Capital Thinking Update - March 7, 2011

    View Authors 7 March 2011

    General Legislative

    The House will meet on Tuesday, March 8, with votes postponed until 6:30 PM.  The following measures will be considered under suspension of the rules: H.R. 570, The Dental Emergency Responder Act; and H.R. 525, The Veterinary Public Health Workforce and Education Act. The Senate will convene at 2:00 PM on Monday, March 7.


    Budget, Appropriations

    LEGISLATIVE ACTIVITY

    • Two-week Short-term Continuing Resolution Signed by the President. On Tuesday, each Chamber overwhelmingly passed a two-week Continuing Resolution (CR), which President Obama signed into law on Wednesday, March 2.  The CR prevents a federal government shutdown until at least March 18. The bill reduces current spending by $4 billion over the two-week period.
    • FY2011 Continuing Resolution. Negotiations on a CR covering the remainder of FY2011 began yesterday with a meeting among White House, Senate and House Democratic and Republican leaders in which the White House proposed an additional $6.5 billion in spending cuts.  This afternoon, the Senate Appropriations Committee introduced a CR that aligns with the reductions proposed by the White House ($51 billion below the President’s FY2011 Budget request). Senate leaders intend to bring up their CR and the House-passed version (H.R. 1), which includes roughly $61 billion less than FY2010 ($102 billion below the President’s FY2011 Budget request), for votes next week. Neither bill is expected to receive the required 60 votes to move forward. 

     

    Education

    LEGISLATIVE ACTIVITY

    • Higher Education. Majority Leader Harry Reid (D-NV) set up a cloture vote in the Senate on March 7 for the patent overhaul bill, which survived attempts last week to remove the provision relating to the transition to the first-inventor-to file system. Also in the Senate, the Health, Education, Labor and Pensions Committee will hold a hearing on the oversight of for-profit colleges (March 10). Then, on March 11, the House Education and the Workforce Subcommittee on Higher Education and Workforce Training will hold a hearing titled, “Education Regulations: Federal Overreach into Academic Affairs.” 
    • K-12. On March 2, a group of moderate Senate Democrats, led by Michael Bennet (CO) and Kay Hagan (NC), released a set of principles for revising the Elementary and Secondary Education Act (ESEA). The proposal largely mirrors the Administration’s blueprint for ESEA reauthorization put forth last year. The short-term stopgap funding measure, signed by President Obama on March 3, will cut or eliminate funding for nearly a dozen education programs, including Teach for America, Reading is Fundamental and We the People.
    • Budget Hearings. On March 9, the House Education and the Workforce Committee will hold a hearing on “The Budget and Policy Proposals of the U.S. Department of Education.” Education Secretary Arne Duncan will testify. The Secretary will also testify at a March 10 hearing on the FY2012 budget in the Appropriations Subcommittee on Labor, Health and Human Services, Education and Related Agencies.

    REGULATORY ACTIVITY

    • K-12. In addressing both the Senate Budget Committee and the National Governors Association’s Education, Early Childhood, and Workforce Committee last week, Secretary Duncan stressed with urgency the importance of reforming the No Child Left Behind Act. The Secretary also promised to provide direction to states on more flexible ways to use federal education funding, examples of effective cost-savings techniques and guidance on increasing school productivity. Also, on March 10, in coordination with the Departments of Education and Health and Human Services, the White House will host a conference on bullying prevention. The conference is by invitation only but will be webcast on the White House website.

     

    Energy

    LEGISLATIVE ACTIVITY

    • Energy Legislation. House and Senate leaders are growing increasingly concerned with rising fuel prices. Near-term options offered range from tapping the Strategic Petroleum Reserve to expanding oil shale production; longer-term options offered include expanding offshore oil and gas production in the Gulf of Mexico to opening areas along the Atlantic Coast and Alaska’s Arctic National Wildlife Refuge to production. As gas prices at the pump continue to climb, the pressure for energy legislation will as well. That said, a clear consensus policy has yet to emerge in the House or Senate by either party.
    • ARPA-E. Senate Appropriations Committee member Lisa Murkowski (R-AK) – also Ranking Member of the Energy and Natural Resources Committee – has indicated that the popular Advanced Research Projects Agency – Energy program, which funds cutting-edge energy technology projects, will likely see funding reductions given federal fiscal constraints. (President Obama had requested significantly increasing authorized funding levels to $550 million beginning in FY2012.)
    • Offshore Drilling. Following the Interior Department’s issuance of the first deepwater drilling permit since the Deepwater Horizon disaster, additional oversight hearings are expected in the House. Natural Resources Committee Chairman Doc Hastings (R-WA) and bipartisan Gulf Coast members have been particularly critical of the slow rate of permitting activities for both shallow water and deepwater projects. Senator David Vitter (R-LA) has said he will not lift his procedural hold on President Obama’s nominee to lead the U.S. Fish and Wildlife Service until at least 15 deepwater permits have been issued.
    • Hydraulic Fracturing. Reacting to a New York Times article over the weekend, New York Democratic Representatives Maurice Hinchey, Carolyn Maloney and Jerrold Nadler have requested that both the House Transportation and Infrastructure Committee and the House Energy and Commerce Committee hold hearings on the alleged environmental and health impacts of hydraulic fracturing, particularly as it relates to the potential contamination of drinking water.

     

    Environment

    LEGISLATIVE ACTIVITY

    • Greenhouse Gases. On March 3, a bill was introduced in both the House and Senate to block the Environmental Protection Agency (EPA) from regulating greenhouse gas emissions. The bill was introduced by Ranking Member James Inhofe, (R-OK) of the Senate Committee on Environment and Public Works, and by Chairman Fred Upton (R-MI) of the House Committee on Energy and Commerce and Representative Ed Whitfield (R-KY). The bill would remove EPA’s authority under the Clean Air Act to regulate greenhouse gases by amending the Act to prohibit the EPA from promulgating any regulation concerning taking action relating to, or taking into consideration, the emission of a greenhouse gases to address climate change and for other purposes. This bill has been referred to the Senate Committee on Environment on Public Works, as well as the House Committee on Energy and Commerce. It is likely to see significant opposition in the Senate.
    • Fisheries. On Tuesday, March 8, the Senate Committee on Commerce, Science and Transportation, Subcommittee on Oceans, Atmosphere, Fisheries and the Coast Guard intends to hold a hearing titled, “Implementation of the Magnuson-Stevens Fishery Conservation and Management Act.” The Act is the primary law governing marine fisheries management in United States federal waters. Amendments in 1996 addressed rebuilding overfished fisheries, protecting essential fish habitat and reducing bycatch. Further amendments to the Act were made in 2006 regarding limited access privilege programs, regional coastal disaster assistance, bycatch reduction, shark feeding and cooperative research and management.
    • National Park Service. On Thursday, March 10, the House Committee on Natural Resources, Subcommittee on National Parks, Forests and Public Lands will hold a hearing regarding the National Parks Service’s Fiscal Year 2012 budget. Director Jon Jarvis of the National Park Service will testify.

    REGULATORY ACTIVITY

    • Greenhouse Gas Reporting. EPA is announcing that its Greenhouse Gas (GHG) Reporting Program has recently completed work to develop GHG data reporting requirements for a wide range of different industries in response to Congressional mandates. EPA’s GHG reporting program, launched in October 2009, requires the reporting of GHG emissions data from large emission sources and fuel suppliers across a range of industry sectors. This program is intended to provide data to help industries find ways to be more efficient and save money.

      To ensure that the requirements are practical and understandable to the thousands of companies already registered to report under the program, the Agency is in the process of finalizing an online electronic reporting platform. EPA is also extending this year’s reporting deadline – originally March 31 – and plans to have the final uploading tool available this summer (no date has been set at this time). The GHG reporting data is scheduled to be published later this year. EPA has established a public help center on its website for stakeholders to obtain answers from EPA experts to detailed technical questions.
    • Public Water Systems. EPA has released a proposed rule regarding the design for the third Unregulated Contaminant Monitoring Regulation for public water systems as periodically required under the Safe Drinking Water Act. Public water systems, which include all large community and non-transient non-community water systems serving more than 10,000 people, would be required to monitor under the proposed rule. Stakeholder comments must be received before May 2, 2011 concerning the proposal to monitor/pre-screen test 28 chemicals and two viruses. This list of 30 contaminants was chosen from a larger group of pesticides, biological toxins, disinfection byproducts, chemicals used in commerce and waterborne pathogens. The Agency is specifically requesting comments on: monitoring based on retail population, revised data elements and other changes between the last iteration (UCMR 2) such as reporting schedules, sample requirements and location.

      Also of note, EPA has not included hexavalent chromium in the proposed list of chemicals for UCMR 3 monitoring. However, the draft notice also states that "EPA is aware of potential concerns about chromium-6 occurrence in public water supplies. EPA thus requests comment on whether the Agency should include chromium-6 as one of the 30 contaminants for UCMR 3 Assessment Monitoring."

     

    Financial Services

    LEGISLATIVE ACTIVITY

    • House Oversight Committee to Discuss Foreclosures. On Tuesday, March 8, the House Oversight Committee, chaired by Representative Darrell Issa (R-CA), will hold a field hearing in Baltimore, Maryland titled, “The Foreclosure Crisis.” Chairman Issa has been critical of the Obama Administration’s foreclosure mitigation programs, even introducing legislation to repeal the Home Affordable Modification Program (H.R. 839).
    • House Subcommittee to Evaluate Flood Insurance Proposals. On Wednesday, March 9, the House Financial Services Subcommittee on Insurance, Housing, & Community Opportunity, chaired by Representative Judy Biggert (R-IL), will hold a hearing titled, “Legislative Proposals to Reform the National Flood Insurance Program.”
    • Congress to Review SEC Budget Request. On Thursday, March 10, Securities and Exchange Commission (SEC) Chairman Mary Schapiro will appear before two Congressional committees to discuss the SEC’s 2012 budget request. In the morning, Chairman Schapiro will appear before the Senate Banking Committee. That afternoon, she will appear before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, chaired by Representative Scott Garrett (R-NJ).
    • House Oversight to Review Financial Market Oversight. On Thursday, March 10, the House Oversight Subcommittee on TARP and Financial Services, chaired by Representative Patrick McHenry (R-NC),  will hold a hearing titled, “Financial Management, Workforce and Operations at the SEC: Who's Watching Wall Street's Watchdog?”

    REGULATORY ACTIVITY

    • FDIC to Discuss Deposits. The Federal Deposit Insurance Corporation (FDIC) will host its fifth roundtable discussion with key stakeholders to discuss a study of core and brokered deposits, as required under the Dodd-Frank Act. Government officials, industry executives and other stakeholders will discuss the current brokered deposit restrictions contained in the Federal Deposit Insurance Act and related regulations, as well as more recent innovations in the methods institutions use to gather deposits.

    OTHER FINANCIAL SERVICES NEWS

    • Illinois Insurance Director Reportedly to Head Federal Insurance Office. Michael McRaith, the Director of the Illinois Department of Insurance, has reportedly been selected as the first Director of the Federal Insurance Office (FIO), a new office within the Treasury Department created by the Dodd-Frank Act tasked with monitoring all aspects of the insurance industry and identifying issues or gaps in regulation of insurers that could contribute to systemic risk. The FIO must also conduct a study and submit a report to Congress by January 2012 on ways to modernize the regulation of insurance companies. The Director of the FIO also serves in a non-voting advisory capacity to the Financial Stability Oversight Council, which will identify, monitor and address systemic risks posed by large, complex financial firms.

     

    International, Defense, Homeland Security

    • Middle East Developments. The Obama Administration's ability and appetite for taking the steps necessary to establish a no-fly zone over Libya appear limited at best, for several reasons. White House and State Department officials acknowledge that further widespread atrocities by the Gaddafi regime would be a necessary precursor before Russia and China would consider allowing a UN Security Council (UNSC) resolution authorizing the use of force to move forward. Moreover, NATO allies who would consider participating in a no-fly zone, including Canada, the United Kingdom and France, would not act without such a UNSC action. In addition, the Pentagon remains skeptical that the U.S. public is prepared to support the rules of engagement that enforcing a no-fly zone would entail, namely use of force on behalf of one side with hazily defined interests in a nascent internal conflict. Finally, Congressional support for a no-fly zone is growing, but it remains tepid. Members open to the idea include Senate Foreign Relations Committee Chairman John Kerry (D-MA) and Senate Armed Services Committee members John McCain (R-AZ) and Joseph Lieberman (I-CT). Meanwhile, Saudi Arabia has clarified its earlier statement regarding stepping up oil supplies to replace Libyan crude, stating it would augment production on an as-needed basis as circumstances warrant at a later date. Saudi and Israeli officials both increasingly question the Obama Administration's growing receptivity to opposition movements in the region, albeit for different reasons.
    • Trade Developments. U.S. Trade Representative Ron Kirk likely will receive a frosty reception from several members of the Senate Finance Committee in a hearing Wednesday on U.S. trade policy. Chairman Max Baucus (D-MT), as well as most committee Republicans, wanted USTR's 2011 trade policy statement, released this week, to lay out a more concrete timeline for consideration of the Colombia and Panama Free Trade Agreements. This week, Secretary Geithner and Secretary Clinton publicly reiterated the Administration's commitment to moving forward on both agreements this year, while focusing its resources first on passing the pending Korea FTA. This approach is unlikely to satisfy the Republican leadership in the House and Senate, but it does suggest a path for compromise, one that includes a tighter timeline but no immediate date certain on the two Latin American agreements does exist.

     

    Tax

    LEGISLATIVE ACTIVITY

    • Tax Reform. On March 3, House Budget Committee Chairman Paul Ryan (R-WI) stated that Republicans are considering whether their April budget resolution will include corporate tax reform.  Chairman Ryan did not comment on the nature of reform that may be included in the budget, though he did say he believes in paying for reduced individual and corporate rates by eliminating tax expenditures, credits and deductions. He also said he believes a consumption tax should be introduced, because savings and investments should be exempt from tax, but that a consumption tax should not be enacted until Congress addresses the current tax code and entitlements, such as Social Security, Medicare and Medicaid. He did, however, urge the White House and Congress to move quickly on tax reform because the impending 2012 presidential election will soon overtake any debate on tax reform.

      At a March 3 press conference, Representative Patrick Tiberi (R-OH) and Senator Ron Wyden (D-OR) argued that comprehensive tax reform should be undertaken to change both the corporate and individual tax regimes, as any reform effort should address the taxation of pass-through entities. Representative Tiberi also argued that the top tax rate for both corporations and individuals should be kept close to one another. At a hearing of the Select Revenue Measures Subcommittee on small businesses and tax reform earlier that day, businessmen and women argued that reform should include both the corporate and individual tax systems, in that many small businesses operate as pass-through entities, and therefore, business revenues are taxed under the individual tax system. Panellists also stated that keeping the corporate and individual rates close to each other would reduce incentives to exploit either the corporate or individual regime over the other.
    • Update on Build America Bonds. During a recent seminar at the National Association of Bond Lawyers' Tax and Securities Law Institute in Austin, Texas, IRS and Treasury officials expressed surprise at Congress' failure to extend the Build America Bonds (BABs) program, saying that BABs are a useful complement to traditional tax exempt bonds and appeal to institutional investors who have longer investment horizons. One IRS official urged state and local governments to advocate for extension of the BABs program. Another IRS official stated that the IRS has so far made $2.9 billion in subsidy payments for BABs.

      In addition, Senator Wyden recently suggested that the BABs program could be rebranded for transportation projects (calling the proposed bonds “Transportation and Regional Infrastructure Project Bonds” or “TRIPs”). Senator Wyden said he is working with Senator John Thune (R-SD) and attempting to build a bipartisan coalition in the Senate to support BABs for transportation. He has circulated a proposal to provide $50 billion for the program, though it is unclear if the more narrowly defined program will overcome Republican opposition.
    • Enhanced 1099 Reporting Repeal. On March 3, the House passed a bill by a 314-112 vote to repeal the enhanced Form 1099 reporting requirements put in place by the Patient Protection and Affordable Care Act. The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (H.R. 4) repeals these reporting requirements for businesses and rental property owners, and pays for the bill by changing the income thresholds for the recapture of a health insurance tax credit enacted in the health care act. House Democrats opposed the offset, with Representative Sander Levin (D-MI) stating that the pay-for would raise taxes on middle-income earners (a charge denied by Ways and Means Chairman Dave Camp (R-MI)). The Senate recently passed its own version of 1099 repeal legislation, although the Senate bill does not repeal the requirements for rental property owners and is paid for with appropriated but unspent federal funds. Senator Mike Johanns (R-NE) has introduced a companion bill to H.R. 4 in the Senate (S. 359), but hopes Congress will simply agree on a compromise. According to the Senator, it is possible the House could adopt the Senate's FAA legislation or that they could have a conference committee to resolve discrepancies. The Administration has stated it does not support the offsets in either bill.

    LEGISLATIVE ACTIVITY

    • Guidance on International Tax Provisions. At a recent meeting of the International Fiscal Association, a Treasury official outlined upcoming guidance in the international tax world. Rules governing the foreign tax credit splitter rule in section 909 of the tax code will address the tax treatment of post-2010 taxes, but may be released after a notice on the issue or possibly a small package of regulations, rather than as a comprehensive set of proposed regulations. Also, Treasury expects to issue a notice that addresses the rule in section 901(m) that disallows the use of foreign tax credits for income that is attributable to stepped up foreign basis. Treasury also expects to release guidance on the section 960 "anti-hopscotch" rules, as well as guidance on some of the tax provisions that will sunset in the near future (specifically mentioned were the two-basket rule for foreign tax credits and the aircraft leasing rules in section 954.)

     

    TechComm

    LEGISLATIVE ACTIVITY

    • Patent Reform. On February 28, the Senate began consideration of the America Invents Act (S. 23). At the time of this writing, the Senate had acted on a manager’s amendment and other minor amendments, putting off more controversial votes. While the Senate is expected to ultimately pass the bill, it will likely be during the week of March 7. The House, in the meantime, continues to draft its patent reform legislation.

      On March 1, the Senate adopted a manager’s amendment – cosponsored by Senate Judiciary Committee Chairman Patrick Leahy (D-VT), Ranking Member Charles Grassley (R-IA) and Jon Kyl (R-AZ) – by a vote of 97-2 that moves the Senate “very close to a consensus bill the Senate can and should pass to help create good jobs, encourage innovation and strengthen our recovering economy.” Among the provisions, the manager’s amendment allows the PTO to keep all the fees it collects to assist with a backlog of patent applications, a shortage of examiners and outdated computer systems.
    • Net Neutrality. The March 2 markup of a House measure to repeal the Federal Communications Commission's (FCC) net neutrality rules was postponed after Republicans on the Energy and Commerce Committee agreed to a request from Democrats to hold a legislative hearing on their efforts. Committee Ranking Member Henry Waxman (D-CA) and Communications and Subcommittee Ranking Member Anna Eshoo (D-CA) sent a letter requesting the hearing. Eshoo praised Chairman Fred Upton (R-MI) for agreeing to the request. The hearing is expected to take place next week.

      House Republican Whip Kevin McCarthy (CA), Energy and Commerce Chairman Fred Upton (R-MI) and Communications Subcommittee Chairman Greg Walden (R-OR) met with Verizon, AT&T, Time Warner and other members of the communications industry last week to gauge their interest in being more supportive of the GOP's attempt to repeal the FCC net neutrality rules. Several industry witnesses are expected to testify at next week's hearing.
    • Spectrum. Senators John Kerry (D-MA) and Olympia Snowe (R-ME) introduced a bill on March 2 that would task the FCC and the National Telecommunications and Information Administration with conducting a comprehensive inventory to determine how radio spectrum is currently being used. The measure comes as the White House has placed greater emphasis on freeing up spectrum for mobile broadband use via voluntary incentive auctions. However, the broadcast industry is concerned about auctions that are not truly voluntary and suggested some mobile and cable providers are not using excess AWS and 700 MHz spectrum that they purchased several years ago. The cable industry responded with its own letter denying that spectrum is lying fallow. The National Cable and Telecommunications Association’s Executive Vice President James Assey sent a letter to Senate Commerce Committee chairman Jay Rockefeller (D-WV), Ranking Member Kay Bailey Hutchison (D-TX), House Energy and Commerce Chairman Fred Upton (R-MI) and Ranking Member Henry Waxman (D-CA) arguing that firms that purchase spectrum at auction and hold licenses are in compliance with the FCC's requirements, and therefore not engaged in anything untoward. He noted that unlike the broadcasters, the wireless industry has had to pay to purchase spectrum. However, wireless spectrum licensees are not subject to many of the public interest obligations as their broadcast counterparts. In the House, Representative John Barrow (D-GA) introduced his version of spectrum inventory legislation that also would create a system to allow for the auction of unused and volunteered spectrum.
    • Hearings. The following hearings are scheduled for next week:

      Tuesday, March 8: House Judiciary Courts, Commercial and Administrative Law Subcommittee hearing on “H.R. 10, the Regulations from Executive in Need of Scrutiny Act of 2011.” In what should be a wide-ranging discussion, we expect Committee Republicans to address the FCC’s December net neutrality order.

      Wednesday, March 9: House Judiciary Intellectual Property, Competition and the Internet Subcommittee hearing on “Driving American Innovation: Creating Jobs and Boosting our Economy.”

      Wednesday, March 9: Senate Judiciary Committee hearing on “Oversight of the Department of Homeland Security.” We expect some discussion of the comprehensive spectrum reform legislation recently introduced by Senate Commerce Committee members John Kerry (D-MA) and Olympia Snowe (R-ME).

      Wednesday, March 9: House Energy and Commerce Communications and Technology Subcommittee chaired by Rep. Greg Walden (R-OR) will hold a hearing on the recently introduced resolution of disapproval to repeal the FCC net neutrality rules through the Congressional Review Act.

    REGULATORY ACTIVITY

    • Universal Service Fund and Intercarrier Compensation System. The FCC has established comment and reply comment dates for the Notice of Proposed Rulemaking (NPRM) passed on February 8 to reform the Universal Service Fund (USF) and intercarrier compensation (ICC) system. 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. Comments for Section XV (Reducing Inefficiencies and Waste by Curbing Arbitrage Opportunities) are due on April 1, with reply comments due on April 18. Comments for the remaining sections are due on April 18, with related reply comments due on May 23. Comments for state members of the Federal-State Joint Board on Universal Service are due on May 2.
    • FCC Meeting. At its March 3 meeting, the FCC unanimously passed three items aimed at improving communications services for Native Americans: an NPRM to explore a range of recommendations to help close the wireless gap on Tribal Lands; orders revising rules or establishing waiver standards that will make it easier for Native Nations to provide radio service to areas that are the functional equivalent of Tribal Lands and to Tribal Lands that are small or irregularly shaped; and a Notice of Inquiry that explores ways to overcome the barriers to deployment of communications services to Native Nations communities. Commissioner Meredith Attwell Baker noted that the broadband adoption rate is as low as 5 percent in some parts of Indian country, while Chairman Julius Genachowski noted that the inability to secure a mobile phone signal often is a matter of life and death on tribal lands.

      In its meeting, the FCC also adopted a NPRM on changes to rules governing or affecting retransmission consent negotiations between broadcasters and multichannel video programming distributors (MVPDs). In the NPRM, the FCC found that it lacked authority to require binding arbitration or interim carriage, proposals by MVPDs, when negotiations fail or contracts expire. The Agency is seeking comment on its view. The FCC also seeks comment on steps to encourage marketplace solutions, including whether it should lift or limit network nonduplication and syndicated exclusivity rules in order to allow MVPDs to import outside broadcast stations into local markets. This could be significant if it gives MVPDs more leverage with local broadcasters. Republican Commissioners seemed open to the possibility without expressing leanings.

      The FCC also sought comment on ways it could strengthen its “good faith” rules governing retransmission negotiations. For instance, the Agency asked whether it should be a per se good faith violation for an independent broadcast affiliate to give its network veto power over retransmission agreements, or to give another local broadcaster authority to negotiate on its behalf with MVPDs. The FCC may also require additional cable notification of consumers 30 days before contract expirations, which could be problematic for MVPDs if it increases pay-TV churn.

      Another NPRM the FCC adopted and aimed at reforming and modernizing the USF Lifeline and Linkup programs subsidizing low-income consumer phone service asked whether the agency should program funding at its 2010 level of more than $1.3 billion. That could be problematic for prepaid wireless providers, but helpful for phone companies paying into the funds and that support reforms that are complicated by overall USF growth.