Capital Thinking Update - July 25, 2011

    View Author 25 July 2011

    General Legislative

    On Monday, July 25, the House will meet at 10 a.m. for morning hour and 12 p.m. for legislative business.  The first bill on the House agenda is S. 1103, a bill to extend the term of incumbent Federal Bureau of Investigation Director Robert S. Mueller, III.  The Senate will convene at 2 p.m. on Monday and, thereafter, proceed to executive session to consider judicial nominations.

    Budget, Appropriations


    • House Passes and Senate Rejects Cut, Cap, and Balance. In a largely party-line vote, on Tuesday, July 19, the House passed the Cut, Cap, and Balance Act (H.R. 2560), that would authorize a $2.4 trillion increase in the debt ceiling contingent upon passage of a balanced-budget constitutional amendment. The bill would also cut FY2012 spending by $111 billion and cap spending at 19 percent of GDP by 2021. On Friday, July 22, the Senate voted 51-46 to table the measure. President Barack Obama has said he would veto such a bill.
    • House FY2012 Appropriations Activity. On Friday, July 22, the House passed the Legislative Branch appropriations bill and is currently scheduled to begin consideration of the Interior-Environment bill on Monday, July 25. Full appropriations committee markups are on hold pending the outcome of the deficit reduction talks; the Transportation-Housing and Urban Development subcommittee markup scheduled for July 14 and the Labor-HHS-Education markup scheduled for July 26 both have been postponed indefinitely.
    • Senate FY2012 Appropriations Activity. On Wednesday, July 20, the Senate passed its first FY2012 appropriations bill, the Military Construction-Veterans Affairs bill. All other Senate appropriations action remains stalled, also pending the outcome of the deficit reduction talks.


    A number of developments surrounding deficit reduction negotiations have occurred in recent days. Efforts remain very fluid, complex and completely uncertain. Several plans have been proposed, but it is unclear if any could garner sufficient support to pass both Congressional chambers before the designated August 2 deadline by which the $14.3 trillion debt ceiling must be raised. Moreover, at this point, there is little time remaining to pull together a comprehensive package and put it into a legislative vehicle. Therefore, it is unlikely we will see any “Grand Bargain” before September, which will require a short-term fix either immediately raising the debt ceiling by a set amount or authorizing President Obama to do so.

    • Obama / Boehner Plan. Reportedly, President Barack Obama and House Speaker John Boehner (R-OH) have reached a tentative agreement on a deficit-reduction package that would raise the debt ceiling and reduce the deficit by $3 trillion over 10 years. The savings would primarily come through spending cuts and entitlement savings, with a promise to address tax reform in the near term (3 – 9 months). However, Senate Leaders are not happy about being excluded from the talks, and Democrats are specifically critical of the reports that the package would not include new revenue.
    • Gang of Six Plan. On Wednesday, July 20, the reunited bipartisan Senate “Gang of Six” released its comprehensive proposal to reduce the deficit by $3.7 trillion over 10 years. The plan initially received positive feedback and tentative support from both Democratic and Republican Senators. Even President Obama expressed initial support for the “balanced” plan. Senate Budget Committee Chairman Kent Conrad (D-ND) noted that 74 percent of the plan’s deficit-reduction would come from spending cuts, including an immediate $500 billion “down payment,” and 26 percent from higher revenues, including revamped individual tax brackets. The proposal mandates that Social Security reform will only be considered once a comprehensive deficit reduction bill has received 60 Senate votes and the reform ensures a 75-year solvency of the program. Additionally, any savings generated from the reform must go to solvency and not deficit reduction. However, questions quickly arose over how the plan would be scored and Democrats are apprehensive of the $200 billion in health savings proposed in the plan.
    • McConnell / Reid Plan. Senate Democratic and Republican leaders continue to discuss possible expansion of the plan put forth by Senate Minority Leader Mitch McConnell (R-KY) to include up to $1 trillion in spending cuts and language to establish a bipartisan Congressional committee that would recommend budget cuts, which would receive expedited consideration in the House and Senate (presumably fast-tracked with an up or down vote, no amendments, no filibuster, etc.). The committee would be comprised of only Members of Congress. It is also possible the Senate will pass the bill and allow the House to amend it with $1 trillion in spending cuts in an effort to garner Republican support in the House.
    • Coburn Plan. On Tuesday, July 19, Senator Tom Coburn (R-OK) released a controversial plan that proposes to reduce the deficit by $9 trillion over the next 10 years. The plan is not likely to gain support from either party as it would both significantly alter entitlement programs and also raise tax revenues. The proposal would cut approximately $4 trillion in discretionary spending, including $1 billion from defense programs; $3 trillion from entitlements, primarily Medicare and Medicaid; $1 trillion from cessation of a variety of tax expenditures; and $1 trillion from interest costs. The plan also proposes to “end misdirected economic development tax breaks,” such as New Market Tax Credits, Empowerment Zones and Renewal Communities.




    • Hearings. On July 21, the Senate Health, Education, Labor and Pensions (HELP) Committee held a roundtable discussion titled, “Improving For-Profit Higher Education.” On Wednesday, July 27, the House Education and Workforce Committee will hold a hearing titled, “Education Reforms: Exploring Teacher Quality Initiatives.” 


    • Gainful Employment Rule. On Wednesday, July 20, the Association of Private Sector Colleges and Universities (APSCU) filed a lawsuit in the federal district court in Washington, D.C. seeking to block the Department of Education’s (DOE) gainful employment regulations. APSCU claims that the Department of Education conducted a flawed rulemaking process and overreached in its capacity to frame the rule. On June 2, DOE released final regulations requiring most for-profit programs to prepare students for gainful employment in a recognized occupation by meeting one of three criteria: (1) at least 35 percent of former students are repaying their loans; (2) the estimated annual loan payment of a typical graduate does not exceed 30 percent of his or her discretionary income; or (3) the estimated annual loan payment of a typical graduate does not exceed 12 percent of his or her total earning. 

      On July 20, a group of 20 small and medium-sized proprietary colleges signed on to the Pledge of Public Accountability, an agreement that, by December 15, they will post on their websites their tuition cost, graduation rates and whether their academic programs will qualify students for licensure in a given field, among other details.
    • Waiver Plan. Following Secretary Duncan’s month-old announcement of his intention to create waivers for states to bypass certain provisions under No Child Left Behind, DOE has yet to release specific details on the waiver plan. This week, however, some details have emerged regarding Secretary Duncan’s plan, although DOE has not confirmed such information.
      Under the Secretary’s plan, there will likely be three types of waivers offered to states. States would be required to sign up for all three waivers in order to comply with the proposed plan. Under the first waiver proposal, DOE would require states to adopt college - and career-ready standards and assessments in order to waive meeting the 2014 deadline for all students to be proficient in math and language arts. Under the second waiver plan, states would develop their own accountability system that sets new performance targets. States would also be required to establish school improvement systems that address the varying needs of local schools. The accountability system would be in lieu of existing sanctions under No Child Left Behind, and districts would no longer be required to set aside Title I funds to support such programs. In terms of the third waiver plan, the Department would require states to adopt evaluation systems for teachers and school leaders based on growth and ensure districts meet the performance measures they have identified.
    • School-to-Prison Pipeline. On Thursday, July 21, Secretary of Education Arne Duncan and Attorney General Eric Holder announced the launch of the Supportive School Discipline Initiative, a collaborative project between the Departments of Justice and Education that will address the “school-to-prison pipeline” and the disciplinary policies and practices that can push students out of school and into the justice system. The initiative aims to support good discipline practices to foster safe and productive learning environments in every classroom through coordination with other organizations in the nonprofit and philanthropic communities.
    • Competitive Through Jobs Initiative. On Monday, July 18, President Obama hosted an education roundtable with key leaders in both the private and public sectors, including General Colin Powell of the America’s Promise Alliance, to discuss ways to ensure a competitive American workforce. At the roundtable, the President announced the following four public-private commitments: (1) America’s Promise Alliance Grad Nation Community Impact Fund will raise $50 million to support the goal of ending the dropout crisis and prepare young people for college and career; (2) Bank of America will announce a $50 million pledge to education over the next 3 years, launching this goal through $4.5 million in grants; (3) Microsoft Education is announcing a new $15 million investment in research and development for immersive learning technologies including game-based instruction and the creation of a lifelong learning digital archive; and (4) The Nike School Innovation Fund is announcing a new commitment as a primary partner of Oregon Governor John Kitzhaber and his initiative to help make the state’s entire education system more nimble, innovative and supportive of the key grades of 9 to 12.




    • TransCanada Pipeline. The House Rules Committee is scheduled to discuss the rule for House consideration of a bill that would expedite the Administration’s decision on the Keystone XL oil pipeline project to no later than November 1.
    • AMTech. Comments on the Administration’s new Advanced Manufacturing Technology Consortia, on how best to structure the new public-private partnership R&D program, are due September 20.
    • University Clean Energy Grants. Applications for $2 million in the Department of Energy’s National University Clean Energy Business Challenge, to create regional networks of student-focused clean energy business creation competitions, are due August 22. Winners will be announced by the end of September.
    • Congressional Hearings. A House Energy and Commerce Subcommittee will hold a hearing on Tuesday regarding cybersecurity risks to critical infrastructure. The House Natural Resources Committee will hold an oversight hearing on “State Perspectives on Offshore Revenue Sharing” on Wednesday.


    • FERC Transmission Planning and Cost Allocation. Public utilities must meet new transmission planning and costs allocation requirements that are intended to promote efforts to modernize the nation’s grid. Under the Commission's Final Rule, costs for new projects are only allocated to the beneficiaries of those projects and public utility transmission providers are required to participate in a regional transmission planning process, among other things. FERC's Final Rule will take effect 60 days after publication in the Federal Register.
    • “Smart Grid” Interoperability Standards. FERC issued an order terminating its proceeding and notifying stakeholders that it will not institute a rulemaking process to adopt the first set of Smart Grid Interoperability Standards due to insufficient consensus regarding the first set of standards proposed. FERC cited cybersecurity concerns as one of the reasons for their decision to terminate the proceeding. The Commission will instead encourage stakeholders to participate in the National Institute of Standards and Technology interoperability framework process and will establish a new docket to evaluate the next set of standards advanced by NIST.




    • Gulf Restoration. The Senate Environment and Public Works Committee could markup newly-released legislation this week. The RESTORE Gulf Coast States Act of 2011 (S. 1400) represents a compromise reached by Gulf State Senators to restore the Gulf Coast after the Deepwater Horizon disaster using a significant portion of Clean Water Act fines BP is expected to pay.
    • Arctic Economic Interests. On Wednesday, July 27, the Senate Committee on Commerce, Science, and Transportation, Subcommittee on Oceans, Atmosphere, Fisheries, and Coast Guard will hold a hearing to examine defending U.S. economic interests in the changing Arctic.
    • Fisheries. On Tuesday, July 26, the House Committee on Natural Resources, Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs, will hold a hearing to examine the impact of the National Ocean and Atmospheric Administration (NOAA) fishery research on coastal communities that rely on commercial or recreational fisheries.
    • Science. On Tuesday, July 26, the House Committee on Science, Space and Technology, Subcommittee on Research and Science Education will hold a hearing titled, “Ensuring Limited Federal Resources are Invested in the Best Science.” The Subcommittee will hear from the following witnesses: Dr. Cora Marrett, Deputy Director, National Science Foundation; Dr. Keith R. Yamamoto, Vice Chancellor for Research, University of California San Francisco; Dr. Nancy B. Jackson, President, American Chemical Society; and Dr. Jorge José, Vice President for Research, Indiana University.
    • National Parks and Federal Lands. On Thursday, July 28, the Senate Committee on Energy and Natural Resources, Subcommittee on National Parks will hold a hearing covering numerous bills concerning land, acquisitions and conveyances, Wild and Scenic designations, establishment of memorials and related actions in National Parks and/or on federal lands in the U.S.


    • Electronics Recycling. Each year, the U.S. generates nearly 2.5 million tons of used electronics made from precious metals, rare earth materials, plastic, and glass. EPA, in conjunction with the White House, is releasing its “National Strategy for Electronics Stewardship,” which is intended to promote environmentally sound management of used electronics and bolster the electronics recycling market and related jobs in the U.S. Efforts by the federal government will include: promoting the development of more efficient and sustainable electronic products; directing federal agencies to buy, use, reuse, and recycle their electronics responsibly and supporting recycling options. Under this strategy, the Government Services Administration (GSA) will remove products that do not comply with energy efficiency or environmental performance standards from its information technology purchase contracts used by federal agencies. GSA will also take measures to ensure that all electronics used by the federal government are reused or recycled properly. The EPA is eager to work with businesses in the electronics industry to promote a U.S. based electronics recycling market. The EPA notes that current participating industry leaders in this effort include Dell, Sprint and Sony.
    • Chemicals in Consumer Products. EPA is proposing to protect consumers by requiring companies to report new uses of 14 chemicals known as glymes in consumer products. EPA’s proposed action is based in part on concerns that additional uses of these chemicals in consumer products could lead to harmful reproductive and developmental health effects. Glymes are used in a wide array of applications including printing ink, paints and coatings, adhesives, household batteries and motor vehicle brake systems. The proposed regulatory procedure is known as a significant new use rule (SNUR) under the Toxic Substances Control Act. The SNUR would ensure that, prior to the manufacture, import or processing of these chemicals for a significant new use, EPA will have 90 days to evaluate potential risks and prohibit or limit the activity if warranted. Comments on the proposal must be received on or before September 9, 2011.
    • Cooling Water Intake Structures. In response to requests from stakeholders and to encourage additional public comment, EPA is extending the public comment period by 30 days for the cooling water intake structures proposed rule. This change will not affect EPA’s schedule for issuing a final rule by July 27, 2012. This proposed rule, based on Section 316 (b) of the Clean Water Act, aims to protect billions of fish and other aquatic organisms drawn each year into cooling water systems at large power plants and factories.
    • Energy Star. EPA is updating Energy Star requirements for home dishwashers and furnaces. Effective January 20, 2012, both standard-sized and compact residential dishwashers meeting new Energy Star requirements will be between 10 and 30 percent more energy efficient than conventional models, and approximately 8 percent more efficient than dishwashers that met the previous Energy Star requirement. If every dishwasher in the U.S. met the new requirements, consumer energy and water bill savings would grow to approximately $235 million per year, reducing annual greenhouse gas emissions equivalent to those from more than 180,000 vehicles.

      Effective February 1, 2012, distributors, contractors and consumers will be able to identify and purchase Energy Star qualified furnaces for particular climate zones. Qualified furnaces in the South, where homes require less heat, will be up to 12 percent more energy efficient than baseline units. Qualified furnaces in the northern half of the U.S., including Canada, will bear the standard Energy Star logo and will be up to 16 percent more energy efficient than baseline models. If every gas furnace sold in the U.S. were to meet the new Energy Star requirements, which are up to 5 percent more efficient than the previous Energy Star requirement, consumer energy bill savings would grow to more than $170 million per year and reducing annual greenhouse gas emissions equivalent of those from approximately 175,000 vehicles.


    Financial Services


    • One Year Anniversary of the Dodd-Frank Act. Thursday, July 21 marked one year since President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) into law. That event marked the beginning of the second phase of the policymaking process, as the Dodd-Frank Act tasked regulators with filling in many of the details concerning the oversight and protection of financial markets. We expect that the regulatory agencies will continue to work aggressively to complete as many rules as possible over the next four months, with the 2012 elections looming on the horizon and a continued sensitivity to any government activity that may impede job creation, financial stability or result in increased government spending. The current environment, with regulators sifting through volumes of draft rules and comment letters, trying to “get the rules right,” continues to provide interested parties with an opportunity to impact the rules which will oversee and regulate market participants, market infrastructure entities and trickle down to companies big and small.
    • House Passes CFPB Overhaul. On Thursday, July 21, the House passed the Consumer Financial Protection Safety and Soundness Improvement Act of 2011 (H.R. 1315) to change the structure and ground rules for the Consumer Financial Protection Bureau (CFPB), established under the Dodd-Frank Act. The legislation would permit the newly created Financial Stability Oversight Council to overturn CFPB regulations, change the leadership of the CFPB from a Senate-confirmed Director to a five-person board and require the agency to have a director confirmed by the Senate before the CFPB can take on any of its new powers. Democrats in the Senate have not indicated any intent to consider these proposals to amend new oversight created by the Dodd-Frank Act, and the White House has said President Obama will veto the bill and any legislation that “makes the nation’s economy more vulnerable to another devastating financial crisis by undermining the core reforms included in the Dodd-Frank Act.”
    • Senate Banking Committee to Consider FDIC, OCC, FSOC Nominations. On Tuesday, July 26, the Senate Banking Committee will hold a nominations hearing for Martin Gruenberg to be Chairperson of the Board of Directors and a Member of the Board of Directors of the Federal Deposit Insurance Corporation (FDIC); Thomas Curry to be Comptroller of the Currency (OCC); and Roy Woodall, Jr. to be a Member of the Financial Stability Oversight Council (FSOC).
    • House Subcommittee to Debate Credit Rating Agency Oversight. On Wednesday, July 27, the House Financial Services Subcommittee on Oversight and Investigations will hold a hearing titled, “Oversight of the Credit Rating Agencies Post Dodd-Frank.” 
    • House Subcommittee to Review CFPB Impact on Small Business. On Thursday, July 28, the House Small Business Subcommittee on Investigations, Oversight and Regulations will hold a hearing titled, “Open for Business: The Impact of the CFPB on Small Business.”
    • House Subcommittee Takes Up Insurance Oversight. On Thursday, July 28 the House Financial Services Subcommittee on Insurance, Housing, and Community Opportunity will hold a hearing titled, “Insurance Oversight: Policy Implications for U.S. Consumers, Businesses and Jobs.”


    • SEC to Hold Open Meeting. On Tuesday, July 26, the Securities and Exchange Commission will hold an open meeting to consider (i) rules related to large trade reporting systems; (ii) rules related to replacing references to credit ratings with alternative criteria; (iii) the re-proposal of rules related to shelf-eligibility for asset-backed securities and request additional comment on an outstanding proposal to require asset-level information about pool assets; and (iv) rule and form amendments to require an institutional investment manager to report annually how it voted proxies relating to executive compensation matters.


    • Obama Nominates CFPB Director. On July 18, President Obama announced the nomination of Richard Cordray, former Attorney General of Ohio, to be the first Director of the Consumer Financial Protection Bureau. Mr. Cordray currently serves as the Head of the Enforcement Division of the Bureau. The nomination was not well received by Senate Republicans who have objected to the governance structure of the CFPB. Instead, they prefer the CFPB to be led by a Senate-confirmed multi-person commission similar to the leadership structure of the SEC, the CFTC, and the Federal Trade Commission.


    Health Care


    • House VA Legislative Session. The Health Subcommittee of House Veterans’ Affairs Committee will hold a legislative hearing on Monday, July 25 to consider the following bills: H.R. 198, the Veterans Dog Therapy Training Act; H.R. 1855, the Veterans' "Traumatic Brain Injury Rehabilitative Services" Improvements Act of 2011; and H.R. 2074, the Veterans Sexual Assault Prevention Act, H.R. 2530, To amend title 38, United States Code, to provide for increased flexibility in establishing rates for reimbursement of State homes by the Secretary of Veterans Affairs for nursing home care provided to veterans, as well as additional draft legislation.
    • Senate Finance Hearing. The Senate Committee on Finance has scheduled a hearing on Tuesday, July 26 at 10 a.m. titled, “Perspectives on Deficit Reduction: A Review of Key Issues.”
    • Senate VA Hearing. The Senate Veterans’ Affairs Committee will hold a hearing titled, “Examining the Lifetime Costs of Supporting the Newest Generation of Veterans,” on Wednesday, July 27 at 10 a.m.
    • House Oversight Hearings. The House Committee on Oversight and Government Reform Subcommittee on Health Care, District of Columbia, Census, and the National Archives has scheduled a hearing titled, "Impact of Obamacare on Job Creators and Their Decision to Offer Health Insurance" for 9:30 a.m. on Thursday, July 28. The Subcommittee on Government Organization, Efficiency, and Financial Management will also hold a hearing at the same time titled, "Improper Medicare Payments: $48 Billion in Waste?"
    • House Small Business Hearing. The House Committee on Small Business Subcommittee on Healthcare and Technology will hold a hearing on Thursday, July 28 at 10 a.m. titled, “Small Businesses and PPACA: If They Like Their Coverage, Can They Keep It?” The Subcommittee will consider whether small firms will be able to maintain their existing coverage under the Affordable Care Act.
    • Senate HELP Hearing. The Senate Committee on Health, Education, Labor and Pensions will hold a hearing on Thursday July 28 at 9:45 a.m. titled, “FDA User Fees: Advancing Public Health.”
    • Senate HELP Session. The Senate Committee on Health, Education, Labor and Pensions will meet in Executive Session on Wednesday, August 3 at 10 a.m. to consider S. 958, the Children’s Hospital GME Support Reauthorization Act of 2011, S. 1094, the Combating Autism Reauthorization Act, and S.__, the Workforce Investment Act Reauthorization of 2011. The session has been rescheduled multiple times in order to address drafting concerns among Committee membership.


    • Regulations. The Centers for Medicare and Medicaid Services (CMS) continues to work on additional guidance for the Pioneer Accountable Care Organization Program, which is geared towards health systems with past experience in ACOs and integrated care coordination programs. The draft proposal under consideration offers a detailed specification of the methods that Medicare proposes to identify or calculate the ACO aligned population, the reference population, baseline expenditures, the expenditure benchmark, and performance period expenditures. The current draft does not address the development of the quality performance score or its use in the calculation of shared savings (or loss) amounts.


    • Deficit Reduction Negotiations. As reports circulate that President Obama and House Speaker John Boehner are nearing a deal to prevent default on the debt limit, the impact of such a deal on health care programs remains unclear. The deficit reduction deal reportedly combines measures to cut spending and increase revenue, and would also include a penalty triggered by failure to meet certain deficit reduction targets. As a counter to a trigger that would raise taxes on wealthy Americans, Speaker Boehner has reportedly proposed an alternative penalty that would repeal provisions of the Affordable Care Act, including the individual mandate.


    International, Defense, Homeland Security

    • Free Trade Agreement (FTA) Developments. Despite White House Chief of Staff William Daley’s public comments a week ago that the Obama Administration desired to submit the pending FTAs with Colombia, Panama, and South Korea to Congress before the August recess, the Administration now reportedly has decided not to transmit the agreements until at least September. Two related factors led to the White House’s decision. First, the debt limit negotiations have consumed almost all of the time and energy of the senior leadership at both ends of Pennsylvania Avenue. Second, the remaining issues for decision surrounding the FTAs clearly need further discussion among that top level. Specifically, before submitting the FTAs, the Administration appears to need Senate Majority Leader Harry Reid (D-NV) and Senate Minority Leader Mitch McConnell (R-KY) to forge an agreement to guarantee an up-or-down Senate floor vote, with few or no limiting amendments, on the modestly expanded Trade Adjustment Assistance (TAA) package negotiated among the White House, Senate Finance Committee Chairman Max Baucus (D-MT), and House Ways and Means Committee Chairman Dave Camp (R-MI). It is likely Senator Reid and Senator McConnell can craft such an agreement, despite Senator Reid’s personal misgivings about free trade, but they need additional time. In the meantime, Senator Rob Portman (R-OH) and Senator Roy Blunt (R-MO) likely have boosted the chances of an eventual deal, although some on both sides of the aisle have raised some eyebrows at their tactics. Senator Portman and Senator Blunt have garnered ten other Republican Senators to join them in pledging to President Obama that they will vote for cloture on a stand-alone Baucus/Camp-styled TAA bill on the Senate floor. Meanwhile, Chairman Camp has promised to move comparable TAA legislation through the House, with Speaker of the House John Boehner (R-OH) offering at least tacit support for that plan. However, those pledges do not appear to have altered the White House’s requirement for a Reid-McConnell agreement to enshrine a path for TAA in the Senate. Although it remains possible that the Senate leaders will articulate that path before the recess, actual transmission and ensuing legislative consideration of the FTAs will have to wait until September or later.
    • Spending Developments. Late last week, the House Foreign Affairs Committee (HFAC) reported out a State Department authorization bill (H.R. 2583) that, if enacted into law, would place numerous restrictions on U.S. foreign assistance. Chairwoman Ileana Ros-Lehtinen’s (R-FL) bill would condition U.S. aid to Pakistan, Egypt, Lebanon, Yemen and the Palestinian Authority (PA) on progress on combating terrorism. Furthermore, Congressman Eliot Engel (D-NY) successfully shepherded an amendment that would block assistance to the PA unless the Palestinians enter into peace negotiations with Israel, as well as if the PA unilaterally declares independence or seeks statehood via the UN. Meanwhile, Congressman Connie Mack (R-FL) and Congressman David Rivera (R-FL) succeeded in their push to bar U.S. assistance to the Organization of American States (OAS), claiming the OAS overtly supports the Castro and Chavez regimes in Cuba and Venezuela, respectively. HFAC Ranking Member Howard Berman (D-CA) and Congressman Gary Ackerman (D-NY) were unable to convince the Committee of their view of the OAS’s record of supporting democratic reforms in Latin America. Suffice it to say, the Democratic-led Senate Foreign Relations Committee (SFRC) is highly unlikely to adopt the HFAC approach. Moreover, Congress and the President have not succeeded in enacting a foreign affairs authorization bill since Fiscal Year 1995 (FY95), so the HFAC bill may be considered primarily a signal-sending measure by House Republicans. Meanwhile, on the Appropriations side, the House State Department/Foreign Operations Appropriations Subcommittee will consider significant FY12 foreign assistance spending cuts next week. House Homeland Security Appropriations Subcommittee Chair Robert Aderholt (R-AL) and Senate Homeland Security Appropriations Subcommittee Chair Mary Landrieu (D-LA) have engaged in a public debate over the size of the FY12 Homeland Security budget, raising the chances of an impasse and ultimately a Continuing Resolution (CR) for DHS. Similarly, some defense appropriators are also reportedly making plans for a CR for FY12.




    • Tax Revenues in Debt Ceiling Discussions. Given the fluidity and uncertainty surrounding the debt ceiling discussions at the time of publication, this week’s edition of Capital Thinking will not address the treatment of tax measures as part of a proposed package. A full report will be provided when the details of an agreement are better solidified.
    • Tax Reform Hearings Continue. Hearings on fundamental tax reform continue on both the House Ways & Means and Senate Finance Committees, focusing on outbound U.S. investment, inbound investment, and tax administration. The following hearings are scheduled for next week:
      • July 26: Senate Finance Committee hearing on Perspectives on Deficit Reduction: A Review of Key Issues 
      • July 26: House Ways & Means Committee hearing on Tax Reform and Consumption-Based Tax Systems
      • July 27: Senate Finance Committee hearing on CEO Perspectives on How the Tax Code Affects Hiring, Businesses and Economic Growth
      • July 28: Senate Finance Committee hearing to consider the nominations of Janice Eberly for Assistant Treasury Secretary and Juan F. Vasquez for Judge of the United States Tax Court
      • July 28: House Ways and Means Committee, Subcommittee on Oversight, hearing on New IRS Paid Tax Return Preparer Program


    • IRS Guidance Addresses Transfer, Assignment of Derivatives Contract. On July 21, the Internal Revenue Service (IRS) issued temporary and proposed regulations on whether an exchange for purposes of Regulations Section 1.1001-1(a) occurs for the nonassigning counterparty when there is an assignment of certain derivative contracts. IRS announced an October 27 hearing on the proposed rules, with comments and topic outlines for the hearing due October 20.




    • Spectrum Bill. Next week promises to be a busy one on the spectrum front. On July 26, the Public Safety Alliance is scheduled to visit Congressional offices to urge members to support D-block reallocation to public safety. Although not yet scheduled, the House Communications and Technology Subcommittee is expected to mark up its version of spectrum legislation relating to the D-block and other issues. Subcommittee Chairman Greg Walden (R-OR) said he continues to work with his Democratic colleagues to ready language for a vote. Separately, the Senate Homeland Security and Governmental Affairs Committee will hold a spectrum hearing on July 27.

      Since our last report, the Congressional Budget Office (CBO) has released its cost “score” for S. 911, the Public Safety and Wireless Innovation Act, which was reported out of the Senate Commerce Committee earlier in July. According to the CBO, the bipartisan bill by Senators Jay Rockefeller (D-WV) and Kay Bailey Hutchison (R-TX) to reallocate D-block spectrum to public safety agencies — and pay for it through voluntary incentive spectrum auctions and sales from broadcasters — would deliver a net $6.5 billion for deficit reduction. The CBO predicts that S. 911 would generate $24.5 billion from incentive auctions and incur $18 billion in new costs — for deploying the public safety network and other elements in the bill. The $6.5 billion figure is much less than S. 911 supporters had anticipated, although CBO came in with a low estimate for the last 700 MHz auctions, which raised twice as much as CBO predicted.

      Further, the CBO’s $6.5 billion estimate has disappointed many Republican Members of the Commerce Committee who had hoped for a higher amount to dedicate toward deficit reduction, and thereby make an argument that spectrum legislation should be included in the debt ceiling package now being negotiated by Congressional and White House leaders. That said, S. 911’s authors intend to revise the bill in an attempt to elicit a higher CBO estimate for deficit reduction, with an aim of turning the $6.5 billion into $10 or $11 billion.
      Even if the spectrum auction provisions fail to be included in the debt ceiling package, champions of the legislation are expected to continue to move it as a stand-alone bill. In the House, Subcommittee Chairman Walden, along with House Energy and Commerce Committee Chairman Fred Upton (R-MI), floated a Republican discussion draft last week. Unlike S. 911, that draft is silent on the D-block, a signal of support to have the Federal Communication’s Commission (FCC) auction the spectrum. Committee Ranking Member Henry Waxman (D-CA) and Subcommittee Ranking Member Anna Eshoo (D-CA) followed shortly thereafter with a competing Democratic draft bill that, like S. 911, would reallocate the D-block for public safety. A separate bill, H.R. 2482, introduced on July 11 by Representatives John Dingell (D-MI) and Gene Green (R-TX), in large part tracks S. 911, but differs in that H.R. 2482 affords greater protections to broadcasters, who may be forced to relocate and “repack” their channels to clear spectrum for future auctions.
    • Privacy. On July 20, the House Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade approved H.R. 2577, the Secure and Fortify Electronic Data or SAFE Data Act, by voice vote. The bill, sponsored by Subcommittee Chairwoman Mary Bono Mack (R-CA) establishes uniform national standards for data security and data breach notification. Upon passage, Chairwoman Bono Mack stated: “With cyber attacks clearly on the rise, something needs to be done immediately. In April of this year alone, some 30 data breaches at hospitals, insurance companies, universities, banks, airlines and governmental agencies impacted nearly 100 million records. And that’s in addition to the massive breaches at Sony, Epsilon and Citigroup. This constant assault on American consumers only reinforces my long-held belief that much more needs to be done to protect sensitive personal information.” House Energy and Commerce Committee Chairman Fred Upton (R-MI) applauded the Subcommittee’s action saying, “This is good legislation that will protect consumers and provide a uniform federal standard.” Before passage, several Democratic amendments to expand the bill’s definition of “personal information” were rejected. At the same time, an amendment offered by Representative Pete Olson (R-TX) was added to the bill that removes the Federal Trade Commission’s (FTC) authority to modify what constitutes “personal information.” The bill now moves to the full Energy and Commerce Committee for consideration.

      In further developments concerning the News Corp. hacking scandal, two days before the mark-up of the SAFE Data Act, Chairwoman Bono Mack sent a letter to the leading communications trade associations inquiring about their members’ privacy and security practices, as well as their views on the adequacy of current law to protect consumer data against breaches.  The July 18 letter was sent to US Telecomm, the National Cable & Telecommunications Association, the Wireless Association (CTIA), the Consumer Electronics Association and the Information Technology Industry Council (ITI). Amidst her methodical approach to comprehensive privacy legislation, the Chairwoman is taking an aggressive stance on the hacking stating the following in the letter: “[I]t’s critically important to ask American industries involved in all parts of the communications stream of commerce – from device manufacturers to fixed wire and wireless providers – whether they are satisfied that sufficient safeguards are in place to prevent similar privacy breaches here in the United States.” She has requested a response from the associations by August 2. A copy of Chairwoman Bono Mack’s letter is available on her website.
    • Cybersecurity. On July 21, the House Science and Technology Committee approved H.R. 2096, the Cybersecurity Enhancement Act, by voice vote. The bill, sponsored by Representative Michael McCaul (R-TX) and Daniel Lipinski (D-IL), requires the National Science Foundation (NSF) and the National Institute of Standards and Technology (NIST) to develop and implement a plan for cybersecurity research and development, and to submit the plan to Congress no later than one year after the bill’s enactment. It also reauthorizes NSF cybersecurity research programs.


    • AT&T/T-Mobile Merger. On July 20, Senate Judiciary Antitrust Subcommittee Chairman Herb Kohl (D-WI) announced his opposition to the pending AT&T/T-Mobile merger. In a letter sent to the FCC and Department of Justice (DOJ), Kohl states: “I have concluded that this acquisition, if permitted to proceed, would likely cause substantial harm to competition and consumers, would be contrary to antitrust law and not in the public interest, and therefore should be blocked by your agencies.” Senior Democrats in the House shared Chairman Kohl’s concern. In a separate July 20 letter to the FCC and DOJ, House Energy and Commerce Communications and Technology Ranking Member Anna Eshoo (D-CA), Representative Ed Markey (D-MA) and House Judiciary Committee Ranking Member John Conyers (D-MI) called the proposed merger “a retrenchment from nearly two decades of promoting competition and open markets to acceptance of a duopoly in the wireless marketplace.” An AT&T spokesman responded that this view is “inconsistent with antitrust law, is shared by few others, and ignores the many positive benefits and numerous supporters of the transaction.”
    • FCC Open Meeting. The FCC has released a tentative agenda for its next open meeting scheduled for August 9, where Commissioners will consider Notices of Proposed Rulemakings and orders regarding: 1) regulatory barriers to the full and effective use of certain spectrum bands for wireless backhaul to promote broadband deployment; and 2) guidelines governing foreign ownership of common carrier radio licenses.




    • FAA Reauthorization: The Federal Aviation Administration authorization expires on July 22, and the House and Senate are not expected to agree before then on a 21st extension, causing the program and the authority to collect airport taxes to lapse. Department of Transportation Secretary Ray LaHood has stated that this will result in the furlough of non-essential personnel as well as a suspension in payments and projects under the Airport Improvement Program. Most significantly for the traveling public, the failure to extend the authorization means that the airlines will not be collecting and remitting taxes, which account for a significant component of ticket prices. The lack of agreement on a 21st extension comes from the inclusion in the House-passed extension of a provision eliminating Essential Air Service (EAS) funding for targeted airports. EAS funding provides subsidies to airports in rural or small-population areas that may not otherwise be served by air carriers. The EAS amendment targeted the states of key senators including Majority Leader Harry Reid (D-NV) and Senate Commerce Committee Chairman Jay Rockefeller (D-WVA). The Commerce Committee has jurisdiction over aviation. This provision was included as an intentional tactic to ratchet up pressure on the Senate to engage on the outstanding issues in the long-term reauthorization, particularly labor provisions related to the National Mediation Board that have been a longstanding and primary point of contention between the House and Senate.
    • SAFETEA-LU Reauthorization. While neither the House or Senate has yet released legislative text, the Senate continues working to move forward with a two-year reauthorization bill funded at current levels plus inflation, while the House is proceeding with a six-year bill limited to available revenues that would result in a 34-36 percent cut in funding versus current levels.
    • Senate Action. On Tuesday, July 19, the bipartisan leadership of the Senate Environment and Public Works Committee announced that a deal had been reached, and the legislative text of the highway title had been finalized. They released an outline of the highway title called “Moving Ahead for Progress in the 21st Century” or MAP-21. On Thursday, July 21, 2011, the Senate Environment and Public Works Committee (EPW) held a hearing on the proposal. During the hearing, Senator Max Baucus (D-MT), Chairman of the Senate Finance Committee, reported that he was “optimistic” about finding the $12 billion in additional revenue needed to fund a two-year bill at current levels after bipartisan negotiations on the Finance Committee. However, Senator Baucus indicated that the Finance Committee was “not there yet,” and that Senators in general needed for the debt ceiling negotiations to play out first. Of note in that regard is that the bipartisan Gang of Six deficit reduction plan would direct $133 billion in additional revenues over a 10 year period to maintain the solvency of the Highway Trust Fund. As reported elsewhere in this Capital Thinking, however, the outcome of the ongoing debt ceiling and deficit reduction negotiations remain unclear and in flux. The ability to move a bill through mark-up and to the floor depends on having a revenue title and top-line revenue numbers, which continues to delay the Senate process. Moving forward, EPW Committee Staff have reported that legislative text would be released “soon,” but that they could not quantify the timeline yet. Chairman Boxer stated that the Committee leadership continued to work on a date for a mark-up, and that it would occur before the August recess. The Senate Banking Committee is reported to have a draft largely complete but is again waiting on top line revenue numbers. The transit community also continues to be concerned about how the allocation of $12 billion in additional revenue will follow the traditional 80-20 split for highways and transit. That entire amount is needed to maintain solvency in the Highway Account. The Mass Transit account has enough funding to get through two years, but would be completely depleted at the end of the two-year window.
    • House Action. After release of the Majority’s blueprint, Chairman Mica has been meeting with key Committee Democrats on the bill. By all accounts, Democrats and the larger stakeholder community remain opposed to the funding levels in Mica’s bill. Chairman Mica has yet to release legislative text or set a mark-up date, but has stated it may not take place until September. Securing guaranteed floor time remains a major issue before the Chairman will release and move forward with the bill.