Capital Thinking Update - May 23, 2011

    View Authors 23 May 2011

    General Legislative

    On Monday, May 23 the House returns from a District Work Period.  The Senate will convene at 2:00 p.m. on Monday and resume consideration of S.1038, the PATRIOT Act Extension bill.


    Budget, Appropriations

    LEGISLATIVE ACTIVITY

    • Senate FY2012 Budget Resolution. Senate Budget Chairman Kent Conrad (D-ND) announced this week that a Committee markup of a Democratic Budget Resolution would be deferred pending debt reduction negotiations, conceding that FY2012 budget reductions may be part of a compromise regarding the debt ceiling. Senate floor votes on the House-passed FY2012 Budget Resolution and the President’s Budget Proposal remain on the schedule for next week. These votes are primarily symbolic and will almost certainly fall along party lines, with neither measure garnering enough support to overcome the 60-vote threshold.
    • House Appropriations Activity. Next week, the House resumes its appropriations activity, with a full committee markup of the Homeland Security and Military Construction-Veterans Affairs bills and a subcommittee markup of the Agriculture spending bill scheduled for Tuesday.

    OTHER BUDGET, APPROPRIATIONS NEWS

    • Bi-Partisan Deficit Reduction Panel. The bi-partisan panel led by Vice President Joe Biden continues to hold meetings aimed at reaching a consensus on a near-term plan to reduce the deficit.
    • Gang of Six Now Gang of Five. Noting his discouragement in the group not yet being able to reach a comprehensive deal on deficit reduction, Senator Tom Coburn (R-OK) decided to “take a break from the talks” this week. The remaining members – Senators Dick Durbin (D-IL), Kent Conrad (D-ND), Mark Warner (D-VA), Mike Crapo (R-ID) and Saxby Chambliss (R-GA) – will continue to work toward an agreement, but Senator Coburn’s departure, even if only temporary, makes it unlikely a bipartisan deal can be reached in the immediate future.

     

    Education

    REGULATORY ACTIVITY

    • Regional Advisory Committees. The Department of Education established 10 Regional Advisory Committees to collect information on educational needs throughout the nation. Committee members will solicit information from state and local educators, school officials, business leaders, parents and other stakeholders.  The information will be compiled into a report outlining educational needs from a regional perspective. Secretary Arne Duncan will likely receive the report on August 1, 2011. The first meetings will take place Monday, May 23 and Tuesday, May 24 in Arlington, Virginia.
    • FY2011 Budget Tables. This week, the Department of Education posted new budget tables showing final program funding levels for the remainder of FY2011.

     

    Energy

    LEGISLATIVE ACTIVITY

    • Rising Gas Prices. After the Senate rejected both the Democratic Leadership-backed proposal to eliminate $21 billion in oil industry tax credits and the Republican Leadership-backed proposal to expand and expedite domestic oil production, the Administration and some Senate Democrats now hope that needed legislative compromises to raise the federal statutory debt ceiling or to reduce the federal deficit can also carry provisions to repeal energy tax incentives. At the moment, we don’t see any prospect for Democrats and Republicans to find common ground on the issue.
    • Electric Vehicles. Senate Energy and Natural Resources Committee Ranking Member Lisa Murkowski (R-AK) has expressed cautious optimism for moving legislation to incentivize EV development and deployment, provided that it is well-justified and fully paid for.
    • Clean Energy Bank. As Energy Secretary Steven Chu touts the current, but oversubscribed, DOE Loan Guarantee Program, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) is working to reintroduce legislation that would create an independent Clean Energy Development Authority. In an appearance before the Senate Appropriations Committee, Secretary Chu expressed a willingness to look at that kind of legislation to spur expanded clean energy development.
    • Canadian Pipeline. House Energy and Commerce Committee Chairman Fred Upton (R-MI) has released draft legislation to force the Administration to make a decision by November 1, 2011 on whether to authorize construction of the Keystone XL oil sands pipeline (from Alberta, Canada through Nebraska to Cushing, Oklahoma). A subcommittee legislative hearing is scheduled for Monday afternoon. On May 18, environmental groups sued the State Department to obtain information on Secretary of State Hillary Clinton’s communications about the project.
    • Congressional Hearings and Markups. A Senate Energy and Natural Resources Subcommittee will hold a legislative hearing on May 25 to receive testimony on four lands bills, including the Good Neighbor Forestry Act (S. 375) that would authorize the Interior and Agriculture Departments to enter into cooperative federal-state agreements to better manage National Forest System or Bureau of Land Management lands. The committee has scheduled a markup of pending legislation for May 26.

    REGULATORY ACTIVITY

    • Electric Transmission. The Federal Energy Regulatory Commission will request comments on incentive rates to encourage transmission line development for 60 days, once a Notice of Inquiry is formally released. Last week FERC approved rates for proposals to build a 250-mile transmission line to connect offshore wind power along the Atlantic Coast and a 118-mile line for wind projects in the desert Southwest.
    • Hydraulic Fracturing. A Department of Energy-led panel is expected to issue recommendations with respect to hydraulic fracturing by mid-August. The panel met for the first time last week.

     

    Environment

    LEGISLATIVE ACTIVITY

    • Wind and Solar on Federal Lands. On June 1, the House Committee on Natural Resources will hold a second full committee oversight hearing in a series titled, "American Energy Initiative: Identifying Roadblocks to Wind and Solar Energy on Public Lands and Waters." The hearing intends to examine the policies and actions, such as permitting delays, that may be blocking or delaying the development of renewable energy sources on federal lands and waters. This follows a May 13 hearing during which the Director of the Bureau of Land Management of the Department of Interior, Bob Abbey, and the Director of the Bureau of Ocean Energy Management Regulation and Enforcement, Michael Bromwich, testified. This hearing was originally scheduled for May 25.
    • National Wildlife Refuge. On May 26, the House Committee on Natural Resources, Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs, will hold an oversight hearing titled, "Buying More Land When We Can’t Maintain What We Already Own: The National Wildlife Refuge System’s Operations and Maintenance Backlog Story." The National Wildlife Refuge System is comprised of 550 units (located in all 50 states and U.S. territories) that provide hunting, fishing, wildlife observation and other recreational opportunities to the more than 40 million Americans who visit the refuge system each year.
    • Public Lands and Forest Bills. On May 25, the Senate Committee on Energy and Natural Resources, Subcommittee on Public Lands and Forests, will hold a hearing concerning bills addressing lands under mining and leasing laws; economic development and recreational use of National Forest System land; land to be added to the National Wilderness Preservation System; wilderness study areas; cooperative agreements with state foresters regarding forest, rangeland, watershed restoration and protection services; reauthorization of the Federal Land Transaction Facilitation Act; and addressing claims under the Alaska Native Claims Settlement Act.

    REGULATORY ACTIVITY

    • Oil Spill Research. EPA’s Science Advisory Board will hold a public teleconference to review EPA’s Draft Oil Spill Research Strategy. SAB provides independent scientific and technical advice to the Administrator on the technical basis for agency positions and regulations. EPA’s Draft Oil Spill Research Strategy discusses proposed research and collaborative approaches for four activities related to oil spills: dispersants, alternative remediation technologies, coastal and inland restoration and human health effects. According to EPA, the Deep Water Horizon spill identified the need for additional research on alternative spill response technologies; environmental impacts of chemical dispersants under deep sea application conditions; the fate and toxicity of dispersants and dispersed oil; chronic health effects for spill response workers and the public; and shoreline and wetland impacts, restoration and recovery. Accordingly, EPA developed the research strategy to address these needs, as they pertain to EPA’s responsibilities for oil spills and has requested that the SAB review their draft strategy. The teleconference will be held on June 9.
    • Clean Air Act Advisory Committee Meeting. EPA established the Clean Air Act Advisory Committee to provide independent advice to EPA on policy issues associated with implementation of the Clean Air Act. The committee advises on economic, environmental, technical scientific and enforcement policy issues. The committee will hold its next open meeting on June 8. The Economic Incentives and Regulatory Innovations Subcommittee will meet on June 7, and the Permits, New Source Reviews and Toxics subcommittee will also meet that same day.
    • Emission Standards Delay. The EPA is delaying the effective dates for the final rules titled, ‘‘National Emission Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial, and Institutional Boilers and Process Heaters’’ and ‘‘Standards of Performance for New Sources and Emission Guidelines for Existing Sources: Commercial and Industrial Solid Waste Incineration Units,’’ until proceedings for judicial review of these rules are completed or the EPA completes its reconsideration of the rules, whichever occurs first.
    • Particulate Matter. The EPA is announcing a final rule regarding the implementation of a New Source Review (NSR) Program for particulate matter less than 2.5 micrometers (PM2.5). This rule repeals the grandfather provision that allowed facilities under certain circumstances to satisfy permit program requirements for PM2.5 by meeting the requirements for controlling particulate matter less than 10 micrometers and analyzing impacts on air quality as a surrogate approach. The majority of sources potentially affected are expected to be in the following groups: electric services, petroleum refining, industrial inorganic chemicals, industrial organic chemicals, miscellaneous chemical products, natural gas liquids, natural gas transport, pulp and paper mills, automobile manufacturing and pharmaceuticals. The rule will take effect on July 18, 2011.

     

    Financial Services

    LEGISLATIVE ACTIVITY

    • House Oversight and Government Reform Subcommittee to Discuss Oversight of the Consumer Financial Protection Bureau. On May 24, the House Oversight and Government Reform Subcommittee on TARP and Financial Services (Patrick McHenry (R-NC), Chairman) will hold a hearing titled, “Who’s Watching the Watchmen? Oversight of the Consumer Financial Protection Bureau.”
    • House Financial Services Subcommittee to Consider Legislation to Reform GSEs. On May 25, the House Financial Services Subcommittee on Insurance, Housing, and Community Opportunity (Judy Biggert (R-IL), Chairman) will hold a hearing titled, “Legislative Proposals to Determine the Future Role of FHA, RHS, and GNMA in the Single- and Multi-Family Mortgage Markets.” That same day, the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises (Scott Garrett (R-NJ), Chairman) will hold a hearing titled, “Transparency, Transition and Taxpayer Protection: More Steps to End the GSE Bailout.”
    • Senate Banking Committee to Discuss Derivatives Clearinghouses. On May 25, the Senate Banking Subcommittee on Securities, Insurance, and Investment (Jack Reed (D-RI), Chairman) will hold a hearing titled, “Derivatives Clearinghouses: Opportunities and Challenges.”  Witnesses will include Dr. Benn Steil, Senior Fellow and Director of International Economics of the Council on Foreign Relations; Mr. Chris Edmonds, President of ICE Trust; Mr. Terrence A. Duffy, Executive Chairman of the CME Group Inc.; Dr. Chester S. Spatt, Professor of Finance at the Tepper School of Business at Carnegie Mellon University; Mr. Cliff Lewis, Executive Vice President at State Street Global Markets; Mr. Don Thompson, Managing Director at JPMorgan Chase and Co.; and Mr. James Cawley, Co-Founder of the Swaps and Derivatives Market Association.
    • Senate Banking Committee to Discuss GSE Reform. On May 26, the Senate Banking Committee (Tim Johnson (D-SD), Chairman) will hold a hearing titled, “Public Proposals for the Future of the Housing Finance System Part II.”  Witnesses will include Mr. Ron Phipps, President of the National Association of Realtors; Mr. Mark Parrell, on behalf of the National Multi-Housing Council and National Apartment Association; Mr. Greg Heerde, Managing Director of Aon Benfield; and Mr. Barry Rutenberg, First Vice Chairman of the Board of the National Association of Home Builders.
    • House Financial Services Subcommittee to Discuss Oversight of the Federal Deposit Insurance Corporation. On May 26, the Subcommittee on Financial Institutions and Consumer Credit (Shelley Capito (R-WV), Chairman) will hold a hearing titled, “FDIC Oversight: Examining and Evaluating the Role of the Regulator During the Financial Crisis and Today.

    REGULATORY ACTIVITY

    • SEC to Hold Open Meeting to Discuss Securities Whistleblower Provisions and the Safe Harbor Exemption for Securities Registration. The Securities and Exchange Commission will hold an open meeting on May 25 to discuss the Securities Whistleblower Incentives and Protection provision of the Securities Exchange Act of 1934, which provides that the SEC will pay awards to eligible whistleblowers whose information leads to successful enforcement of a judicial or administrative action. During the meeting, the SEC will also discuss the safe harbor exemption of the Securities Act registration to consider whether securities offerings involving certain “felons and other ‘bad actors’” should be disqualified.

    OTHER FINANCIAL SERVICES NEWS

    • President Obama Nominates Two SEC Commissioners. This week, President Obama announced his intent to nominate Daniel Gallagher as Commissioner to the SEC. Daniel M. Gallagher, Jr. is a partner in the Securities Department of Wilmer Cutler Pickering Hale and Dorr, LLP, where he focuses on regulatory issues and market-related enforcement matters. If confirmed, Mr. Gallagher would fill a Republican seat now held by Kathleen L. Casey. Commissioner Casey will step down next month when her term expires. President Obama also announced his intent to re-nominate Commissioner Luis Aguilar to serve a second term as SEC Commissioner. Luis A. Aguilar was originally nominated by President George W. Bush in 2008. His term expired last June, but SEC rules allow commissioners to stay up to 18 months past the expiration of their term if no successor has been nominated and confirmed.

     

    Health Care

    LEGISLATIVE ACTIVITY

    • Energy and Commerce Hearing. The House Committee on Energy and Commerce Health Subcommittee has scheduled a hearing for May 25, titled, “Expanding Health Care Options: Allowing Americans to Purchase Affordable Coverage Across State Lines.”    
    • Coburn/Burr/Chambliss Medicaid Bill. Senators Burr (R-NC), Coburn (R-OK) and Chambliss (R-GA) introduced S.1031, the Medicaid Improvement and State Empowerment Act, which would reform the Medicaid program to improve care for patients and allow for more flexibility at the state level to administer their Medicaid programs. The bill would also establish health grants to states for specified populations, allowing for financial predictability and programmatic flexibility, provide for incentives to states to advance medical malpractice reforms and direct HHS to establish a new formula to replace FMAP for payments for state child support and welfare programs. In addition, the bill would repeal PPACA, while maintaining certain program integrity provisions, as well as repeal the ARRA maintenance of effort requirement.

    REGULATORY ACTIVITY

    • Regulations. The Center for Medicare and Medicaid Services released a final rule with a comment period that implements requirements for health insurance issuers regarding disclosure and review of unreasonable premium increases under section 2794 of the Public Health Service Act. The final rule establishes a rate review program to ensure that all rate increases that meet or exceed a specified threshold are reviewed by a state or CMS to determine whether they are unreasonable and that certain rate information be made public. HHS also released a notice of proposed rulemaking that would exclude orphan drugs from the definition of covered outpatient drug for the specified newly-eligible covered entity types for purposes of the 340B Program. Comments will be accepted for 60 days.

     

    International, Defense, Homeland Security

    • Trade Developments. Senate Republicans were “surprised” and displeased by the Obama Administration’s comments earlier this week that the President would not submit the implementing legislation for the three pending Free Trade Agreements (FTAs) with Korea, Panama and Colombia until the White House has reached an agreement with Congress on the renewal of Trade Adjustment Assistance (TAA) in a manner consistent with the goals and provisions of the expanded TAA assistance in the 2009 stimulus law. National Economic Council Director Gene Sperling laid down the marker in a press call on Monday, and U.S. Trade Representative Ron Kirk subsequently espoused the same message. The Administration realized it had very little other potential leverage with Republicans on trade policy, so holding up the FTAs is necessary for the White House to achieve its goal of a renewed, expanded TAA program.
      Senate Minority Leader Mitch McConnell (R-KY) and Senate Minority Whip Jon Kyl (R-AZ) are particularly troubled by the White House announcement. Following the Administration’s announcement, Republican Leader McConnell issued a tersely worded statement noting that it “was more than surprising that the President’s staff would again threaten to delay their [the FTAs] implementation,” and urging President Obama to “reconsider this decision.” Senator McConnell further noted that “our economy needs jobs and growth, not an ever-expanding list of reasons to delay the creation of those jobs.” It is not surprising that Senate Republicans are reluctant to dispel the impression that the White House announcement on TAA may have jeopardized the pending “grand bargain” on trade. This impression, if successfully maintained, may afford Republicans increased leverage in the upcoming TAA negotiations. Meanwhile, Senate Democrats are privately expressing some concern that the White House did not notify them of the impending announcement, despite strong support for expanded TAA within the Democratic Caucus. 

      The White House and Congress have not already reached agreement on the overall framework of a deal regarding TAA. Instead, according to our sources, Senate Republicans are still “cooling off” and have not begun to engage with the White House in earnest on this topic. Most believe that detailed negotiations on TAA will not begin any earlier than next week. We will hear more about Administration and Senate positions on TAA at the Finance Committee hearings on the Panama FTA on May 25 and the Korea FTA on May 26.
      Senator Rob Portman (R-OH) and others continue to push for the approval of all three FTAs before the July 4 Congressional recess. However, this timeline looks overly optimistic in light of the recent developments on TAA. Nevertheless, most analysts believe the two sides will eventually reach a compromise, with conservative Republicans ceding more ground than the Administration. In part, this is likely because of the openness to an eventual TAA deal among Speaker John Boehner (R-OH), House Ways and Means Committee Chairman Dave Camp (R-MI) and other House Republicans, particularly those from the industrial Midwest, who are showing some signs of nervousness before facing the electorate in 2012. In addition, House Democrats are unified in their support of the President’s position on TAA, as evidenced by Thursday’s letter to the White House containing the signatures of 125 pro- and anti-trade members of the Caucus.

     

    TechComm

    • AT&T/T-Mobile Merger. The House Judiciary Subcommittee on Intellectual Property, Competition and the Internet is the latest panel to examine AT&T’s $39 billion acquisition of T-Mobile USA on May 26. Meanwhile, the American Antitrust Institute wrote to Senators Herb Kohl (D-WI) and Mike Lee (R-UT), leaders of Judiciary's Antitrust Subcommittee, to caution them that AT&T's purchase of T-Mobile "will come close to replicating the original cell phone duopoly that years of public policy designed to promote wireless competition had sought to dismantle. It is likely to result in higher prices, lower quality, less innovation, and fewer choices for consumers and businesses....Based on the publicly available information, we see no adequate legal justification for reducing the number of national carriers from 4 to 3 (or more realistically, 2 1/2, since the merger may have the effect of marginalizing Sprint as a competitor)."
    • Spectrum. A markup on Senate Commerce Committee Chairman Jay Rockefeller’s (D-WV) comprehensive spectrum bill that had been slated for May 25 is now shelved until the week of June 6. But the question of whether to reallocate the 700 MHz D block spectrum to public safety for a nationwide broadband network will be front and center this week at a hearing before the House Energy and Commerce Subcommittee on Communications. Subcommittee Chairman Greg Walden (R-OR) and House Energy and Commerce Committee Chairman Fred Upton (R-MI) have yet to introduce spectrum legislation but are said to be considering a plan that would offer a lower funding alternative to the Senate legislation, which is seeking to provide $12 billion for deployment and maintenance of the public safety broadband network.

      Back in the Senate, Chairman Rockefeller and Ranking Member Kay Bailey Hutchinson (R-TX) have reached agreement on the spectrum legislation. As mentioned above, the legislation would allocate the 700 MHz D-block to public safety and dedicate $12 billion to build and maintain the nationwide broadband network from proceeds of incentive auctions of broadcast and other spectrum. Meanwhile, on May 19, Senator John McCain (R-AZ) and Homeland Security Chairman Joe Lieberman (I-CT) introduced their long-awaited Broadband for First Responders Act of 2011 that also seeks to dedicate the D block to public safety agencies for the nationwide public safety network. The Lieberman-McCain bill would provide up to $5.5 billion to build the network and another $5.5 billion for long-term maintenance. Both grant programs would be administered by the Department of Homeland Security. Funds for the grant programs would come from auction of the following 4G spectrum: 15 MHz between 1675-1710 MHz; AWS-2 J Block; the AWS-3 band; and the 1755-1850 MHz band. As its name implies, the Broadband for First Responders Act is narrowly tailored to address spectrum and funding needs for public safety, rather than tackling comprehensive spectrum reform as does the Rockefeller-Hutchison measure.

      Even as Congress debates spectrum legislation, the Federal Communications Commission recently issued a Request for Information seeking input on the design and support of incentive auctions for clearing broadcast TV and other spectrum. Bill Lake, FCC Media Bureau Chief, stated that incentive auction models could be available “in a few months” or later this summer. If Congressional authority to undertake incentive auctions is granted, the FCC believes it can commence an auction within 18 months. Comments on incentive auction design are due May 26.
    • Privacy. On May 17, Senate Judiciary Chairman Patrick Leahy (D-VT) introduced legislation to revamp the Electronic Communications Privacy Act (ECPA) that would require the government to secure a warrant before gaining access to a person's email, digital communications or geolocation information. Leahy, who helped write the 1986 law, said ECPA has failed to keep pace with advances in digital communications. The law's protections, for example, are targeted at networks and computing resources that are physically accessible, whereas data today is stored and accessed remotely more than ever. The ECPA Amendments Act of 2011 would prohibit wireless and remote services providers from voluntarily disclosing contents of user's email or other electronic communications to the government. The legislation would require the government to obtain a search warrant based on probable cause to access all e-mails, digital messages, remotely stored and geolocation data. The bill also would require the government to notify the person whose account was disclosed within three days and provide the individual with a copy of the warrant. However, law enforcement would be permitted to seek a court order to delay notice for up to 90 days should the disclosure threaten an investigation or national security.

      On a separate privacy note, the Federal Trade Commission told Congress on May 19 that while mobile devices such as smart phones give consumers new services, they present consumer privacy challenges. Testifying before the Senate Commerce Subcommittee on Consumer Protection, Product Safety and Insurance, David Vladeck, Director of the FTC’s Bureau of Consumer Protection, said privacy challenges are of special concern when it comes to young people. A preliminary FTC staff report on Internet privacy, released in December 2010, proposed a framework to protect consumer privacy consisting of three main recommendations, each of which applies to mobile technology: “privacy by design,” simpler and streamlined privacy choices and transparency. The staff report also called on stakeholders to provide a mechanism to give consumers more control over the data that is being collected from them, including for purposes of delivering behavioral advertising. The mechanism, often referred to as “Do Not Track,” has the support of the majority of the Commission. Issues surrounding implementation of Do Not Track for web browsing are the same on mobile devices and computers.

      Vladeck’s testimony also notes that children and teen use of mobile devices is increasing rapidly. Because young people are using cell phones not only to make calls, but also to use new mobile apps, Vladeck said this raises privacy concerns such as location-based tracking. “The Commission has a long history of working to protect the privacy of young people in the online environment,” he said in testimony. “In recent years, the advent of new technologies and new ways to collect data, including through mobile devices, has heightened concerns about the protection of young people when online.” In April 2010, the agency launched an accelerated review of the Children’s Online Privacy Protection (COPPA) Rule that requires websites to get verifiable parental consent before collecting information from children under 13 years of age. The consensus of participants in a 2010 roundtable on the COPPA Rule review, as well as those who have commented on the review, has been that “the COPPA statute and the Rule were written broadly enough to encompass most forms of mobile communications without the need for statutory change,” Vladeck said. “For example, current technologies such as mobile applications, interactive games, voice-over-Internet services, and social networking services that access the Internet or a wide-area network are ‘online services’ covered by COPPA. . . . Commission staff is assessing new technologies to determine whether they are encompassed by, and conducted in accordance with, COPPA’s parameters.” Senator Claire McCaskill (D-MO) emphasized how beneficial these technologies are and cautioned Members not to regulate too quickly lest consumers lose advantages they now take for granted. The Google representative said mobile services create enormous benefits, but they cannot succeed without consumer trust.
    • FCC June 9 Open Meeting. The FCC’s tentative agenda for its June 9 meeting includes the following items: Electronic Tariff Filing System Report and Order; Wider Channel Bandwidths for Broadband Radio Service (BRS) FNPRM; Space Path Interference (between the 17/24 GHz BSS space stations and DBS) Report and Order; and Maritime Automatic Identification Systems Order. A formal agenda will be released a week before the meeting.

     

    Transportation

    LEGISLATIVE ACTIVITY

    • SAFETEA-LU Reauthorization. The Senate Finance Committee and Senate Banking Committee held their first hearings of the 112th Congress on SAFETEA-LU reauthorization this week. These Committees, respectively, have jurisdiction over the revenue title and transit title of the reauthorization. The House Transportation and Infrastructure Committee and Senate Environment and Public Works Committee, which are responsible for a bulk of the reauthorization, are continuing to draft legislation with the intent of releasing a bill in the Memorial Day timeframe. While indications were that the House intended to release a bill before Memorial Day, there are now indications of a desire to complete final Congressional action on the long-overdue Federal Aviation Administration reauthorization before releasing the surface bill, which may push the timeframe into June 2011.
    • Senate Finance Committee Hearing on Financing 21st Century Infrastructure. The Senate Finance Committee focused on the challenge of meeting the need for investment in America’s infrastructure while addressing the competing imperative of substantially reducing the federal deficit. Due to the long-term decline in gas tax revenues, the Congressional Budget Office now estimates that authorized spending levels would have to be reduced by $13 billion per year absent new revenue into the Highway Trust Fund (HTF). As an increase in the gasoline tax is currently off the table, this revenue shortfall represents the fundamental challenge in enacting surface transportation reauthorization legislation. The House Transportation and Infrastructure Committee is drafting a bill that will operate within projected HTF revenues, largely by refocusing investment on the core highway, transit and safety programs and eliminating or consolidating more tangential programs and by increasing innovative and alternative financing options. Against this backdrop, the Finance Committee addressed the question of financing 21st century infrastructure from two perspectives:
    • Changes to the Federal Program. First, discussion focused on the policy question of whether, and how, the federal transportation program should be changed to operate within the revenue constraint. While members of the committee were generally in support of infrastructure investment, Republicans in particular questioned the proper role for the federal program versus devolving significant responsibility to the states; whether mass transit should be funded from the HTF; and the impact of federal requirements such as NEPA and Davis Bacon on the cost and efficiency of the program. While this discussion did raise fundamental questions about the role and future of the federal program, many of these questions are beyond the immediate purview of the Finance Committee, which has jurisdiction only over the revenue title. The House Transportation and Infrastructure Committee is expected to refocus and reprioritize the program within the revenue constraint, but not to fundamentally alter the federal-state role.
    • Alternative Financing Options. Second, and more significant from a practical standpoint, was the discussion of alternative and innovative financing mechanisms. Democratic members of the Committee were largely in support of reauthorizing Build America Bonds (BABs), though at a lower subsidy rate; lifting the volume cap on Private Activity Bonds; expanding the TIFIA credit program; and considering options for creating a National Infrastructure Bank. While most Republicans speaking at the hearing focused their remarks on the programmatic issues mentioned above, Ranking Member Orrin Hatch (R-UT) expressed specific concerns about BABs and a National Infrastructure Bank (NIB), stating that BABs would add to the size of the federal budget and federal government and that a NIB would transfer risk and cost onto the taxpayer. As has been pointed out, alternative financing options are important supplemental tools, but do not themselves provide new revenue for projects – instead, that revenue has to be raised in the bond markets, through tolls, through private equity and debt or through other such means. Ultimately, based on the need for new financing sources to fill the substantial revenue gap facing the surface transportation program, alternative financing mechanisms are likely to be a key feature in any reauthorization bill that emerges.
    • Senate Banking Committee Hearing on Federal Transit Programs. The Senate Banking Committee’s hearing on transit policy and funding in SAFETEA-LU reauthorization addressed many of the same overarching issues as to how to move forward under the revenue constraint. One particularly interesting note was that, although there is increasing acknowledgement among key lawmakers that a two-year reauthorization bill may be more viable and achievable, Ranking Member Richard Shelby (R-AL) came out strongly against that proposition. Administrator Rogoff also outlined the Obama Administration’s transit priorities and policy proposals, tracking the Administration's draft reauthorization proposal that we summarized in the previous edition of Capital Thinking.