occupancy rates. That bill also would have required greater collaboration between the FCC and NTIA on spectrum policy and management-related issues, implementation of spectrum sharing and reuse programs and market-based incentives to promote efficient spectrum use.

      Meanwhile, the Obama Administration’s 2012 budget, to be released on February 14, is expected to outline the D block reallocation plan and to recommend that between $10 billion and $13 billion be dedicated to building a nationwide public safety network, with $10.5 billion reserved for the network from incentive auctions, according to public safety and industry sources. Leading up to the February 16 hearing, Senate Commerce Committee Chairman Jay Rockefeller (D-WV), recently introduced the Public Safety Spectrum and Wireless Innovation Act, to allocate the D block for public safety use and at the same time provide the FCC with incentive auction authority to allow existing commercial spectrum licensees to voluntarily relinquish their airwaves in exchange for a share of the proceeds of the commercial auction of their spectrum. The concept of incentive auctions is controversial, with some licensees questioning whether licensees’ return of unused spectrum would be truly “voluntary.”  In addition, wireless carriers are split on the D block reallocation, with some supporting commercial auction of the spectrum with the hope of securing greater capacity for 4G communications, while others favor allocation to public safety.
    • Privacy. Representative Jackie Speier (D-CA) plans to introduce a bill next week directing the Federal Trade Commission (FTC) to begin a "do not track" program for online advertisers. The measure, which would enable consumers to "opt out" of tracking by online advertisers, is expected to be narrowly tailored to address tracking issues only, rather than the broader online privacy issues. Representative Cliff Stearns (R-FL), Chairman of the Investigations Subcommittee of the House Energy and Commerce Committee, also is expected to introduce legislation in coming weeks on data collection that draws from a similar measure which he introduced in the 109th Congress and which is expected to adapt many of the principles set forth in former Representative Rick Boucher’s draft legislation from the 111th Congress.
    • Patent Reform. A bill to reduce the likelihood of damage awards in patent disputes moved forward on February 3 with approval by the Senate Judiciary Committee. The committee voted 15-0 on legislation authored by Chairman Patrick Leahy (D-VT), Ranking Member Orrin Hatch (R-UT) and Senator Chuck Grassley (R-IA) that would give judges a major role in determining how important a particular patent is to a product, so that infringing minor patents would not lead to major damage awards. The bill also requires that a patent go to the first inventor to file, rather than the first to invent, making the patent application process easier for companies who apply for patents in multiple countries. The House Judiciary Committee has not yet begun work on a companion bill. Technology companies initiated a push several years ago for patent reform because of expensive litigation, and even more expensive damages, if they lost what many viewed as unfounded lawsuits. Some high-tech companies have dropped their support for the bill. The committee discussed, but did not vote on, a proposed amendment by Senator Charles Schumer (D-NY) that would have allowed companies sued over business-method patents to ask the Patent and Trademark Office to declare such suits invalid without resorting to litigation.

    REGULATORY ACTIVITY

    • FCC February 8 Meeting. Among the items the FCC will consider at its Tuesday open meeting are:

      Connect America Fund and Intercarrier Compensation Reform NPRM: 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. The Media Access Project (MAP), a net neutrality advocate, wants the Commission to include "open Internet" rules in its effort to overhaul USF. MAP said in a filing with the Commission last week that companies receiving USF support should have to comply with net neutrality rules. In its filing, MAP argues that net neutrality regulations would spur broadband deployment, a view challenged by industry. Openness requirements "promote deployment and competition by providing incentives for build-out rather than for the creation and maintenance of artificial scarcity and capacity constraints." The Commission adopted a net-neutrality order in December that has been criticized by House Republicans and challenged in the U.S. Court of Appeals.

      Data Innovation Initiative Presentation: A presentation on the status of the comprehensive reform efforts to modernize and streamline how the FCC collects, uses and disseminates data in order to improve the agency’s fact-based, data-driven decision-making.

      Broadband and Voice Data Modernization NPRM: A Notice of Proposed Rulemaking, initiated as part of the FCC's Data Innovation Initiative, to streamline and modernize the collection of data regarding local telephone competition and broadband.

      CEI/ONA Reporting Elimination NPRM: A Notice of Proposed Rulemaking, initiated as part of the Commission’s Data Innovation Initiative, to eliminate the legacy narrowband comparably efficient interconnection (CEI) and open network architecture (ONA) reporting requirements that currently apply to the Bell Operating Companies (BOCs), due to a lack of continuing relevance and utility.

     

    Transportation

    LEGISLATIVE ACTIVITY

    • FAA Reauthorization. The Federal Aviation Administration (FAA) reauthorization measure has been under floor consideration in the Senate. As the first legislative vehicle this session, it has also become a vehicle for unrelated amendments - most notably related to health care reform. The Senate took its first vote on aviation-related matters on Thursday, February 3, and debate on the FAA measure is expected to continue into the next two weeks in the Senate.
    • Department of Transportation Appropriations. House Appropriations Committee Chairman Hal Rogers (R-KY) released 302(b) subcommittee allocations and – at a 17 percent reduction in discretionary budget authority versus FY2010 levels – the Transportation, Housing and Urban Development Subcommittee (T/HUD) received the most substantial cut. Three points are of note. First, it is not clear how these cuts are intended to be distributed between Housing and Urban Development (HUD) and Department of Transportation (DOT) programs. Second, these figures apply to discretionary budgetary authority only and not to contract authority programs funded through the Highway Trust Fund. (However, as per the House repeal of the TEA-21 funding guarantee, the House bill may ultimately also reduce contract authority spending below authorized levels.) Third, on the DOT side, gross discretionary budget authority increased by 29 percent between FY2008 and FY2010, largely due to the creation of new discretionary programs such as high speed rail and Transportation Investments Generating Economic Recovery (TIGER) programs. More problematically, net total discretionary budget authority actually increased by an additional $4.2 billion (due solely to accounting reasons involving the rescission of excess contract authority) for a net total increase in DOT discretionary budgetary authority from $10.8 billion in FY2008 to $21.4 billion in FY2010. Ultimately, the House 302(b) T/HUD allocation, in concert with the FY2008 to FY2010 increase in DOT discretionary budget authority, indicates there will be significant pressure on DOT discretionary spending from the House.
    • SAFETEA-LU Reauthorization - Overview. The Administration continues to roll-out SAFETEA-LU reauthorization principles in the wake of the President’s call for a six-year reauthorization bill made during the President’s State of the Union address. The Administration is expected to release several of its reauthorization proposals in concert with the release of its FY2012 budget on February 14. The House and Senate Committee Leadership have also reiterated their commitment to moving a six-year bill before the end of the fiscal year. Doing so remains a substantial challenge due to the lack of available revenue to fund a bill at even current levels. CBO projections last week for the FY2011 to FY2015 timeframe indicate Highway Trust Fund receipts of $187 billion versus expected outlays of $257 billion projecting forward from FY2011 authorized levels. Against this backdrop, the contours of the reauthorization debate were in full view after the President’s State of the Union address last week:
      • Rare for a State of the Union address, the President focused on infrastructure investment and specifically called for a six-year reauthorization bill: “Over the next six years, [we will] put more Americans to work repairing crumbling roads, bridges, and transit.” Critically, the President went on to say that the bill would be fully “paid for not by the old, wasteful, pork-barrel way of funding, but by leveraging private resources….”
      • House Transportation and Infrastructure Committee Chairman Mica (R-FL) supported the President’s call for action, but cautioned that “just another proposal to spend more of the taxpayers’ money, when we have billions of dollars sitting idle tied up in government red tape, will never get our economic car out of the ditch. We’ve got to do more with less to improve our infrastructure in a fiscally responsible manner.”
    • SAFETEA-LU Reauthorization – Policy and Political Challenges. Chairman Mica has outlined a vision for completing a bill under this revenue constraint by (1) “stabilizing the Highway Trust Fund” by ensuring that spending authorized in the bill will not exceed actual Trust Fund receipts; (2) recapturing unspent federal funds within the transportation program; (3) utilizing public private partnerships and other alternative financing mechanisms to leverage federal funds; and (4) streamlining programs and speeding project delivery. The House is also expected to tailor a bill to available revenue by focusing on the core system and reducing or eliminating funding for more tangential aspects of the federal program. The Administration’s proposals have also focused on getting “more bang for the buck” through program consolidation, increased use of competitive, multi-modal program like TIGER and the creation of a National Infrastructure Bank. While White House Chief of Staff Bill Daley’s recent comments appear to acknowledge the virtual impossibility of raising new revenue through a gas tax increase, and while there appears to be common ground in terms of the need for increased leveraging of private resources, substantial policy differences exist below this surface (i.e. the House is particularly wary of new competitive programs housed in the Administration). Further, the challenges of enacting a reauthorization bill given the overall revenue constraint cannot be underestimated.