Capital Thinking Update - October 24, 2011

    View Authors 24 October 2011

    General Legislative

    • On Monday, October 24, the House returns at 2:00 p.m. from a week-long recess to consider H.R. 295, a bill to amend the Hydrographic Services Improvement Act of 1998 to authorize funds to acquire hydrographic data and provide hydrographic services specific to the Arctic for safe navigation, among other things; H.R. 441, the “Kantishna Hill Renewable Energy Act of 2011;” H.R. 818, a bill to direct the Secretary of the Interior to allow for prepayment of repayment contracts between the U.S. and the Uintah Water Conservancy District; H.R. 1160, the “McKinney Lake National Fish Hatchery Conveyance Act;” H.R. 320, the “Distinguished Flying Cross National Memorial Act;” H.R. 461, the “South Utah Valley Electric Conveyance Act;” and H.R. 2594, the “European Union Emissions Trading Scheme Prohibition Act of 2011.” On Monday, October 24, the Senate will begin a one-week recess.

     

    Budget, Appropriations

    LEGISLATIVE ACTIVITY

    • Status of First FY2012 Appropriations “Minibus.” After a week of debate and consideration of dozens of amendments, the Senate adjourned for a week-long recess without passing its first FY2012 Appropriations Minibus (H.R. 2112 / S. Amt. 738). However, the chamber did hold a procedural vote which should provide for passage of the bill on November 1, following consideration of the remaining amendments. As previously reported, the measure includes the Agriculture, Commerce-Justice-Science and Transportation-Housing and Urban Development FY2012 spending bills and is the first of several minibus measures expected to be introduced in the coming weeks in an effort to resolve the FY2012 budget process. (A minibus is a compilation of several appropriations bills in lieu of one large omnibus including all of the appropriations bills).

      Despite progress in the Senate, it is unlikely the entire FY2012 appropriations process can be wrapped up before the November 18 expiration of the current Continuing Resolution (CR) (P.L. 112-36), therefore, an additional short-term CR may be added to the minibus before the final Senate vote. 
    • Senate Defeats Second Democratic Jobs Bill. On October 20, the Senate voted 50-50 to block debate on a scaled-down jobs bill introduced by Majority Leader Harry Reid on October 17, the “Teachers and First Responders Back to Work Act” (S. 1723). The bill provided $30 billion for hiring / retaining teachers and $5 billion for hiring / retaining first responders, offset with a much smaller 'millionaire surtax' than that proposed in the larger jobs package defeated in the Senate on October 11. (S. 1723 included a .5 percent surtax on household income over $1 million, whereas the larger package included a 5.6 percent surtax).
      The “Rebuild America Jobs Act” is the next jobs bill expected to be introduced by Majority Leader Reid. This measure will focus on infrastructure investment and include the establishment of a national infrastructure bank leveraged with public and private funds. The cost of the bill has not yet been released, but will include a .7 percent surtax on household income over $1 million. The higher surtax indicates the bill will cost more than the teacher / first responders bill. The fate of this bill is most certainly identical to the others.

     

    Education

    LEGISLATIVE ACTIVITY

    • Defeat of “Slimmed-Down” Senate Jobs Bill. On Thursday, October 20, the Senate failed to advance President Obama’s American Jobs Act by rejecting a motion to limit debate (50-50). The Administration asserts that the Act will support education jobs, prevent layoffs of educators, and increase the hiring of thousands of educators. The bill also intends to modernize at least 35,000 public school buildings and community college campuses.
    • Support and Opposition of Senate ESEA Bill. Last week, Senators Tom Harkin (D-IA) and Michael Enzi (R-WY) unveiled the Senate draft bill to rewrite the Elementary and Secondary Education Act (ESEA). Over the past week, civil rights organizations, business groups and state chiefs expressed mixed reviews of the bill. For example, on Wednesday, October 19, a broad coalition of organizations addressed a letter to Senators Harkin and Enzi stating their opposition to the bill. The chief objections focused on the bill’s accountability provisions, which would authorize states to intervene in most schools. The coalition, however, supports provisions related to college- and career-readiness standards.

      The letter’s signatories are: The American Civil Liberties Union, The Business Coalition for Student Achievement, The Chiefs of Change, The Disability Rights Education and Defense Fund, The Democrats for Education Reform, The Education Trust, The Leadership Conference on Civil and Human Rights (members include the National Education Association and the American Federation of Teachers), The League of United Latin American Citizens, The Mexican American Legal Defense and educational Fund (MALDEF), The National Association for the Advancement of Colored People, The National Center for Learning Disabilities, The National Down Syndrome Society, The National Urban League, The National Women’s Law Center, The New Teachers Project, The Poverty & Race Research Action Council, The Southeast Asia Research and Action Center and The U.S. Chamber of Commerce.

      The NEA released a separate letter supporting provisions of the draft bill, including improved assessments for English-language learners and changes to the accountability system. The NEA, however, criticized the bill’s turnaround options for lowest-performing schools and accountability measures related to charter schools.
    • Markup of Senate ESEA Bill. On Thursday, October 20, the HELP Committee voted 15 to 7 to report the ESEA bill out of committee. The markup began on Wednesday, October 19, with Senator Rand Paul (R-KY) invoking a Senate rule barring committees from meeting without unanimous consent beyond the first two hours of the Senate’s day in order to stall the markup. In response, the committee convened for less than two hours on Wednesday and only worked through four of the 144 amendments filed. Senator Paul also invoked the same rule during Thursday’s markup. After extended and heated discussions on the Senate floor, however, Senator Paul agreed to withhold numerous amendments (nearly half of the filed amendments) and allowed the mark-up to continue with an agreement to hold a hearing prior to the bill’s introduction on the Senate floor.

      The biggest change in the bill is the reduction of the federal government's role in overseeing public schools. Under the bill, only five percent of a state's worst performing schools would be subject to federal oversight. Additionally, states will play an increased role in how to intervene in another five percent of schools with the greatest achievement gap between students of different racial groups. The reported bill does retain a key provision of the original law, which requires schools to test students annually in reading and math in grades three through eight and once in high school. Schools, however, would now be required to disaggregate those results by gender, racial group and English ¬language ability.

      The bill would:
      • Eliminate “adequate yearly progress” requirements. States would be required to develop their own accountability systems that include publicizing information about student performance by schools;
      • Require states to set college- and career-ready standards;
      • Maintain current testing requirements, but allow states to select key assessments during the year to show student growth;
      • Require states to create teacher and principal evaluation systems based on “multiple measures,” including student achievement data and classroom observations; and
      • Ensure that Title I schools are receiving a more equitable share of state and local dollars.
    • Key Amendments. Below are summaries of key amendments offered during the markup: 
      Repeal of ESEA. Senator Paul offered an amendment to repeal ESEA and require federal education law to be implemented as if that legislation had never been enacted. The HELP Committee defeated the amendment 3-17. The HELP Committee also defeated Senator Paul’s amendment that would make any mandates under the bill voluntary.
      Performance Targets. Senator Michael Bennet (D-CO) withdrew his amendment that would allow states to establish performance targets based on three options outlined in the Administration’s plan for waivers under ESEA. Although the Committee did not vote on the amendment, the Committee engaged in a heated debate on the issue of goal-setting (e.g., college- and career-ready standards), which may be an indicator of future Senate floor debate.

      Early Learning. Senator Robert Casey (D-PA) offered and then withdrew two amendments focused on early education but wanted more discussion on the floor. The first amendment would establish a voluntary universal Pre-K program based on a bill introduced earlier this year (cosponsored by Senators Al Franken (D-MN) and Bernard Sanders (I-VT)). The second amendment would ensure states have a continuum of early learning standards from birth to the early grades, which is intended to raise the bar and hold states more accountable. 
      Responding to Senator Casey’s amendments, Senator Enzi remarked that the Senate draft bill is focused on elementary and secondary education, and the HELP Committee should address those concerns under a block grant, Head Start or other federal programs, not under ESEA.

      Academic Achievement Standards for Students with Disabilities. Senator Johnny Isakson (R-GA) offered an amendment that would require schools to specify how students with disabilities would be assessed under their individualized education programs (IEP). The amendment would eliminate a cap on the number of students with the most significant cognitive disabilities that can be evaluated under IEP.

      Senator Harkin objected to the amendment because he believed these students would be segregated and taken out of the classroom. There was a lot of discussion over whether Senator Isakson’s amendment would reverse the mainstreaming of children—a point which Senator Isakson considered offbase. Many disability advocacy groups opposed this amendment as well. The Committee defeated the amendment by a vote of 8-14.

      Improving Secondary Schools Program. Senator Richard Blumenthal (D-CT) withdrew an amendment requiring grants under the new Improving Secondary Schools program to fund work-based opportunities (e.g., internships). Some Senators supported the intent of the amendment, and Senator Harkin committed to working with Senator Blumenthal to include a revised version in the manager’s amendment for the Senate floor.

      The Committee adopted Senator Bernard Sanders’ amendment to require an application to the Improving Secondary Schools program by voice-vote.

      School Improvement Strategies. Senator Lamar Alexander offered an amendment to allow states to establish alternative school improvement strategies, upon approval by the Secretary of Education. Districts would then select those strategies that address their unique needs. The Harkin-Enzi bill, however, requires districts to implement one of six school improvement strategies for the bottom five percent of schools and grants rural districts greater flexibility. The HELP Committee adopted the amendment 15-7 over Senator Harkin’s objections, which focused on whether the state alternatives would be rigorous and evidence-based. The Committee also adopted Senator Kay Hagan’s (D-NC) amendment addressing the replacement of principals in school improvement strategies by voice-vote. 
    • Additional Hearing on Senate ESEA Bill. On November 8, the Senate HELP Committee will hold an additional hearing on the ESEA bill after it is reported out of committee and before it is scheduled for consideration on the Senate floor. As noted above, this additional hearing results from an agreement between Senators Harkin and Enzi to address Senator Rand Paul’s concerns over the reauthorization process.

      The agreement allowed for the HELP Committee to continue its markup on both Thursday and Friday. Senator Paul has also agreed to cut his list of amendments filed. He sponsored nearly half of the 144 amendments filed.

    REGULATORY ACTIVITY

    • Race to the Top – Early Learning Challenge. On Thursday, October 20, the Department of Education and the Department of Health and Human Services announced that 35 states and the District of Columbia submitted applications for the Race to the Top – Early Learning Challenge. This is the Administration’s $500 million state-level competitive grant program to improve early learning and development. Under the program, applications must create comprehensive plans to improve early learning and development programs focused on five key areas of reform: (1) establishing “Successful State Systems;” (2) defining “High-Quality, Accountable Programs;” (3) promoting “Early Learning and Development Outcomes for Children;” (4) supporting “A Great Early Childhood Education Workforce;” and (5) “Measuring Outcomes and Progress.”

      Applicants include: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, Vermont, Washington, West Virginia and Wisconsin.

      In mid-December, the Departments will announce the grant recipients. Awards will range from around $50 million to $100 million, depending on a state’s population of children from low-income families and proposed plan. The Departments of Education and Health and Human Services announced the competitive grant program in May 2011. 

     

    Energy

    LEGISLATIVE ACTIVITY

    • Congressional Hearings. On Thursday, the House Natural Resources Committee will hold an oversight hearing on how the BP oil spill compensation fund is working. Administrator Kenneth Feinberg is slated to testify.

    REGULATORY ACTIVITY

    • Offshore Wind. The Bureau of Ocean Energy Management is soliciting public comment through November 3 on potential effects offshore wind energy leasing activities may have on historic properties in the mid-Atlantic.
    • Natural Gas Wastewater Discharge Standards. The Environmental Protection Agency will solicit public comment on a multi-year plan intended to establish new regulations for industrial wastewater discharges for coalbed methane formations and shale gas extraction activities as part of the Effluent Guidelines Program.
    • Nuclear Safety. The Nuclear Regulatory Commission (NRC) will immediately begin implementing seven of 12 safety recommendations from a July task force report on lessons learned from the Fukushima reactor accident. NRC has set an April 2014 goal of completing the rulemaking process for the new station blackout rule.
    • Electric Market Surveillance Analysis. The Federal Energy Regulatory Commission (FERC) will solicit public comment on a Notice of Proposed Rulemaking to revise requirements that each Regional Transmission Organization and Independent System Operator electronically deliver market data. It is intended to facilitate FERC’s efforts to detect anti-competitive or manipulative behavior, or ineffective market rules, to help ensure “just and reasonable” rates.  

     

    Environment

    LEGISLATIVE ACTIVITY

    • Gulf Coast Recovery. On Thursday, October 27, the House Committee on Natural Resources will hold an oversight hearing titled, "Gulf Coast Recovery: President Obama’s BP Compensation Fund- How is It Working?" Kenneth Feinberg, Administrator of the BP Compensation Fund, will testify.
    • Ocean Policy. On Wednesday, October 26, the House Committee on Natural Resources will hold an oversight hearing concerning the President’s new national ocean policy as it relates to ocean, coastal and inland activities. The committee will hear testimony regarding the President’s Executive Order 13547 that established a new National Ocean Policy and Council. Witnesses testifying will include: Chair of the U.S. Council on Environmental Quality and Co-Chair of the National Ocean Council, Nancy Sutley; and Dr. Jane Lubchenco, the Under Secretary of Commerce, Oceans and Atmosphere Administrator with the National Oceanic and Atmospheric Administration.
    • Nuclear Review. On Wednesday, October 26, the House Committee on Science, Space and Technology will hold a joint committee hearing with two of its subcommittees to review the Blue Ribbon Commission on America's Nuclear Future Draft Recommendations. Witnesses will include: Jack Spencer, Heritage Foundation; Dr. Peter Swift, Sandia National Laboratory; Gary Hollis, Nye County Board of County Commissioners; Rick McLeod, Savannah River Site Reuse Organization; and Dr. Mark Peters, Argonne National Laboratory.

    REGULATORY ACTIVITY

    • Ozone Layer. The Environmental Protection Agency (EPA) is proposing uses that qualify for the 2012 critical use exemption and the amount of methyl bromide that may be produced, imported or supplied from existing pre-phase out inventory for those uses in 2012. EPA is taking action under the authority of the Clean Air Act to reflect a recent consensus decision taken by the Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer. EPA is seeking comment on the list of critical uses and on EPA’s determination of the amounts of methyl bromide needed to satisfy those uses. Comments must be submitted by November 21, 2011.
    • Fine Particulate Matter and Ozone. EPA is seeking comment on revisions to the final Transport Rule to reduce interstate transport of fine particulate matter and ozone. These revisions address discrepancies in unit-specific modeling assumptions that affect the calculation of state budgets and assurance levels in Florida, Louisiana, Michigan, Mississippi, Nebraska, New Jersey, New York, Texas and Wisconsin, as well as new unit set-asides in Arkansas and Texas. EPA is also proposing to amend the assurance penalty provisions of the rule to make them effective beginning January 1, 2014, rather than in 2012, in order to promote the development of allowance market liquidity as these revisions are finalized. Comments must be received on or before November 14, 2011, unless a public hearing is requested, in which event comments must be received on or before November 28, 2011.
    • Air Pollution. The EPA is releasing a new version of its Community Multi-scale Air Quality model (CMAQ) that uses up-to-the minute meteorology and air chemistry data to determine how weather conditions affect pollution and how pollution can affect and change weather. The system models multiple air pollutants, including ozone, particulate matter and air toxics, to help air quality regulators determine the best air quality management scenarios for their communities, regions and states. Version 5.0 of CMAQ allows scientists to analyze air quality at smaller settings for individual towns and cities and model air quality for the entire northern hemisphere. EPA research has shown that air contaminated with common pollutants like ozone, acidic gases and toxic components of particulate matter can aggravate asthma symptoms and put stress on cardiovascular systems.

     

    Financial Services

    LEGISLATIVE ACTIVITY

    • Director of Federal Insurance Office to Appear Before House Subcommittee. On Tuesday, October 25, the House Financial Services Insurance, Housing and Community Opportunity Subcommittee will hold a hearing titled, “Insurance Oversight: Policy Implications for U.S. Consumers, Businesses and Jobs, Part 2.”  Michael McRaith, the Director of the Federal Insurance Office, will testify.
    • House Subcommittee to Consider European Financial Crisis. On Tuesday, October 25, the House Financial Services International Monetary Policy and Trade Subcommittee will hold a hearing at 10 a.m. titled, “The Eurozone Crisis and Implications for the United States.”

    REGULATORY ACTIVITY

    • SEC to Hold Open Meeting on Hedge and Other Private Funds. The Securities and Exchange Commission (SEC) will hold an open meeting on Wednesday, October 26 to consider whether to adopt a rule requiring advisers to hedge funds and other private funds to report information for use by the Financial Stability Oversight Council in monitoring risk to the U.S. financial system.

    OTHER FINANCIAL SERVICES NEWS

    • CFTC, SEC Commissioners Confirmed by Senate. On Thursday, October 20, the Senate confirmed the nominations of Daniel Gallagher and Luis Aguilar as Commissioners to the SEC. Commissioner Gallagher was previously a partner in the Securities Department of Wilmer Cutler Pickering Hale and Dorr, LLP, where he focused on regulatory issues and market-related enforcement matters, and fills a Republican seat previously held by Kathleen L. Casey. Commissioner Aguilar was previously nominated by President George W. Bush in 2008. Mark Wetjen was also approved by the Senate to serve as a Commissioner to the CFTC.

     

    Health Care

    LEGISLATIVE ACTIVITY

    • Energy and Commerce Hearing. The Subcommittee on Oversight and Investigations and the Subcommittee on Health have scheduled a joint hearing on Wednesday, October 26, at 9 a.m. titled, “CLASS Cancelled: An Unsustainable Program and Its Consequences for the Nation’s Deficit.”
    • House Judiciary Markup. The House Committee on the Judiciary will hold a markup session on Tuesday, October 25 at 1 p.m., and Thursday, October 27 at 9 a.m. to consider a number of bills including H.R. 1254, the Synthetic Drug Control Act of 2011.
    • FDA Spending Bill. The Senate continued debate on 2012 spending bills, including funding for the Food and Drug Administration (FDA), accepting a substitute and working through the list of amendments. Notably, the Senate rejected a proposed amendment from Senator David Vitter (R-LA) that would allow for personal drug reimportation from Canada, which was narrowed to exclude biologics and controlled substances in response to concerns from Senators Debbie Stabenow (D-MI) and Jeff Bingaman (D-NM). The amendment, which has received Senate approval in the past, failed with 14 Democrats reversing their support and voting against the proposal which failed 45-55. The Senate is scheduled to resume debate on outstanding amendments and vote on final passage of the spending bill when it returns from the 10-day recess.

    REGULATORY ACTIVITY

    • Regulations: ACO’s and Retrospective Regulatory Review. The Center for Medicare and Medicaid Services released the Accountable Care Organization final rule, as well as the associated interim final rule, establishing waivers from certain fraud and abuse laws necessary to implement an ACO. In response to significant concerns from the stakeholder community, the regulation includes notable differences from the proposed rule. These changes include offering a way for providers to avoid penalties if they don’t meet savings targets, reducing the number of measurements to assess the quality of care from 65 to 33 metrics, relaxing requirements for provider use of electronic health records, and giving physicians and rural providers’ access to up front capital through an “Advanced Payment” program. The final rule also states that beneficiaries who receive a plurality of care from a particular physician will be assigned to an ACO that includes that physician. Beneficiaries will also be assigned quarterly, rather than retrospective assignment after care has been delivered. Agency officials have estimated that the new version will attract up to 270 ACOs, double the number anticipated in the proposed rule, and will yield savings of up to $940 million over four years while providing care to approximately two million Medicare beneficiaries.

      In response to President Obama’s Executive Order directing federal agencies to improve regulation and regulatory review, CMS also released a proposed rule to reform Medicare and Medicaid regulations that the Agency has identified as “unnecessary, obsolete, or excessively burdensome on health care providers and beneficiaries” in order to promote program efficiency, transparency and burden reduction. The regulation is expected to save hospitals and health care providers nearly $1.1 billion annually and over $5 billion over five years. Public comments will be accepted for 60 days.

    OTHER HEALTH NEWS

    • MedPAC Meeting. The Medicare Payment and Advisory Commission (MedPAC) has scheduled an upcoming public meeting on November 3 and 4, with the agenda to be released next week.

     

    International, Defense, Homeland Security

    LEGISLATIVE ACTIVITY

    • Trade Developments. Friday morning, President Obama signed into law the implementing legislation for the pending Free Trade Agreements (FTAs) with South Korea, Panama and Colombia, as well as the reauthorization of the Trade Adjustment Assistance (TAA) program. Ways and Means Trade Subcommittee Chairman Kevin Brady (R-TX) praised “…the President and Ambassador [Ron] Kirk for completing the agreements and working with us to pass them into law with a strong bipartisan vote,” although over the past week, other Congressional Republicans, including House Speaker John Boehner (R-OH), described what they saw as White House foot-dragging on the FTAs over the past two years. In contrast, pro-trade Congressional Democrats commended the White House and the Office of the U.S. Trade Representative for helping to craft a delicate, bipartisan compromise on TAA and the FTAs that enabled the trade package to move forward, despite significant resistance to the FTAs from most U.S. unions and liberal Democrats. Perhaps acknowledging that resistance from some of his base, President Obama decided not to make public remarks following the signing.

      Libya Developments. The Obama Administration joined its Congressional and NATO allies, as well as Libya’s Transitional National Council, in celebrating former Libyan strongman Moammar Gaddafi’s death on Thursday. The White House noted the targeted U.S. and NATO commitment that produced relatively rapid results without ground troops. However, even nominally supportive Republicans such as Senator Marco Rubio (R-FL) were quick to shower more praise on what they described as bolder French and British military and diplomatic leadership. Senate Armed Services Committee Ranking Member John McCain (R-AZ) also offered qualified praise for the Administration, while suggesting NATO now must focus on securing Gaddafi’s former weapons stockpiles and providing medical assistance to anti-Gaddafi forces.

      Africa Developments.  Perhaps learning a lesson from earlier criticism from some Congressional Democrats over the application of the War Powers Act to its Libya policy, the Administration briefed Senate Foreign Relations Committee (SFRC) Members on Thursday regarding its decision to send approximately 100 U.S. military advisers to Central Africa to help combat the Lord’s Resistance Army (LRA). U.S. advisers will assist the governments of Uganda, the Central African Republic, the Democratic Republic of Congo and South Sudan in battling the LRA, a non-state force alleged to have committed numerous war crimes in the region over the past two decades. The briefing appeared to produce immediate results. SFRC Africa Subcommittee Chair Chris Coons (D-DE) and Subcommittee Members Ben Cardin (D-MD) and James Inhofe (R-OK) offered their public support for the deployment.

      Pakistan/Afghanistan Developments. The almost uniquely high-level U.S. delegation in Pakistan Thursday signaled just how strong U.S. concerns are regarding Islamabad’s commitment to defeating the terrorist Haqqani network operating against U.S. interests in Afghanistan. Secretary of State Hillary Clinton, Central Intelligence Agency Director David Petraeus, Chairman of the Joint Chiefs of Staff General Martin Dempsey, and other senior U.S. officials stressed that the Obama Administration is impatient regarding what it sees as ineffectual, inconsistent Pakistani efforts against Haqqani outposts in Northern Pakistan. However, the question remains what leverage Washington has to compel more forceful, and domestically unpopular, actions by the Pakistani government.
    • Homeland Security Developments. The White House summoned Administration officials and Senate leaders on cybersecurity issues to a meeting on Wednesday, but the attendees did not resolve all the remaining hurdles needed to pass comprehensive cybersecurity legislation in the near term. Senate Majority Leader Harry Reid (D-NV), Senate Commerce Committee Chair Jay Rockefeller (D-WV), Senate Homeland Security Chair Joe Lieberman (I-CT) and Senate Armed Services Committee Chair Carl Levin (D-MI) all attended, as did officials from the Department of Homeland Security, the Department of Defense, the National Security Agency and other agencies, but the meeting generated only limited progress. Senator Reid would like to pass cybersecurity legislation this year, but fundamental issues, including the scope and pace of cybersecurity mandates on the private sector, remain unresolved. 

     

    Super Committee

    The Super Committee has not held a public hearing since September 13, though closed-door meetings continue on a frequent basis. Next week, the Super Committee will also hold a public hearing to discuss security and non-security discretionary outlays.

    On October 19, the Super Committee was briefed by the “Gang of Six,” comprised of Democratic Senators Kent Conrad, Dick Durbin and Mark Warner, as well as Republican Senators Tom Coburn, Mike Crapo and Saxby Chambliss. Over the course of most of the last year, the Gang of Six developed a far-reaching proposal that would reduce the deficit through a series of significant spending cuts and revenue increases. It would also mandate tax reform that broadens the tax base while using some of those savings to lower rates (and some for deficit reduction).
    While there is no shortage of ideas as to how to reduce the deficit, by most accounts, progress towards bipartisan deficit reduction legislation remains very slow, in large part due to disagreements over whether to include tax increases as part of the legislation, and whether and how significant any cuts to entitlement programs (Medicare, Medicaid and Social Security) should be. It is likely that the Committee will first focus on non-health mandatory spending items that were discussed last spring by the Biden Group (such as agriculture subsidies and federal retirement benefits), while discussions continue on taxes and entitlements.

    • The Super Committee is under pressure to have some measure of agreement by around November 1 to give the Congressional Budget Office time to score their proposal, which the Super Committee itself must vote on by November 23 in order to maintain “fast track” procedures of any legislation they report. The Super Committee may also consider recommendations of the standing Committees of the House and Senate. October 14 was the date by which Congressional Committees were asked to submit proposals to the Super Committee for consideration. On October 13, House Democrats submitted a litany of proposals to the Super Committee. Further, on October 14, Senator Orrin Hatch (R-UT), on behalf of Senate Finance Committee Republicans, sent recommendations to the committee. While the Super Committee will no doubt give due consideration to these recommendations, nothing compels the Super Committee to include any of these proposals.

     

    Tax

    LEGISLATIVE ACTIVITY

    • Tax Reform in Super Committee Deliberations. While the Super Committee met several times last week in extended closed-door sessions, no details have emerged on any progress toward an agreement. Significant disagreements between the parties over policy outcomes and revenue targets continue to persist, as evidenced by differing proposals submitted to the Super Committee by House Ways & Means Committee Democrats and Senate Finance Committee Republicans. Whether, and to what degree, tax provisions will be included in any final agreement remains an important and open question. The Super Committee has been briefed on tax reform options, and discussion continues among various Super Committee Members regarding the possibility of incorporating business entity tax reform (whereby the corporate tax base is broadened and marginal tax rates are lowered) as part of any forthcoming Super Committee proposal. It still remains unlikely that the Super Committee will be able to actually include fundamental reform in its forthcoming legislative proposal given the truncated timeframe of the Super Committee proceedings. Short of this, other possible options include setting up a process whereby business and/or individual fundamental reform could be compelled next year, or including various piecemeal tax provisions in their final legislative product while leaving fundamental reform to be dealt with at a later point in time.
    • Revamped Jobs Bills is Rejected. Following the rejection by the Senate of President Obama’s $447 billion jobs bill last week, this week President Obama and Senate Democrats announced a strategy whereby they will force votes on individual items of the broader proposal over the course of the next several weeks or months. On October 20, the Senate Democratic majority initiated this process by forcing a vote on cloture on the motion to proceed to legislation that would provide $35 billion to state and local governments intended to prevent layoffs of teachers, firefighters and police officers. The proposal was fully offset by a 0.5 percent surtax, starting in 2013, on modified adjusted gross income in excess of $1 million. This offset is similar to the offset of the broad jobs bill, which included a 5.6 surtax to cover the $447 billion cost of proposal, and drew opposition from Senate Republicans. As was the case last week, the Senate voted against proceeding to the measure by a 50-50 vote, 10 votes short of the required 60. Three Senate Democrats (Senators Lieberman, Pryor and Ben Nelson) joined all 47 Senate Republicans in voting against cloture.
    • Senate Rejects Proceeding to Repeal of Three Percent Withholding Law. On October 20, the Senate also rejected Minority Leader Mitch McConnell (R-KY)’s jobs bill (S. 1726) that would have repealed the withholding tax set on contractors doing business with federal, state and local governments set to begin in 2013. The measure, which received bipartisan support, still fell three votes shy of the required 60, falling 57-43. Senate Majority Leader Harry Reid (D-NV) suggested that a revamped withholding bill could be passed if both sides can agree to different offsets. S. 1726 was offset by a rescission of $30 billion in unobligated appropriated federal funds. In advance of the cloture vote, Senate Democrats unveiled a proposal which was not voted on that would have offset the repeal bill by delaying implementation of worldwide interest allocation rules, extending the depreciation schedule for corporate jets from 5 to 7 tears, and modifying foreign tax credit rules for dual capacity taxpayers. The Obama Administration included a delay of the effective date of three percent withholding in its own jobs proposal, but issued a statement in advance of the vote objecting to the offsets in S. 1726.

      Previously on October 13, the House Ways & Means Committee voted to proceed with legislation to repeal a law that requires federal, state, and local governments to withhold 3 percent from payments for goods and services beginning in 2013. That legislation is expected to be passed by the House of Representatives next week.
    • House Republicans Working on Territorial Plan. On October 19, Chairman of the House Ways and Means Committee Dave Camp (R-MI) said he hopes to soon release an early version of a proposal to reform the corporate tax regime, changing it from a worldwide system of taxation to a territorial system. It is likely this will be a working draft, not formal legislation, and it remains unclear when it will be released. There is strong interest in the business community to move from a worldwide system of taxation to a territorial system. Currently, American companies doing business overseas are taxed on foreign profits at a 35 percent rate, though under deferral they can often postpone paying U.S. taxes until those earnings are repatriated into the U.S. Many Congressional Republicans favor reforming the international tax regime to a territorial system so as to make U.S. businesses more competitive, though many Democrats are concerned this would encourage American corporations to shift operations overseas.
    • Tax Reform Hearings Next Week. October 25: House Ways and Means Hearing on the “U.S.-China Economic Relationship.” Witnesses have not been announced.

      October 26:  Super Committee Hearing on “Discretionary Outlays, Security and Non-Security.” The witness for the hearing is Dr. Doug Elmendorf, Director of the Congressional Budget Office in Washington DC.

      October 27:  House Ways and Means, Subcommittee on Human Resources Hearing on “Supplemental Security Income Benefits for Children.” Witnesses have not been announced.

      The Senate Finance Committee postponed a hearing scheduled for Wednesday, October 12 on “Tax Reform Options: Capital Investment and Manufacturing.” It is likely that hearing will be rescheduled for sometime in November. The previously announced witnesses for that hearing were: Dr. Jane Gravelle, Senior Specialist in Economic Policy, Congressional Research Service, Library of Congress; Douglas Holtz-Eakin, Ph.D., President, American Action Forum; Dr. Robert D. Atkinson, President, Information Technology and Innovation Foundation; Dr. J.D. Foster, Norman B. Ture Senior Fellow, Economics of Fiscal Policy, The Heritage Foundation; Dr. Michelle Hanlon, Associate Professor of Accounting, Massachusetts Institute of Technology, Sloan School of Management.

     

    TechComm

    LEGISLATIVE ACTIVITY

    • Spectrum. The House Subcommittee on Communications and Technology failed to send a spectrum recommendation by the October 14 deadline to the Joint Select Committee on Deficit Reduction (Joint Select Committee) as many had predicted. Rather, Subcommittee Chairman Greg Walden (R-OR) has said that spectrum reform is too important to rush and that his panel will take up the bill in regular order as he continues discussions with his Democratic counterparts to forge a compromise bill. No date has been set for markup.
      Industry stakeholders had expected Chairman Walden to offer a marked-up House alternative to S. 911, the Senate Commerce Committee’s bill, by the October 14 deadline. While Walden did not, Senate Commerce Committee Chairman Jay Rockefeller (D-WV) and Ranking Member Kay Bailey Hutchison (R-TX) sent an October 14 letter to the Joint Select Committee endorsing their spectrum plan, which passed the Committee by a strong 21-4 bipartisan vote on June 8. S. 911 would reallocate the 700 MHz of spectrum known as the D-block to first responders and provide funding to build a nationwide interoperable public safety network.

      While the Congressional Budget Office said S. 911 would generate $6.5 billion for deficit reduction through incentive auctions of broadcast and satellite spectrum, Rockefeller and Hutchison opened the door to “possible ways to amend S. 911 to provide $10 billion in deficit reduction without compromising rural build out for public safety officials.” This statement has led some to question whether reallocation of the D-block, valued at approximately $3 billion, is up for discussion. S. 911 also contains R&D funding, which also may be at stake.
      The D-block remains the key sticking point between Republicans and Democrats on the House Communications and Technology Subcommittee, with panel Ranking Member Anna Eshoo (D-CA) acknowledging that she and her GOP counterparts may have to “agree to disagree” and vowing to offer an amendment on that point once the bill is slated for markup. Other points of negotiation include the governance structure of the public safety network and interoperability of devices on the network.

      Even as Subcommittee Chairman Walden works to craft a compromise spectrum bill, many stakeholders believe that the Joint Select Committee could consider a House spectrum plan without a markup from the Subcommittee, chiefly because House Energy and Commerce Committee Chairman Fred Upton (R-MI) serves on the Joint Select Committee. Either way, that leaves the Joint Select Committee with just about a month to compare any House proposal with S. 911, as it  closes in on a November 23 deadline to make its  own recommendations to both chambers about how to reduce the deficit pursuant to the Budget Control Act. With Senator John Kerry (D-MA), chairman of the Senate Communications, Technology, and the Internet Subcommittee, also serving on the Joint Select Committee, many stakeholders believe that the debate at the Joint Select Committee also may come down to whether to reallocate the D-block for public safety.

      The D-block’s reallocation and building a public safety network remain components of the President’s proposed America Jobs Act (Jobs Act), although the Senate has dealt several blows to that plan already. Last week, the  Jobs Act failed by nine votes to overcome a Republican-led filibuster, when a united GOP Conference and two moderate Democrats — Montana Senator Jon Tester and Nebraska’s Ben Nelson — prevented the plan from even coming for debate, arguing it spent too much with uncertain results to the economy.

      As a result, lawmakers from both parties have tried to carve out pieces of the President’s sprawling plan. On their first attempt at moving a piece of the jobs agenda, Democrats tried to advance the $35 billion state aid package, saying it would protect the jobs of 400,000 educators and thousands more first responders. On October 20, however, Democrats fell short of the 60 votes needed to move forward the $35 billion package.

      At the end of day, observers still believe that Congress will pass spectrum legislation later this year - most likely through whatever measure the Joint Select Committee adopts.

    REGULATORY ACTIVITY

    • Department of Homeland Security. On October 20, Department of Homeland Security Secretary Janet Napolitano announced the appointment of Mark Weatherford as the new Deputy Under Secretary for Cybersecurity for the National Protection and Programs Directorate (NPPD). This new position, created just last month, will focus on “ensuring robust cybersecurity operations and communications resilience for the Department.”

      Mr. Weatherford most recently served as the Vice President and Chief Security Officer of the North American Electric Reliability Corporation (NERC), where he directed the organization’s critical infrastructure and cybersecurity program. He has also previously served as the Chief Information Security Officer in the State of California’s Office of Information Security, and as Chief Security Officer for the State of Colorado, where he helped establish the state’s first cybersecurity program. Mr. Weatherford is a former Naval Cryptologic Officer
    • FCC Open Meeting. On October 27, the FCC will hold its monthly open meeting. At the meeting, the Commission will consider: 1) a Notice of Proposed Rulemaking (NPRM) to reform the Universal Service Fund to support Broadband services; 2) an NPRM to replace television broadcast stations' public files with online public files to be hosted by the Commission; and 3) a status report by the Public Safety and Homeland Security Bureau on preparations for the national test of the Emergency Alert System to be held on November 9, 2011.
    • Next Generation 911. On September 22, 2011, the Federal Communications Commission adopted a Notice of Proposed Rulemaking (NPRM) in the Next Generation 911 (NG911) proceeding. The NG911 NPRM seeks comment on a number of issues related to accelerating the development and deployment of NG911 technology that will enable the public to send emergency communications to 911 Public Safety Answering Points (PSAPs) via text, photos, videos and data, and enhance the information available to PSAPs and first responders for assessing and responding to emergencies. On October 12, 2011, the Federal Register published a summary of the NG911 NPRM. Comments must be filed on or before December 12, 2011, and reply comments must be filed on or before January 10, 2012.

     

    Transportation

    LEGISLATIVE ACTIVITY

    SAFETEA-LU Reauthorization

    Senate Action

    • On October 20, Senate Environment and Public Works Chairman Barbara Boxer (D-CA) made the major announcement that the committee would be marking up the highway title of a two-year reauthorization bill on November 9. The mark-up, which would be the first in the 112th Congress and the first real mark-up of reauthorization legislation since SAFETEA-LU expired, has been long delayed as Chairman Boxer waited for the Senate Finance Committee to identify the $12 billion in additional revenue needed to fund a two-year bill at current levels. As discussed below, it remains unclear whether or not the Senate Finance Committee will agree on revenue offsets before the November 9 markup. Chairman Boxer has continued to press Chairman Max Baucus (D-MT) to produce the revenue title while also working to gain the consent of the bipartisan leadership of the transportation authorizing committees to move forward with her mark-up should the Finance Committee not act beforehand.
    • Senate Finance Committee Chairman Max Baucus (D-MT) is reportedly focusing on presenting the committee with at least two revenue options, but has not yet decided on the direction. The first would use narrow health-related savings totaling $13 billion over 10 years as the offset; and the second would end certain exceptions to the current fuel tax and address fuel-related theft and tax fraud to raise a similar amount. The timing of action in the Finance Committee remains in doubt as there continues to be reluctance to bringing forward a revenue package outside of the Super Committee process; and as most observers believe that all major revenue and spending decisions will be postponed until after the Super Committee issues its recommendations.
    • Reflecting the potential role of the Super Committee, Chairman Boxer joined Ranking Member Inhofe in urging the Super Committee to address the long term solvency of the Highway Trust Fund (HTF) in its recommendations. In their joint letter to the Super Committee, Senators Boxer and Inhofe asked the Super Committee to follow the example of the National Commission on Fiscal Responsibility and Reform and the Gang of Six, both of which included revenue proposals that would provide long-term stability to the HTF at current funding levels.

    House Action

    • The House Republican leadership continues to explore revenue options that would enable action on a six-year transportation bill at or near current funding levels. Speaker John Boehner (R-OH) has given several indications that he views the surface transportation bill as a potentially central element of a Republican jobs agenda. The Republican leadership is focusing on linking the revenue needed to fund a six-year bill to additional domestic energy production, where the funding gap would be met with new revenue from the sale of new oil and gas lease rights on Federal lands, plus a possible new tax negotiated with the oil and gas industry for new leasing rights.
    • Notably, Chairman Mica, in his recommendations to the Super Committee, stated that because “both Chambers are currently working to identify appropriate revenues to finance [surface transportation] spending” that he would not be asking the Super Committee to address the solvency of the HTF. As the House continues to explore revenue options, there is still no timetable for release or mark-up of the House legislation.

    Transportation Appropriations

    • Under a unanimous consent agreement, the Senate on October 21 voted to invoke cloture on the “minibus” appropriations bill (H.R. 2112), which includes the Transportation, Housing and Urban Development Appropriations Act. By the terms of the agreement, the remaining amendments will remain in order and will be voted on when the Senate returns to session on Monday, October 31, after which the Senate will vote on final passage. A number of transportation related amendments have been considered, but none have been adopted making any significant policy or funding changes to transportation programs. Notably, the Senate voted to table Senator John McCain’s (R-AZ) amendment that would prohibit transportation enhancement funds from being used on “lower-priority projects,” such as transportation museums, scenic beautification, scenic or historic highway programs and landscaping.
    • There are major differences between the House and Senate versions of the transportation appropriations bill that will have to be reconciled. The House bill sets a dramatically lower obligation limitation for HTF programs, whereas the Senate maintains the obligation limitation at current levels. In light of the six month SAFETEA-LU extension at current levels, it is likely that the obligation limitation will track this authorized level. On the discretionary side, the House bill eliminates funding for the TIGER program, funds New Starts at $1.56 billion and makes significant cuts to Amtrak. The Senate version increases funding for TIGER and New Starts (providing $1.95 billion) and maintains Amtrak funding, meeting its budget authority target instead through more extensive cuts and rescissions to HUD programs. The Senate bill also provides that Bus Rapid Transit (BRT) projects are to be funded out of the discretionary Bus and Bus Facilities account, thus freeing additional funds for rail projects in the New Starts pipeline. In addition, the House bill includes a provision that would limit the maximum federal share for Full Funding Grant Agreements (FFGAs) to 50 percent, which would affect a number of projects in the pipeline, while the Senate maintains the maximum federal share at 60 percent. 

    American Jobs Act / National Infrastructure Bank

    • It remains unclear whether the $50 billion transportation spending proposal in the American Jobs Act will be brought up for a vote in the Senate. Any vote, however, would be symbolic as the proposal is not expected to garner the 60 votes needed for passage -- and as it will not be brought up for a vote in the House. Many supporters of infrastructure spending have called for a focus on the multi-year reauthorization as opposed to an additional, one-time infusion.
    • The President’s proposal for a National Infrastructure Bank (NIB), capitalized with an initial $10 billion, has also been met with significant resistance. Efforts by Senator Charles Schumer (D-NY) to pair the NIB with a tax repatriation holiday for foreign income ultimately did not gain traction in the Senate, facing resistance to both the NIB and tax proposals. It remains to be seen whether there will be any further Senate push on the NIB legislation.
    • In the House, the Transportation and Infrastructure Subcommittee on Highways and Transit held a hearing on October 12 titled, “National Infrastructure Bank: More Bureaucracy & More Red Tape” that was overall highly critical of the NIB proposal, although the NIB did receive some support from committee Democrats. Chairman Mica subsequently stated that a NIB is “dead on arrival in Congress,” prompting Secretary of Transportation Ray LaHood to conceded that a NIB is “probably…not going very far.” Chairman Mica has instead called for expanding and reforming existing innovative financing programs like State Infrastructure Banks, TIFIA, RRIF and Private Activity Bonds.