Capital Thinking Update - April 4, 2011

General Legislative

The House will convene on Monday, April 4, taking up the following measure: H.R. 1246 to reduce the amounts otherwise authorized to be appropriated to the Department of Defense for printing and reproduction. The Senate will convene at 2:00 PM on Monday, April 4 and proceed to Executive Session to consider the nomination of a United States Circuit Judge for the Federal Circuit. 

Budget, Appropriations

LEGISLATIVE ACTIVITY

• Negotiations for a CR Covering the Remainder of FY2011. On Wednesday, Vice President Joe Biden, Jr. announced a deal had been reached on an FY2011 Continuing Resolution (CR) topline spending figure that would be $33 billion less than current levels (with $10 billion already cut through recent short-term CRs, additional reductions would total $23 billion). On Thursday, Speaker of the House John Boehner (R-OH) rebutted the Vice President’s statement, but did indicate that a deal was close. Specifics, such as from which programs additional cuts would be made and whether any policy riders pushed by conservative House Republicans would be considered, were not released. The conservative House Republicans also continue to push for their proposed $61 billion in spending cuts from FY2010 and held a "Continuing Revolution" rally on Thursday.
• The Government Shutdown Prevention Act of 2011. This afternoon the House passed the Government Shutdown Prevention Act of 2011 (H.R. 1255) as a political statement against the delayed FY2011 appropriations resolution. In part, the bill provides that if the Senate does not pass a CR for the remainder of FY2011 by April 6, the CR passed by the House in February (H.R. 1) would be deemed as enacted into law. It further provides that neither Congress nor the President would receive a salary during a government shutdown of more than 24 hours. These mandates are unconstitutional, which makes the vote irrelevant, except for the expression of opinion by House Republicans.
• FY2012 Budget Proposal. House Budget Committee Chairman Paul Ryan (R-WI) may release the FY2012 Republican Budget Resolution next week.

Education

LEGISLATIVE ACTIVITY

• Patent Reform. On Wednesday, House Judiciary Chair Lamar Smith (R-TX) introduced the America Invents Act (H.R. 1249), the House companion measure to the comprehensive patent reform bill (S. 23) passed by the Senate earlier this month. While the house version adheres closely to the Senate bill, some differences include a more relaxed standard for inter partes review, an extended deadline for filing inter partes reviews and expansion of prior user rights to practically all technological inventions. The Intellectual Property, Competition and the Internet Subcommittee of the House Judiciary Committee held a hearing on the bill Wednesday.
• Vouchers. The House of Representatives passed (225 – 195) a bill Wednesday resurrecting the D.C. school voucher program, which would authorize $20 million annually from fiscal 2012 to 2016 to reinstitute the program in the District. The program, a top priority for House Speaker John Boehner (R-OH), was the first bill he sponsored this session. The House provided $15.5 million for the program in H.R. 1, the Fiscal 2011 long-term Continuing Resolution passed by the chamber in February. The Obama Administration has come out against the voucher bill, but it stopped short of a veto threat. Senator Joseph Lieberman (I-CT) is the lead Senate sponsor.
• Upcoming Hearings. The House Education and Workforce Committee will convene a full committee hearing titled, “Education Reforms: Promoting Flexibility and Innovation” on April 7.

Energy

LEGISLATIVE ACTIVITY

• Domestic Production. On Thursday, the President set forth his vision of “America’s Energy Security,” including measures he has advocated for in the past (e.g., one million electric vehicles on the road by 2015) and new measures, such as reducing imports of oil by one third by 2025. A myriad of energy-related measures are expected in coming weeks, and legislators are now talking about reviving energy policy “gangs” of years past. A House Natural Resources Subcommittee will hold a Tuesday legislative hearing on three bills that Chairman Doc Hastings (R-WA) introduced last week to encourage offshore drilling in the Gulf of Mexico, accelerate permitting decisions and concentrate development activities in the most promising areas in the Gulf and off the Atlantic Coast (notably Virginia). House Republicans are expected to introduce additional bills to incentivize onshore production, renewables, hydropower and coal as part of their American Energy Initiative.
• Oil Spill Response. Among the early bills the Senate Energy and Natural Resources Committee is expected to consider is a revised version of comprehensive oil spill response and Interior reform legislation the Committee had favorably reported last year. Chairman Jeff Bingaman (D-NM) would first like to hold additional legislative hearings, given the new makeup of the Committee and new information available since the legislation was last discussed, and report a bill to the Senate floor before the Easter recess. The Chairman has also indicated support for additional industry fees to pay for enhanced regulatory reviews. Ranking Member Lisa Murkowski (R-AK) has recently made similar remarks, subject to the condition that any fees collected will be specifically dedicated to agency efforts to issue permits.
• Alternative Vehicles. The Senate Energy and Natural Resources Committee is also expected to consider and markup legislation in coming weeks that would incentivize electric vehicles and increase the use of natural gas in commercial vehicles. Similar legislation stalled in the Senate last year when the “pay for” (to raise per barrel oil industry fees) scuttled bipartisan support.
• Nuclear. Congressional leaders continue to question the nation’s nuclear regulatory officials and industry representatives regarding reactor fleet safety and fuel storage policies. Congressman Ed Markey (D-MA) has introduced the Nuclear Power Plant Safety Act of 2011 and called for a moratorium on any new reactors that could be constructed near earthquake-prone areas until a comprehensive review can be completed.
• Congressional Hearings. Another House Natural Resources Subcommittee will meet Thursday regarding the “Effect of the President’s FY2012 Budget and Legislative Proposals for the Office of Surface Mining on Private Sector Job Creation, Domestic Energy Production, State Programs and Deficit Reduction.” The Senate Energy and Natural Resources Committee will hold a hearing on April 7 to review the Department of Energy’s biofuel program and related infrastructure issues.

REGULATORY ACTIVITY

• Wind Turbines. The U.S. Fish and Wildlife Service will host an April 27 meeting of the Wind Turbine Guidelines Advisory Committee to discuss the agency’s draft Land-Based Wind Energy Guidelines.
• Offshore Safety. The Interior Department’s Ocean Energy Safety Advisory Committee – formally established in January by Secretary Ken Salazar to provide expert guidance toward improving offshore drilling safety, well containment and spill response – will hold its first meeting in Washington on April 18.
• Blowout Preventers. Following a recent forensic report that questioned the effectiveness of the Deepwater Horizon’s blowout preventer, Bureau of Ocean Energy Management Director Michael Bromwich acknowledged that the backup devices should undergo design modifications in collaboration with industry.

Financial Services

LEGISLATIVE ACTIVITY

• House Financial Services Committee to Markup GSE Legislation. On April 5, the House Financial Services Committee will meet to markup several recently-introduced pieces of legislation related to government-sponsored enterprises (GSEs). The proposals include the Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act (H.R. 31), the Equity in Government Compensation Act of 2011 (H.R. 1221), the GSE Subsidy Elimination Act of 2011 (H.R. 1222), the GSE Credit Risk Equitable Treatment Act of 2011 (H.R. 1223), the Portfolio Risk Reduction Act of 2011 (H.R. 1224), the GSE Debt Issuance Approval Act of 2011 (H.R. 1225), the GSE Mission Improvement Act of 2011 (H.R. 1225) and the GSE Risk and Activities Limitation Act (H.R. 1227).
• House Subcommittee to Consider CFPB Leadership Structure. On April 6, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit will hold a hearing titled, “Legislative Proposals to Improve the Structure of the Consumer Financial Protection Bureau (CFPB).”  The Subcommittee will consider a proposal to change the leadership structure from a director-based structure to having 5 commissioners lead the CFPB.
• Senate Banking Subcommittee to Explore Accounting Practices. On April 6, the Senate Banking Committee’s Subcommittee on Securities, Insurance and Investment will hold a hearing titled, “The Role of the Accounting Profession in Preventing Another Financial Crisis.” Witnesses will include James Doty, Chairman of the Public Company Accounting Oversight Board, Leslie Seidman, Chairman of the Financial Accounting Standards Board and James Kroeker, Chief Accountant at the U.S. Securities and Exchange Commission.
• Senate Appropriations Subcommittee to Discuss Housing Policy. On April 7, the Senate Appropriations Subcommittee on Transportation, Housing and Urban Development will hold a hearing titled, “Overview of the Federal Housing Administration and the Future of Housing Finance.” Shaun Donovan, Secretary of the Department of Housing and Urban Development, will appear before the Subcommittee.

OTHER FINANCIAL SERVICES NEWS

• TARP Bank Programs Report Profit. On March 30, the Treasury Department announced that recent bank repayments to the Troubled Asset Relief Program’s (TARP) Capital Purchase Program resulted in $251 billion returned to the federal government from TARP bank programs through repayments, dividends, interest and other income, exceeding the original investment of $245 billion. The Treasury Department estimates that bank programs within TARP will ultimately provide a lifetime profit of approximately $20 billion to taxpayers.

Health Care

LEGISLATIVE ACTIVITY

• 1099. The Senate has indicated that they will take up H.R. 4, the House-passed version of a measure to repeal the 1099 reporting requirement included in the Affordable Care Act (ACA) this week. Final clearance has been stalled to date over disagreements regarding the offset for the provision which is expected to generate $19 billion in federal revenues. The House pay-for has been controversial with Senate Democrats because it recoups overpayments of subsidies to consumers purchasing coverage in the health insurance exchanges beginning in 2014. Senator Robert Menendez (D-NJ) is expected to offer an amendment that would require a study of the offset’s impact on premiums and numbers of uninsured Americans. If the offset is shown to increase premiums or uninsured, the repeal would not go into effect. Senate Leadership is expected to consider the measure on Tuesday.

REGULATORY ACTIVITY

• ACOs. The Centers for Medicare and Medicaid Services (CMS) released the long-awaited proposed rule for the development of Accountable Care Organizations (ACOs) under the Medicare Shared Savings Program (under section 3022 of the ACA). The rule offers proposed guidance to providers on eligibility, ACO design and requirements regarding quality performance standards, savings benchmarks and reporting responsibilities. The proposed rule also describes two program tracks for participants with different experience and willingness to assume risk; the first track allows an ACO to operate on a savings only basis for the first two years, assuming risk only in the third year, while the second track assumes risk throughout the program in exchange for a higher share of savings achieved. Assumption of risk includes financial penalties if the ACO exceeds savings benchmarks determined by CMS, where the ACO would be required to repay Medicare for a portion of losses, offering a controversial element to the proposed rule.
  
  The Health and Human Services (HHS) Office of Inspector General (OIG), the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) released guidance and solicitation for comments on legal issues regarding the proposed ACO rules. The notices cover proposals for waivers of certain federal laws including the physician self-referral law, the anti-kickback statue and the civil monetary penalty law for shared savings programs. The DOJ and FTC proposed an Antitrust Policy Statement that would apply to approved ACOs, including guidance mandatory antitrust reviews, expedited review policies and “Safety Zones” for certain ACOs that would be unlikely to be subject to an antitrust challenge. The Internal Revenue Service (IRS) also released guidance addressing federal tax issues affecting tax-exempt organizations planning to participate in the Medicare Shared Savings Program.
  
  All regulations include a sixty-day public comment period, closing on June 6, 2011.
• Home Health. The CMS released a notice addressing implantation of the home health face to face requirement included in the ACA, requiring physicians see patients in-person before certifying the need for home health either 90 days before the start of care or 30 days after. The requirement was slated to go into effect on January 1, but CMS issued a 90-day delay in response to stakeholder concerns about physician outreach and education and access issues.

OTHER HEALTH NEWS

• MedPAC Meeting. The Medicare Payment Advisory Commission (MedPAC) will hold public meetings on April 7 and 8. Sessions include improving payment accuracy and appropriate use of ancillary services; enhancing Medicare’s technical assistance to and oversight of providers; Medicare’s fee-for-service benefit design; improving the accuracy of payments to physicians and other health professionals; the sustainable growth rate adjustment and alternatives; private-sector payment rates for physician and hospital services; and rural patient care systems. Stakeholders may submit comments to MedPAC until one week after the public meeting.

International, Defense, Homeland Security

• Trade Developments. This week, the Obama Administration continued to work toward its goal of submitting the three pending free trade agreements (FTAs) with Colombia, Panama and Korea to Congress for its approval in 2011. On Wednesday, the House Committee on Ways and Means, Trade Subcommittee held a hearing regarding the Panama Free Trade Agreement. This was the second in a series of three hearings that the Subcommittee is holding to examine each of the pending FTAs. Testifying before the Committee, Ambassador and Deputy United States Trade Representative Miriam Sapiro said that the Panamanian government is “in the process of completing work on the last few steps” that it must take in order for the Obama Administration to submit the agreement to Congress for its consideration. Sapiro noted that Panama has issued executive decrees to resolve several labor rights issues that the United States has asked Panama to address. Furthermore, Sapiro said that she expects Panama will soon ratify a tax information exchange agreement that will increase transparency regarding Panamanian bank accounts.
  
  Turning to the U.S.-Colombia Free Trade Agreement, Colombian negotiators returned to Washington this week to continue negotiations with the office of the United States Trade Representative (USTR) on several outstanding labor rights issues associated with that agreement. USTR has reportedly presented the Colombian government with baskets of issues it must address in the areas of collective bargaining, strikes and labor-related violence.
  
  While many speculate that the Colombian and U.S. governments are close to reaching agreement on these remaining issues, Ranking Member of the House Ways and Means Committee Representative Sander Levin (D-MI) this week called on the Administration to submit the implementing legislation for the Korea-U.S. FTA (KORUS) to Congress before Memorial Day, even if it cannot reach an agreement with the Republican leadership regarding the timing of Congressional consideration of the other two FTAs. The Republican leadership and Finance Committee Chairman Max Baucus (D-MT) have urged the Administration to submit all three agreements to Congress this year in some linked fashion. With the implementation of a free trade agreement between the European Union and Korea slated for July 1, 2011, many U.S. businesses fear that they will lose market share in Korea to their European competitors if Congress does not act to approve the KORUS. Next Thursday, the House Ways and Means Trade Subcommittee is scheduled to hold a hearing to examine the Korea-U.S. Free Trade Agreement in detail.   

Tax

LEGISLATIVE ACTIVITY

• President Signs Stopgap Extension of Aviation Tax Rates. On March 31, President Obama signed into law a two-month extension of all existing aviation-related taxes and Federal Aviation Administration policy (H.R. 1079). This is the eighteenth time the law has been extended since 2007. Under the new law, the 4.3 cents-per-gallon tax on commercial fuel and the 21.8 cents-per-gallon tax on jet fuel for general aviation are extended through May 31. Both the House and Senate are working on bills that address aviation tax rates over several years. In the House, H.R. 658 maintains current aviation tax rates for four years, while the Senate has approved S. 223, which would increase the general aviation fuel tax rate.
• Repeal of Ethanol Credit. Senator Tom Coburn (R-OK) offered an amendment to repeal the volumetric ethanol excise tax credit, but on March 30 said he would withdraw the amendment and pursue the matter later. The amendment was offered to S. 493, a small business bill, but Senate Majority Leader Harry Reid (D-NV) said he would not hold a vote on the amendment. Coburn accused Reid of avoiding tough votes on controversial matters and said he would use Senate procedure to hold a vote on the amendment in the near future. Coburn says the ethanol credit is unnecessary, but that lawmakers from corn-producing states like Senator Charles Grassley (R-IA) continue to support it. Coburn also criticized Reid for inactivity on proposals to repeal enhanced Form 1099 information reporting requirements. 
• Ways and Means Approves Abortion Funding Bill. On March 31, the House Ways and Means Committee approved H.R. 1232 by a vote of 22 to 14 along party lines. The bill would prevent taxpayers from deducting the cost of an abortion from their taxable income. At the markup, Republicans argued that the bill would essentially codify the Hyde Amendment, which prevents federal funds from being used for abortions. The bill also would prevent small businesses and taxpayers from using tax credits in the new health care reform law to pay for health insurance that covers abortions. The bill's provisions would not apply to abortions in cases of rape, incest or life-threatening physical condition of the mother and would not apply to treatment of injury, infection or other health problems resulting from an abortion. Ways and Means Chair Dave Camp (R-MI) blamed the health care reform law for making H.R. 1232 necessary, saying that it "included a massive expansion of the IRS's authority and concocted a host of ways to funnel taxpayer funds for various costs and procedures, including abortions."  Representative Joseph Crowley (D-NY) offered an amendment that would prevent the bill from becoming effective if it would increase the tax liability of any individual or small business; the amendment was defeated along party lines. At the markup, Democrats decried the use of the tax code to implement social policy and compared tax breaks for abortion coverage to those that are offered to nonprofit organizations. Further, Democrats questioned the ability of the IRS to determine whether an abortion procedure was carried out as the result of a rape or whether an abortion was required to protect a mother's health.

OTHER TAX NEWS

• Repatriation Holiday and Tax Reform. A coalition called Working to Invest Now in (WIN) America (WinAmerica) has begun lobbying Congress for a repatriation tax holiday. WinAmerica includes a number of large businesses and associations among its supporters. Some lawmakers, such as House Majority Leader Eric Cantor (R-VA), have advocated that, in addition to long-term efforts to reform the tax code, a repatriation holiday would be effective in creating jobs in the U.S. WinAmerica also wants a tax holiday outside a broader tax reform attempt.  Despite the push for a repatriation holiday, some U.S. businesses and trade associations are focusing on comprehensive tax reform, according to lobbying forms filed at the end of March.

TechComm

LEGISLATIVE ACTIVITY

• Patent Reform. On March 30, House Judiciary Committee Chairman Lamar Smith (R-TX) introduced H.R. 1249, the America Invents Act – the House version of the patent reform bill passed in the Senate on March 8. Similar to the Senate bill, H.R. 1249 implements a first-inventor-to-file standard for patent approval, creates a post-grant review system to weed out bad patents and helps the Patent and Trademark Office (PTO) address the backlog of patent applications. The key difference between the two versions is in mechanisms for challenging the validity of filed-for patents before they are granted. Both the Senate and House bills establish new rules for inter partes review of patent validity before the application is granted, but the House bill allows a longer period of time for and establishes a lower threshold to bring challenges. Both bills also provide for post-grant review, with the House allowing for such review for up to a year, as opposed to the Senate’s nine months. With regard to the first-to-file provisions, the House bill provides a more robust prior use defense against patent infringement claims for alleged infringers using the invention prior to its being patented. The Innovation Alliance, comprised of smaller technology companies, opposes the House bill and seeks increased post-grant review protections. Likewise, the Coalition for Patent Fairness, comprised of larger technology companies, also opposes the bill. Meanwhile, the Coalition for 21st Century Patent Reform called most of the provisions in the America Invents Act noncontroversial. A handful of contentious provisions, however, could undermine the tenuous compromise that has allowed multiple industry sectors, universities, unions, small businesses, independent inventors and other stakeholders to support comprehensive patent reform after several years of efforts. At an Intellectual Property, Competition and the Internet Subcommittee hearing, Subcommittee Ranking Member Mel Watt (D-NC) expressed reservations about the proposed legislation and Representative Jim Sensenbrenner (R-WI) said prior-use provisions in the bill would give patent infringers in China a “get-out-of-jail free card.”  Echoing concerns voiced by some small business groups, Sensenbrenner also said he favors a stripped-down bill that would only address funding and resource problems at the PTO, leaving more divisive issues to future consideration.
• Net Neutrality. House Communications and Technology Subcommittee Chairman Greg Walden (R-OR) and Subcommittee Vice Chairman Lee Terry (R-NE) have said they expect H.J.Res. 37, a resolution of disapproval of the Federal Communications Commission’s (FCC) December 2010 net neutrality rule that was passed out of the House Energy and Commerce Committee on March 15, to be considered by the full House the week of April 4. While the schedule has not yet been set, they anticipate an April 7 vote. The resolution faces an uphill battle in the Senate, which may not act on a companion resolution introduced by Commerce Committee Ranking Member Kay Bailey Hutchison (R-TX) until this summer. President Obama has said he will veto any such resolution.
• Stimulus Funds. On April 1, the House Subcommittee on Communications and Technology marked up legislation to clarify the authority of the Commerce Department’s National Telecommunications and Information Administration (NTIA) and the Agriculture Department’s Rural Utilities Service (RUS) to return broadband stimulus funds to the U.S. Treasury. The legislation addresses the deobligation and return of Broadband Technology Opportunities Program or Broadband Initiatives Program stimulus funds to the Treasury if the award has been returned or disclaimed by any award recipient. The bill also would require that should RUS and NTIA receive information about material noncompliance of any award or improper usage of award funds, the agencies must immediately review the information and determine within 30 days whether cause exists to terminate the stimulus award. The legislation moves next to the full House Energy and Commerce Committee for a vote.
• Hearings. The following hearings have been scheduled:
  • April 5: Senate Commerce Committee hearing on “Closing the Digital Divide: Connecting Native Nations and Communities to the 21st Century”
  • April 6: Senate Judiciary Committee hearing on “The Electronic Communications Privacy Act: Government Perspectives on Protecting Privacy in the Digital Age”
  • April 6: House Judiciary Intellectual Property, Competition and the Internet Subcommittee hearing on “Promoting Investment and Protecting Commerce Online: Legitimate Sites v. Parasites, Part II”
  • April 12: House Communications and Technology Subcommittee hearing on spectrum. Although the witness list has not been announced, we expect witnesses to testify on the auction or reallocation of the 700 MHz D Block spectrum to public safety agencies; the prospect of the FCC conducting voluntary incentive auctions; AWS-3 spectrum and other related issues.
  • TBD – House Judiciary Committee Review of the Proposed AT&T/T-Mobile Merger

REGULATORY ACTIVITY

• Intercarrier Compensation/Universal Service.  On April 6 and 27, the FCC will hold workshops as part of the February 8 Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking seeking comment on proposals to fundamentally modernize the Commission’s intercarrier compensation (ICC) system and Universal Service Fund Reform (USF). The first workshop will focus on practical and operational issues concerning the implementation of a Phase I of the Connect America Fund (CAF), including capabilities and costs of various broadband technologies, how to balance competing priorities for use of limited funds in Phase I of the CAF and the Commission’s proposed use of a reverse auction for Phase I.
• FTC/Google Settlement. On March 30, the Federal Trade Commission (FTC) reached a settlement with Google Inc. regarding FTC charges that the company used deceptive tactics and violated its own privacy promises to consumers when it launched its social network, Google Buzz, in 2010. The proposed settlement bars Google from misrepresenting the privacy or confidentiality of individuals’ information or misrepresenting compliance with the U.S.-E.U. Safe Harbor or other privacy, security or compliance programs. The settlement requires the company to obtain users’ consent, or an opt-in approach, before sharing their information with third parties if Google changes its products or services in a way that results in information sharing that is contrary to any privacy promises made when users’ information was collected. The settlement further requires Google to establish and maintain a comprehensive privacy program and, for the next 20 years, to have independent third parties conduct audits every two years to assess Google’s privacy and data protection practices. This is the first time an FTC settlement order has required a company to implement a comprehensive privacy program to protect the privacy of consumers’ information. In addition, this is the first time the FTC has alleged violations of the substantive privacy requirements of the U.S.-E.U. Safe Harbor Framework, which provides a method for U.S. companies to transfer personal data lawfully from the European Union to the United States. The agreement, soon to be published in the Federal Register, is immediately open for public comment until May 2, after which the FTC will finalize the order. Additional information is available on the FTC website here.
  
  In related Google news, also on March 30, Microsoft announced it would file a formal antitrust complaint against Google with the European Union. Microsoft charges that (1) Google's ownership of YouTube has disadvantaged Microsoft in the realm of video search; (2) Google has prevented MSFT phones from running YouTube properly; (3) the Google Books settlement, recently rejected by the Federal Courts, has threatened to lock out competitors; (4) Google's ad services have prohibited advertisers from porting collected user data elsewhere, such as to MSFT's tools; (5) Google has blocked competing search boxes in part through exclusivity deals; and (6) Google "discriminates against would-be competitors by making it more costly for them to attain prominent placement for their advertisements."