Capital Thinking Update - September 19, 2011

    View Author 19 September 2011

    General Legislative

    On Monday, September 19, 2011, the Senate will convene at 2:00 p.m. and, after morning business, resume consideration of H.R. 2832, the Generalized System of Preferences Act, which will be the vehicle to renew Trade Adjustment Assistance benefits.

    The House will convene at 12:00 p.m. on Tuesday, September 20, to begin consideration of H.R. 2005, the Combating Autism Reauthorization Act of 2011, H.R. 1852, the Children's Hospital GME Support Reauthorization Act of 2011, H.R. 2646, the Veterans Health Care Facilities Capital Improvement Act of 2011, H.R. 2944, the U.S. Parole Commission Reauthorization, and H.R. 2189, the Death in Custody Reporting Act of 2011.

    Budget, Appropriations


    • House Passes Symbolic Resolutions of Disapproval. On September 14, the House passed a resolution of disapproval (H.J. Res. 77) to block the President from accessing the second $500 billion installment of borrowing authority that was included as part of the Budget Control Act (BCA) (P.L. 112-25). The Senate rejected an identical measure (S.J. Res. 25) by a party-line vote on September 8. With no chance of enactment, the resolution serves only to provide Republicans a means to express their objections to increasing the nation’s debt limit.
    • House Introduces FY2012 Continuing Resolution. On September 14, House appropriators released H.J. Res. 79, a Continuing Resolution (CR) which would fund the federal government from October 1 through November 18, 2011. The CR utilizes the $1.043 trillion discretionary spending cap enacted in the BCA, which results in a 1.409 percent overall reduction from the current FY2011 discretionary spending level (entitlements and other mandatory payments are continued at FY2011 rates). Despite opposition from conservative Republicans, House leaders and appropriators indicated they intend to move forward with the FY2012 appropriations process using the discretionary spending cap established by the BCA, and not the slightly lower cap of $1.019 trillion set in the House FY2012 Budget Resolution (H.Con.Res. 34).

      The measure also includes $3.65 billion in disaster relief, including $1 billion to be available immediately. These funds are offset by a $1.5 billion rescission of unobligated Department of Energy Advanced Technology Vehicles Manufacturing Loan Program funds (previously proposed in the House FY2012 Department of Homeland Security Appropriations bill). Of the $1 billion, $226 million is targeted to Army Corps of Engineers flood control efforts and $774 million is provided for the Federal Emergency Management Agency (FEMA)’s Disaster Relief Fund (DRF). The additional $2.65 billion will be made available in FY2012 for FEMA’s DRF.

      Several non-controversial policy provisions, including an extension of Federal Flood Insurance availability, are incorporated into the measure. Additionally, H.J. Res. 66, which renews import restrictions contained in the Burmese Freedom and Democracy Act of 2003, is also attached to the CR.

      The House will likely vote on the measure early this week. With both chambers scheduled to be in recess during the last week of the month, the Senate must also act this week in order to get something to the President before the fiscal year ends on September 30. However, House and Senate Democrats already are expressing opposition to the use of offsets for providing emergency funding, arguing that emergency war funding does not require an offset and neither should emergency funding for domestic catastrophes. Moreover, Senate Democrats feel the amount of disaster aid provided in the measure is not enough to meet needs created by recent disasters.
    • Senate Approves Disaster Aid Package. On September 15, the Senate passed a $6.9 billion disaster aid package (H.J. Res. 66) after rejecting two Republican proposals to identify offsets for the funding. The bill includes $5.1 billion for the FEMA’s DRF, with the remainder of the funds allocated across federal departments and agencies, including $266 million for Department of Agriculture emergency programs. The measure also includes language that renews import restrictions contained in the Burmese Freedom and Democracy Act of 2003. It is likely the Senate will move to incorporate this disaster aid package into the FY2012 CR in place of the disaster aid provisions drafted in the House.
    • Other FY2012 Appropriations Activity. The Senate Appropriations Committee continues to work through its FY2012 spending bills. On September 15, the committee approved the Defense, Financial Services, Legislative Branch and Commerce-Justice-Science bills. Additional markups will occur in the coming weeks while House and Senate appropriators negotiate a final FY2012 omnibus package. Development of an omnibus will not be an easy process as differences in House and Senate funding priorities and policy provisions will surely provide for a heated debate during the negotiations.


    • Speaker Boehner Releases Jobs Proposal. On September 15, House Speaker John Boehner (R-OH) addressed the Economic Club of Washington and called for bipartisan action to "Liberate America's Economy." In his speech, Speaker Boehner referred to the President’s jobs plan as “a poor substitute for the pro-growth policies that are needed to remove barriers to job creation in America.” The Speaker of the House went on to offer the GOP’s alternative approach to promoting job creation and decreasing the deficit, which focused primarily on removing regulatory burdens, fixing the tax code, opening new markets to American made products, and maximizing domestic energy production.


    Deficit Reduction (Super Committee)


    • Super Committee Holds First Public Hearing, Followed by “Secret” Meeting. On September 13, the Joint Select Committee on Deficit Reduction (Super Committee) held its first public hearing, which addressed the history of the nation's debt and the factors that have contributed to it. Dr. Douglas Elmendorf, Director of the Congressional Budget Office (CBO), testified.
      The six Democratic and six Republican Members continued to stake out their positions on how to reduce the projected growth of America’s national debt by $1.5 trillion over 10 years. While Member statements largely aligned with party priorities, with Democrats stressing increased revenue and Republicans stressing spending cuts, no Member outlined specific plans to reduce the deficit.

      Although Director Elmendorf declined to comment on any specific course of action, he told the Super Committee that achieving deficit reduction must include either raising federal tax revenues significantly, making major changes to benefits to older Americans, substantially reducing the size of the government relative to the size of the economy, or a combination of those measures. The Director also asked the Super Committee to consider plans that use fiscal policy to support the economy today (i.e., no immediate tax increases or large scale spending cuts) and impose fiscal restraint several years from now, when the nation’s economic output and employment is stronger. The CBO concluded that economic recovery will continue at a weaker pace than anticipated – with growth in the vicinity of 1.5 percent for the remainder of this year and around 2.5 percent for 2012 – and that implementing tax increases or spending cuts will place an added drag on the nation’s weak economic expansion.

      On September 15, the Super Committee met for its first private, closed-door session, but details of Thursday’s meeting are scant. However, with the November 23 deadline looming, this “secret” meeting is being viewed as an important first step in negotiations.

      The Super Committee’s second public hearing is scheduled for September 22. The hearing will address revenue options and reforming the tax code, with Thomas Barthold, Chief of Staff of the Joint Committee on Taxation, testifying.




    • ESEA Reauthorization. Last week, the House began consideration of the Empowering Parents through Quality Charter Schools Act (H.R. 2218), which is part of House Education and Workforce Committee Chairman John Kline’s (R-MN) plan to reform No Child Left Behind. As the only Republican-sponsored bill in the series to receive bipartisan support thus far, it easily passed the House on September 14 by a vote of 365 to 54. The Subcommittee on Early Childhood, Elementary and Secondary Education scheduled another hearing on education policy overhaul on September 21 titled, “Education Reforms: Ensuring the Education System is Accountable to Parents and Communities."
      Meanwhile, GOP Senators used a teleconference on September 14 to announce their plans to offer a package of ESEA reform bills. The bills, introduced the following day, are sponsored by Senators Lamar Alexander (R-TN) and Johnny Isakson (R-GA), who discontinued bipartisan efforts to rewrite the No Child Left Behind law earlier this year. The package would closely mirror the Republican-sponsored bills moving through the House. Specifically, they would set new college and career readiness standards; create an initiative to prepare, train and recruit effective teachers and principals; consolidate nearly 60 education programs into two block grants to states; and expand charter schools. Senate Health, Education, Labor and Pensions (HELP) Committee Ranking Member Michael Enzi (R-WY) continues to work separately with Chairman Tom Harkin (D-IA) on a broader rewrite of the law. Chairman Harkin reiterated his commitment to move that legislation this fall.
    • FY2012 Appropriations. Senate Appropriators approved the FY2012 CJS appropriations bill on September 15 that would reduce the annual budget for the NSF by 2.8 percent and cut NIST funding by nearly 11 percent. As such, it would eliminate funding for Technology Innovation Program grants and the Baldrige Performance Excellence Program, which aims to improve the efficiency and competitiveness of colleges and other organizations.


    • President’s Jobs Package. On September 13, President Obama traveled to Ohio to further support the education components of his jobs bill. Additional details released by the Administration the same day indicate that $10 billion of the $25 billion school construction funding would be reserved for the nation’s largest hundred school districts (based on need), while the remaining $15 billion would go to states. States could use the money to distribute half of the funding on a competitive basis, while the other half would be distributed by formula. Schools would have to spend the funding by September 30, 2012. The $30 billion set aside to prevent teacher layoffs and promote rehiring would flow to states based on population, estimated to save more than 355,000 K-12 teaching jobs and more than 40,000 early learning positions. To receive the money, however, there is a maintenance of effort requirement for states to continue education spending at the same level as last year for early-childhood education, K-12, and higher education. Last week, House Committee on Education and the Workforce Ranking Member George Miller (D-CA) called on Chairman Kline to proceed swiftly with hearings on the education provisions included in the jobs package.
    • For-profit Colleges. The Department of Education announced this week that there were increases in student loan default rates for FY2009 among all education sectors; however, increases were greatest at for-profit colleges, ranging from 11.6 percent to 15 percent. After that announcement, the for-profit college industry, represented by the Foundation for Educational Success, released a voluntary standard of conduct, which seeks to improve transparency by ensuring students have access to information about program costs and student outcomes. An estimated 17 percent of the for-profit sector has signed onto the new standards, which will include student trial periods, an orientation or refund period, as well as enforcement mechanisms. Senator Richard Durbin (D-IL) complemented this initial step by the industry but stated, “More needs to be done.”




    • Congressional Hearings. On Wednesday, September 21, the House Natural Resources Committee will hold an oversight hearing on the opportunity to create jobs, energy and reduce the national deficit by developing a small portion of Alaska’s Arctic National Wildlife Refuge (ANWR). On Thursday, a subcommittee will hold an oversight hearing on “North American Offshore Energy: Mexico and Canada Boundary Treaties and New Drilling by Cuba and Bahamas.” On Friday, the full committee will hold an oversight hearing on the Bureau of Ocean Energy Management (BOEM)/U.S. Coast Guard’s Joint Investigation Team Report on the 2010 BP Oil Spill. Also on Friday, the House Energy and Commerce Subcommittee on Oversight and Investigations is expected to hold a second hearing on the Department of Energy (DOE) loan guarantee made to Solyndra, with two top executives expected to testify. The Subcommittee also has requested that DOE Secretary Chu testify.


    • OCS Workplace Safety Rules. Comments on the newly proposed Safety and Environmental Management Systems (SEMS) rule, to enhance the Interior Department’s Workplace Safety Rule issued in October 2010, are due by November 14. The rule will require oil and gas operators to supplement their SEMS programs with employee training, engaging personnel in safety management, and requiring third party audits of procedures. BOEM requires operators to implement 13 SEMS elements by November 15, which could cost up to $67 million (if including legacy costs in the total estimated compliance cost).




    • National Parks. On Wednesday, September 21, the Senate Committee on Energy and Natural Resources, Subcommittee on National Parks will hold a hearing to consider a recently released report by the National Park Service titled, “A Call to Action: Preparing for a Second Century of Stewardship and Engagement.”
    • Public Lands. On Monday, September 19, the House Committee on Natural Resources, Subcommittee on National Parks, Forests And Public Lands will hold a hearing to consider the "National Forest County Revenue, Schools, and Jobs Act of 2011," which addresses options for counties containing Federal forest lands and to provide counties a source of revenue from such lands. The Subcommittee will also consider "Action Plan for Public Lands and Education Act of 2011,” a bill to authorize Western States to make selections of public lands.
    • Marine Debris, Wild Salmon and Coast Guard. On Wednesday, September 21, the Senate Committee on Commerce, Science and Transportation will hold a business meeting to consider S.1119, to reauthorize and improve the Marine Debris Research, Prevention, and Reduction Act and S.1401, to conserve wild Pacific salmon, and S.1430, to authorize certain maritime programs of the Department of Transportation and promotion lists in the United States Coast Guard and National Oceanic and Atmospheric Administration.
    • Polar Weather. On Friday, September 23, the House Committee on Science, Space and Technology will hold a joint hearing of its Subcommittee on Investigations and Oversight and Subcommittee on Energy to hear an update on the nation’s restructured polar weather satellite program.


    • Ozone. At the request of the White House, the Environmental protection Agency (EPA) has withdrawn the draft Ozone National Ambient Air Quality Standards. Work is underway to update a 2006 review of the science that will result in the reconsideration of the ozone standard in 2013.
    • Energy Star for High-Rise Buildings. EPA is announcing that new multifamily, high-rise residential buildings are now eligible to qualify as Energy Star. This effort may provide property owners the opportunity to increase asset values of their homes. To qualify for Energy Star, new or substantially rehabilitated multifamily high-rise buildings must meet energy-efficiency guidelines set by the EPA and be designed to be at least 15 percent more energy-efficient than buildings that meet the American Society of Heating, Refrigerating and Air-Conditioning Engineers energy use standard. Qualified buildings feature a combination of energy efficient improvements including: effective insulation systems, properly sized heating and cooling equipment, tight construction and ducts, Energy Star qualified lighting and appliances and high performance windows.
    • Pollution in Low Income, Minority and Tribal Communities. The EPA is announcing the release of Plan EJ 2014, a three-year comprehensive plan to advance environmental justice efforts in nine areas, including rulemaking, permitting, enforcement and science. Plan EJ 2014 aims to protect people’s health in communities overburdened by pollution to empower communities to establish partnerships with local, state, tribal and federal governments and organizations to promote sustainable communities. The plan will target low-income, minority and tribal communities that have suffered some of the worst pollution, according to EPA, and where pollution is holding back progress. EPA will continue to conduct outreach, education, stakeholder forums and listening sessions as it moves forward to implement Plan EJ 2014. EPA will issue annual reports documenting the progress toward meeting the commitments outlined in Plan EJ 2014. The annual reports will be made available to the public through EPA’s website.


    Financial Services


    • Senate Appropriators Vote to Increase Financial Regulators’ Budgets. On Wednesday, September 14, the Senate Appropriations Subcommittee on Financial Services and General Government approved a measure to increase the budgets for the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The SEC’s 2012 budget would climb to $1.4 billion, $222 million more than it was allocated in 2011. The CFTC’s budget would increase to $240 million, an increase of nearly $38 million. These amounts, if approved by the Senate, must be reconciled with the House proposal, which sought cuts in funding for the agencies.
    • House Subcommittee to Discuss Small Business Capital Formation. On Wednesday, September 21, the House Financial Services Subcommittee on Capital Markets and GSEs will hold a hearing titled, “Legislative Proposals to Facilitate Small Business Capital Formation and Job Creation.”
    • Joint House Subcommittee Hearing on SEC and Madoff. On Thursday, September 22, the House Oversight and Investigations Subcommittee and the Committee on Oversight and Government Reform’s Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, will hold a hearing titled, “Conflict of Interest at the SEC: The Becker Case.” The hearing will discuss then-SEC General Counsel David Becker’s involvement in the Madoff case.


    • SEC to Hold Open Rulemaking Meeting. On Monday, September 19, the SEC will hold an open meeting to consider a proposed rule to implement a prohibition regarding material conflicts of interest relating to certain securitizations and a proposed rule to provide for the registration of security-based swap dealers and major security-based swap participants.
    • CFTC Postpones Open Meeting. The CFTC canceled its September 22 open meeting, at which the Commission was scheduled to consider position limit final rules and other rules related to derivatives clearing organizations.


    Health Care


    • Super Committee Health Cuts. Super Committee Members continue to meet to discuss proposals to hit the $1.5 trillion deficit reduction target, but potential cuts to health care programs remains unclear. Current proposals could amount to billions in reductions to Medicare provider payments, and Medicaid reforms also remain on the table. Of greatest concern to health care stakeholders is an outcome that would result in several rounds of payment cuts. The Super Committee could identify several hundred billion dollars in deficit reduction, including Medicare cuts, but if they fail to meet the target, providers could be subject to payment reductions through sequestration in addition to cuts to particular programs identified in the deficit reduction package.
    • House Judiciary Hearing. The Subcommittee on Intellectual Property, Competition and the Internet will hold a hearing on "The Proposed Merger between Express Scripts and Medco," on Tuesday, September 20.
    • Senate Finance Executive Session. The Senate Finance Committee will meet in Executive Session on Tuesday, September 20, to consider, among other items, S. 1542, The Child and Family Services Improvement and Innovation Act.
    • House Oversight Hearing. The Subcommittee on Health Care, District of Columbia, Census, and the National Archives will hold a hearing titled, "Examining Abuses of Medicaid Eligibility Rules," on Wednesday, September 21.
    • House Small Business Hearing. The House Small Business Committee has scheduled a hearing on Wednesday, September 21, on “Eliminating Job-Sapping Federal Rules Through Retrospective Review: Oversight of the President’s Efforts.” The hearing will examine the progress to date on the President’s Executive Order requiring agencies to develop a plan for retrospective review of regulations, including Health and Human Services, the Centers for Medicare and Medicaid Services, and the Food and Drug Administration.
    • House Ways and Means Hearing. The House Committee on Ways and Means Subcommittee on Health will hold a hearing on Wednesday, September 21, on “Expiring Medicare Provider Payment Policies,” and their impact on health care providers.
    • Senate Finance Hearing. The Senate Committee on Finance will hold a hearing on Wednesday, September 21, on “Dually-Eligible Beneficiaries: Improving Care While Lowering Costs.” 


    • Regulations. The Center for Medicare and Medicaid Services (CMS) released a final rule to implement section 6411 of the Affordable Care Act and provide guidance to States related to Federal/State funding of State start-up, operation and maintenance costs of Medicaid Recovery Audit Contractors (Medicaid RACs) and the payment methodology for State payments to Medicaid RACs.
    • Bundled Payments for Care Improvement Initiative. The CMS Innovation Center announced that deadlines will be extended for the Bundled Payments for Care Improvement Initiative (BPCI) in response to the large number of inquiries received by interested stakeholders and requests for additional time to prepare applications. Letters of intent for BPCI Model 1 are now due on October 6, and applications for BPCI Model 1 are now due on November 18.
    • HIT Strategic Plan. The HHS Office of the National Coordinator (ONC) released the final version of its HIT Strategic Plan for 2011-2015. The plan addresses the following ONC goals: achieve adoption and information exchange through meaningful use of health IT; improve care, improve population health and reduce health care costs through the use of health IT; inspire confidence and trust in health IT; empower individuals with health IT to improve their health and the health care system; and achieve rapid learning and technological advancement. 


    • IOM Meeting. The Committee on Geographic Adjustment in Medicare Payment will convene on September 22-23, 2011 to discuss the impact of their previous recommendations on access to care, quality of care and workforce issues. There will be an open session on Thursday, September 22, from 2:00 p.m. to 5:00 p.m. that is open to the public.
       International, Defense, Homeland Security
    • Trade Developments. Senate Majority Leader Harry Reid (D-NV) has scheduled a cloture vote for the afternoon of Monday, September 19 on H.R. 2832, a bill to renew the Trade Adjustment Assistance (TAA) program for displaced U.S. workers and the Generalized System of Preferences (GSP) trade preference program for less-developed countries. Senator Reid appears to have the 60 votes needed to proceed to formal consideration of the legislation, although Senator Jeff Sessions (R-AL) continues to object to a GSP provision that he claims disadvantages domestic sleeping bag manufacturers, including one in Alabama. If Senator Reid and Senate Minority Leader Mitch McConnell (R-KY) can mollify Senator Sessions’s concerns, the Senate will proceed to considering other aspects of the TAA/GSP bill, including prospective amendments. The Senate Democratic and Republican Caucuses likely will be able to offer six amendments per side. Senators favoring passage of the Free Trade Agreements (FTAs) with South Korea, Panama, and Colombia will be encouraged to vote against all amendments, even on items they may otherwise favor, such as renewal of Trade Promotion Authority (TPA). Successful amendments may disrupt the delicate Senate and House coalition favoring the FTAs and further delay entry-into-force of the agreements. Accordingly, Senator Reid has agreed to schedule a separate vote on stand-alone China currency legislation, rather than agreeing to support consideration of a currency amendment to the TAA/GSP bill. All in all, there is a chance the Senate could send the TAA/GSP legislation to the House this week.
    • Homeland Security Developments. Last week, the Senate Homeland Security and Governmental Affairs Committee (SHGAC) began consideration of S. 1546, legislation offered by SHSGAC Chairman Joe Lieberman (I-CT) and Ranking Member Susan Collins (R-ME) to authorize operations of the Department of Homeland Security (DHS). Although House Homeland Security Committee (HHSC) Chairman Peter King (R-NY) has applauded the SHGAC’s efforts and plan to introduce authorization legislation himself, Congress and the Administration have not completed work on a DHS authorization bill since the Department was founded in 2003. As a result, the bill’s contents must be taken with a grain of salt, but DHS often does take cues from such legislation, especially when it’s reported out of Committee, which may happen this week. S. 1546 places a heavy emphasis on reforming DHS’s contracting and acquisition system. For instance, if enacted, the bill would require independent assessments and approvals of the Department’s big-ticket technology purchases. DHS also would have to provide notice to Congress three business days in advance of any announcements of procurements or intended procurements above $10 million. The legislation also would require DHS to submit to Congress quarterly status procurement reports, which must include plans to fix implementation delays and cost overruns. Meanwhile, Senator Collins and Senator Rob Portman (R-OH) were able to include an amendment to block the Department from seeking information on campaign contributions from potential DHS contractors. Debate in the Committee also focused on border security and domestic terrorism issues. By an 8-8 margin, SHSGAC members failed to adopt an amendment by Senator Daniel Akaka (D-HI) to broaden the mandate of a new DHS anti-terrorism coordinator to include all U.S.-origin terrorist threats. Instead, the position will center on “the ideology that gives rise to Islamic extremism.” However, Committee panelists did support, by a 13-4 count, an amendment by Senator John McCain (R-AZ) to provide greater access to federal lands for Border Patrol agents conducting routine patrols and installing temporary surveillance equipment. On the House side, as the full Committee awaits Chairman King’s DHS authorization bill, the HHSC’s Transportation Security Subcommittee reported out Chairman Mike Rogers’s (R-AL) legislation to reauthorize a key component of the Department: the Transportation Security Administration (TSA). The full Committee may consider the TSA bill later in September. With six Republicans voting in favor and three Democrats opposed, the Subcommittee authorized $7.8 billion for TSA in FY12 and $7.5 billion in FY13. Democrats argued for additional funding to meet additional needs in aviation and mass transit security, although the bill does expand the presence of detection dogs at airports. Congressman Rogers has been a longtime advocate for increasing the role of canines in transportation security. If enacted, Representative Rogers’s legislation would establish a “trusted traveler” program, which would expand upon TSA’s existing efforts to enable pre-screened passengers to have expedited access through security. The bill also greatly restricts TSA’s ability to conduct pat-downs of children. Committee Republicans also rejected an amendment by Subcommittee Ranking Member Sheila Jackson Lee (D-TX), supported by the Obama Administration, to increase the security fee for air travelers by $1.50 per ticket.
    • Defense Developments. On Thursday, the Senate Appropriations Committee reported out its FY2012 defense spending bill by a 30-0 margin. If enacted, the measure would limit defense spending to $513 billion, less than the Obama Administration’s request of approximately $529 billion and the House-approved level of $530.5 billion. The Senate bill complies with the defense spending caps outlined in the new debt ceiling law, but Chairman Daniel Inouye’s (D-HI) warned “…any further reductions to the Department of Defense budget could be detrimental….” The bill cuts three planes and some parts procurement (for a cost savings of $695 million) from the F-35 Joint Strike Fighter program. Senator Inouye’s legislation also zeroes out the Army’s Joint Light Tactical Vehicle program and the Defense Weather Satellite System. Military personnel are slated for a 1.6 percent pay raise under the bill. The legislation also plusses up force protection equipment, including the popular Mine Resistant Ambush Program (MRAP). The bill includes no earmarks.




    • Tax Reform in Super Committee Deliberations. On September 13, the Super Committee held its second public meeting. Douglas Elmendorf, Director of the Congressional Budget Office (CBO), testified before the Committee. The topic of fundamental tax reform (i.e., broadening the tax base by reducing tax expenditures and lowering rates) was raised by several Members, including Senators Baucus (D-MT), Portman (R-OH) and Toomey (R-PA). In each instance, Director Elmendorf suggested that CBO would need to carefully review/score any proposal to determine the bottom-line impact on the deficit. Other topics touched upon included the appropriate ratio of tax revenue to GDP (with Republicans arguing for a long-term plan in line with the historic norm of roughly 18 percent and Democrats largely in favor of increasing revenues to some degree in order to help reduce the deficit while avoiding extreme cuts to various spending programs, including entitlements).
    • Tax Reform Hearings. Hearings on fundamental reform continue on both the House Ways & Means and Senate Finance Committees. The following tax hearings are scheduled for next week:
      • September 20: Senate Finance Committee, hearing on Tax Reform Options: Incentives for Innovation
      • September 21: House Ways & Means Committee, hearing on Economic Models Available to the Joint Committee on Taxation for Analyzing Tax Reform Proposals
      • September 22: House Ways & Means Committee, Joint Subcommittee on Select Revenue Measures and Subcommittee on Oversight, hearing on Energy Tax Policy and Tax Reform


    • IRS Issues Proposed Rule on Swaps, Notional Principal Contracts. On September 15, the Internal Revenue Service (IRS) released proposed regulations describing which swaps and similar agreements are within the scope of tax code Section 1256(b)(2)(B) and revising the definition and scope of a notional principal contract under Reg. Section 1.446-3. Comments on the proposed rules are due on December 14, 2011. 




    • Spectrum, President’s Jobs Plan and Super Committee. Spectrum plays a key role in the President’s job package (The America Jobs Act), the details of which call for reallocation of the 700 MHz D-block for first responders and $7 billion to build and operate a nationwide public safety wireless broadband network. The $7 billion is much less than the $24.5 billion that the National Broadband Plan suggested such a network would cost. The $7 billion figure also comes in lower than the President’s budget request of $10.7 billion and the $11.75 billion proposed in S. 911, Senator John Rockefeller’s (D-W.V.) legislation.

      The so-called National Wireless Initiative contained in the President’s jobs plan also would give the Federal Communications Commission (FCC) authority to hold incentive auctions and require the Commission to assign at least 84 MHz of spectrum through competitive bidding. The jobs plan would establish a Public Safety Broadband Corporation to hold the D-block license, governed by a board comprised of federal and non-federal members. The Corporation would be able to charge fees for use of the public safety broadband network’s capacity, whether by public safety users or commercial users on a secondary basis.

      Unlike S. 911, the President’s jobs plan also would authorize the FCC to assess and collect fees from Fiscal Year 2012 through 2021 for initial spectrum licenses and construction permits that were not assigned by auction, and for modifications or renewals of initial licenses and other authorizations, whether granted through competitive bidding or not, based upon public interest principles (i.e., if a modification increases the value of the license). Broadcast television and public safety radio services would be exempt from the potential spectrum user fees.
      While the President’s job plan presents yet another take on spectrum legislation, it provides little clarity on which path Congress will take to move a measure that would free up more spectrum for auction for wireless broadband services and use the auction proceeds to build a national broadband network for first responders. While the House Energy and Commerce Committee still may introduce and markup spectrum legislation, many industry stakeholders believe that a spectrum initiative is more likely to be folded into the plan being considered by the Joint Select Committee on Deficit Reduction (Super Committee).

      Meanwhile, the Information Technology Industry Council (ITI) sent a letter this week to Super Committee chiefs Senator Patty Murray (D-WA) and Congressman Jeb Hensarling (R-TX). ITI recommended the panel consider three recommendations: first, to consider spectrum auctions, given bipartisan support to undertake spectrum reform and increasing consumer demand for smart phones and other spectrum-driven devices, among other reasons. Second, ITI called for increasing employment-based visas for highly educated workers in order to “generate direct revenues for the Treasury.” Finally, ITI called on the panel to address tax reform, but at the very least a relaxation on the repatriation rate.
    • LightSquared. On September 15, the House Armed Services Strategic Forces Subcommittee chaired by Michael Turner (R-OH) held a hearing on GPS systems and national security. Discussion centered on LightSquared’s continued efforts to secure FCC approval for the development of a new national wireless broadband network. Critics say the proposed network interferes with global positioning system (GPS) receivers which are able to pick up LightSquared-assigned frequencies. The FCC is currently considering LightSquared’s proposal and their efforts to address this problem. The FCC drew the ire of Subcommittee Republicans when they learned Chairman Julius Genachowski declined to testify, although the FCC indicated they would answer questions in writing after the hearing. At the same time, the White House was accused by Republican staffers of attempting to influence the testimony of Air Force General William Shelton to be more in favor the LightSquared proposal. General Shelton ultimately testified about the project’s potential to interfere with the GPS system relied upon by the military and private industry saying that it poses “significant challenges” for GPS users, including the military. The White House denies charges that it tried to influence General Shelton’s testimony in any way. Prior to the hearing, LightSquared – who did not testify at Thursday’s hearing – announced work with a “pre-eminent leader” in GPS technology on a “prototype precision device” that would permit the latest proposed LightSquared network and precision GPS receivers to both function.
    • Hearings. On September 21, the Senate Judiciary Antitrust, Competition Policy, and Consumer Rights Subcommittee will hold a hearing exploring competition issues related to Google; the House Science, Space & Technology Subcommittee on Technology and Innovation will hold a hearing exploring cloud computing opportunities and challenges; and the House Science, Space & Technology Subcommittee on Research and Science Education will hold an oversight hearing of information technology research and development.


    • FCC Open Meeting. The FCC has released a tentative agenda for its next open meeting scheduled for September 22, where Commissioners will: 1) consider a Notice of Proposed Rulemakings to accelerate the development and deployment of Next Generation 911 (NG911) technology; and 2) hear a report from the Public Safety and Homeland Security Bureau on the use of deployable aerial communications architecture to facilitate the ability of first responders to communicate with each other and consumers to reach first responders in the wake of natural and manmade disasters, even when there is severe damage to terrestrial communications infrastructure. The report will make recommendations regarding next steps the FCC should consider to promote the development and use of deployable aerial communications.
    • Privacy. On September 15, the Federal Trade Commission (FTC) announced proposed revisions to its rules governing the Children’s Online Privacy Protection Act. The Commission has proposed adding new ways in which parents can consent to the collection of their children’s personal information. It also wants to add to confidentiality and security requirements for personal information handled by service providers or third parties. The FTC also wants to boost its oversight of self-regulatory “safe harbor programs” by requiring annual audits of those programs. The announcement was praised by Representative Ed Markey (D-MA), who earlier this year introduced amendments to the 1998 law with Representative Joe Barton (R-TX) and Senate Commerce Committee Chairman John Rockefeller. 




    • SAFETEA-LU and FAA Extensions. After intensive negotiations and the prospect of another partial FAA shutdown, a deal was struck and the Senate cleared, 92-6, a combined extension bill (H.R. 2887) extending the FAA authorization for four months, until January 31, 2012, and SAFETEA-LU for six months, until March 31, 2012. The House had passed the measure earlier in the week, in what House Transportation and Infrastructure Chairman John Mica (R-FL) described as the last short-term FAA extension that he would allow. The Senate was able to move the bill after a deal was struck with Senator Tom Coburn (R-OK) to drop his opposition. Senator Coburn had placed a hold on the bill and would not provide consent to proceed without the Senate adopting an amendment ending the requirement that states spend 10 percent of their Surface Transportation Program (STP) funding on “transportation enhancements,” such as bicycle and pedestrian paths. With the House already recessed for the weekend and the FAA extension set to expire at midnight Friday, any changes to the bill would have forced another partial shutdown of the nation’s aviation programs. Senator Coburn agreed to allow the bill to proceed after winning assurances that his language allowing states to opt-out of the enhancements requirement would be included in the next multiyear surface transportation authorization.
    • “Clean” Extensions. Both the SAFETEA-LU and FAA extensions were “clean” – free of any policy or funding changes. As part of the deal struck between Speaker John Boehner (R-OH) and Majority Leader Harry Reid (D-NV), House Republicans had to forego their intention to cut FAA funding levels by 5 percent and to end the enhancements requirements. Ultimately, as discussed above, the enhancements issue reared its head again in the Senate. Senate Democrats in turn had to agree to an annualized highway funding level of $39.9 billion in the extension (down from $43.0 billion) to reflect the $3.13 billion rescission of highway contract authority made as part of the final FY2011 appropriations deal. Adopting the post-rescission funding level is not expected to effect spending levels at this time because states have sufficient carry-forward balances of contract authority. However, Senator Barbara Boxer (D-CA), Chairman of the Senate Environment and Public Works (EPW) Committee, had sought to have the rescission take effect on the “back end” to preserve the higher funding baseline. This is important because Chairman Boxer’s two-year reauthorization bill was drafted to extend highway funding at “current levels” – and, as a result of the new post-rescission baseline, her bill is actually $3 billion more than “current levels.” Chairman Boxer has stated that she “intend[s] to do everything” to keep the next multi-year transportation bill at the pre-rescission level of funding.
    • Impact on Long-Term SAFETEA-LU Reauthorization. While draft reauthorization bills are largely complete in the House and Senate, few expected that a final bill would be enacted before early next year, as Congress continues to grapple with the large revenue shortfall in the Highway Trust Fund (HTF). The House and Senate have taken dramatically different approaches to drafting a bill under this revenue constraint. As such, March 31 is both a realistic date and provides the most short-term certainty to the transportation sector. The six-month extension provides time for Congress to work through the revenue question and for potentially significant events to play out in that regard, including the Super Committee process, which is charged with identifying $1.5 trillion in deficit reduction and could potentially include transportation revenue as part of a comprehensive package (as the Gang of Six proposed); and the jobs debate, where infrastructure has figured prominently. At the same time, the March 31 date is generally seen as the outer limit for getting a bill done given the impending 2012 election.
    • American Jobs Act. As predicted in the last edition of Capital Thinking, the transportation infrastructure proposals in the American Jobs Act have had a difficult time gaining traction, even among many in the stakeholder community. The President initially proposed this $50 billion in immediate infrastructure spending in late 2010 along with a National Infrastructure Bank (NIB), and put forward the proposal again in his FY2012 Budget, but neither attempt was met with Congressional support. Many in the stakeholder community have also come forward and said that focus on a multi-year reauthorization bill is preferable to a one-time infusion, and that a NIB is not a core or near-term solution to the nation’s infrastructure challenges. However, the President’s strong focus on increased infrastructure investment, as well as the bipartisan support for infrastructure investment for job creation and economic competitiveness, may increase pressure to come up with the revenue needed to stabilize the HTF and allow for a reauthorization bill to move forward.
    • Transportation Appropriations.  As reported in last week’s Capital Thinking, the House Transportation, Housing and Urban Development Appropriations (T/HUD) Subcommittee marked-up and passed their FY2012 appropriations bill. The Senate has also announced that its T/HUD Appropriations Subcommittee will be marking up their FY2012 appropriations bill at 10:30 a.m. on Tuesday, September 20.
    • Highway Trust Fund Programs. The most important aspect of the House T/HUD bill is that (following the Rep. Paul Ryan, R-WI, Budget) it limits obligations to projected revenues from the HTF, resulting in a spending level for highways of $27.0 billion in FY2012 (compared to $41.1 billion in FY2011) and $5.2 billion for transit in FY2012 (compared to $8.3 billion in FY2011). Critically, the Committee’s press release stated that: “The highway program still requires reauthorization to operate beyond September 2011, and the Committee is prepared to support a higher Highway Trust Fund spending level, should a new, multi-year authorization bill be enacted.” As discussed above, the six-month extension does provide a higher HTF spending level – annualized levels of $39.9 billion for highways and $8.3 billion for transit. The final appropriations for FY2012 are almost certain to track authorized levels set in the extension, however, FY2012 appropriations must provide obligation limitation tracking the authorized levels set in the extension in order to maintain current spending levels.
    • Discretionary Programs. The Budget Control Act effectively froze FY2012 discretionary appropriations at FY2011 levels. However, the final FY2011 CR achieved its budget authority total for T/HUD in significant part through the rescission discussed above. In effect, the CR was able to provide a higher level of funding and offset that with the rescission in order to meet the target of $55 billion in discretionary budget authority for T/HUD. Because the House T/HUD bill does not contain significant offsetting rescissions, it has to make real program cuts in order to meet the $55 billion target again this year. This includes the elimination of the TIGER program, a cut of $360 million from Amtrak, and significant cuts across HUD programs. The House bill does provide $1.554 billion for New Starts, which was funded at a similar $1.600 billion in FY2011. As expected, the House bill continues to zero out high speed rail. The Senate is faced with the same budget constraint in drafting its bill and it will be extremely difficult to restore funding to these programs without corresponding offsets from other programs.