Capital Thinking Update - February 6, 2012

    View Author 6 February 2012

    General Legislative

    On Monday, February 6, 2012, the House will meet at 12:00 p.m. for morning hour and at 2:00 p.m. for legislative business. The following bills will be considered under suspension of the rules: the “Corolla Wild Horses Protection Act” (H.R. 306); a bill to provide the Quileute Indian Tribe Tsunami and Flood Protection (H.R. 1162); and the “New York City Natural Gas Supply Enhancement Act,” as amended (H.R. 2606). Thereafter, the House will proceed to consideration of the “Civilian Property Realignment Act” (H.R. 1734). The Senate will convene at 2:00 p.m. for a period of morning business. Thereafter, the Senate will begin consideration of the conference report to accompany the “FAA Modernization and Reform Act of 2012” (H.R. 658).   

    Budget, Appropriations


    • Senate Appropriators Extend Earmark Moratorium While Vote on Permanent Earmark Ban Fails. On Thursday, February 2, Senate Appropriations Committee Chairman Daniel Inouye (D-HI) announced the committee will extend the ongoing earmark ban through FY 2013. (At the beginning of the 112th Congress, the House imposed an earmark ban to cover FY 2011 through FY 2013; the Senate soon followed with a ban that encompassed FY 2011 and FY 2012). In making the announcement, Chairman Inouye reiterated his support for earmarks, stressing the Constitutional rights and better judgment of Members in determining the funding needs of their districts / states. He noted, however, the current focus of the President and Congress should remain on spending, revenues and entitlements; and therefore, the earmark ban should continue through FY 2013.
      Shortly after Chairman Inouye’s announcement, however, the Senate rejected a permanent earmark ban. Senators Pat Toomey (R-PA) and Claire McCaskill (D-MO) offered the Earmark Elimination Act (S. 1930) as an amendment to the Stock Trading on Congressional Knowledge (STOCK) Act (S. 2038). The amendment failed by a vote of 40 – 59 (60 votes were required for passage).

      The vote may represent the high water mark of the anti-earmark movement in the Senate. As a vote on an underlying bill destined for passage (the STOCK Act subsequently passed 96 – 3), the amendment vote has broader political implications than those on bills that will not pass, in which they are primarily used as political expressions. This is particularly true in an election year, when such votes are open to significant public scrutiny.

      Moreover, leading up to and following the vote, several senior Republican Senators (primarily appropriators) including Thad Cochran (R-MS), Lamar Alexander (R-TN), and James Inhofe (R-OK), expressed sentiments similar to Chairman Inouye in support of the earmarking practice. Even National Republican Senatorial Committee Chairman John Cornyn (R-TX), while voting in favor of the ban, indicated it was a topic that still needed discussion. In particular, Senate Majority Leader Harry Reid (D-NV) has expressed that he believes the Congressional earmarking practice will return and Senate Minority Leader – and Appropriator – Mitch McConnell (R-KY), while voting for the amendment, is also a longtime earmarker and has remained somewhat mum on the topic of an earmark ban. Thus, we believe that no matter which party is in the majority next year, there is strong potential for the return of Senate earmarks in FY 2014.
    • Senate Will Not Vote on an FY 2013 Budget Resolution. Despite the January 24 announcement by Senate Budget Committee Chairman Ken Conrad (D-ND) that the committee would hold a markup of an FY 2013 budget resolution in March, Majority Leader Harry Reid (D-NV) indicated on Friday, February 3, that he will not allow a vote on a budget resolution because it is unnecessary, given the FY 2013 discretionary spending cap of $1.047 trillion was already established in the Budget Control Act of 2011 (P.L. 112-25). It remains unclear how the Majority Leader's statement will impact Chairman Conrad's plan. According to Speaker Reid, Senate Appropriations Chairman Daniel Inouye has already given his subcommittees instructions to begin work on the FY 2013 spending bills.
    • House Moves Budget Reform Proposals. Two of the budget reform bills approved by the House Budget Committee were passed by the House last week: (1) The “Pro-Growth Budgeting Act” (H.R. 3582, which would require a Congressional Budget Office (CBO) analysis of the U.S. economic impact for all major legislation, a supplemental budget baseline projection following the submission of the President’s Budget Proposal, and a 40-year budget outlook by July 1 of each fiscal year); and (2) The “Baseline Reform Act” (H.R. 3578, which would lower discretionary spending by removing annual automatic inflation increases and require the CBO to report a 40-year projection of the budget baseline assuming the extension of current tax policies by July 1 of each fiscal year).

      Two additional budget reform bills are expected on the House floor this week: (1) the “Budget and Accounting Transparency Act” (H.R. 3581, which would require the use of “fair value” methodologies which take into account risk as well as borrowing costs when calculating costs of federal credit program); and (2) The “Expedited Line-Item Veto and Rescissions Act (ELIVRA)” (H.R. 3521, which would provide the President with the authority to request the rescission of earmarks, duplicative programs and other non-entitlement spending from appropriations bills).
    • Efforts to Avoid Sequestration. On Friday, February 3, Senators Jon Kyl (R-AZ), John McCain (R-AZ), John Cornyn (R-TX), Lindsey Graham (R-SC), Marco Rubio (R-FL) John Thune (R-SD), and Kelly Ayotte (R-NH) introduced the “Down Payment to Protect National Security Act” (S. 2065). Similar to the bill introduced in the House by Armed Services Chairman Howard McKeon (H.R. 3662), the bill would replace $109 billion in sequestration cuts scheduled to go into effect in January 2013 through a 10-year reduction in the federal workforce. While Chairman McKeon’s bill proposes a 10 percent workforce reduction, the Senate bill proposes only a five percent reduction. However, the Senate bill also proposes to extend the current federal civilian employee pay freeze through June 2014 (on February 1, the House passed H.R. 3835 which would extend the pay freeze through December 2013).




    • Hearing on College Affordability. On Thursday, February 2, the Senate Health, Education, Labor and Pensions (HELP) Committee held a hearing on “Innovations in College Affordability.” In his opening statement, Chairman Tom Harkin (D-IA) stated that student loan debt, valued at over $1 trillion, now exceeds credit card debt in America. During the hearing, Chairman Harkin also remarked that the HELP Committee needs to start examining college costs, including college athletic programs and constructing new dorms. Senator Lamar Alexander (R-TN) also raised concerns about high interest rates on government student loans.

      As reported in last week’s edition of Capital Thinking Weekly Update, Representative Joe Courtney (D-CT) introduced legislation (H.R. 3826) to make permanent the 3.4 percent interest rate for Federal Direct Subsidized Stafford Loans. In 2007, the “College Cost Reduction and Access Act” lowered subsidized Stafford student loan rates from 6.8 percent to 3.4 percent over a four-year period.


    • Draft Cohort Default Rates. The Department of Education will release the draft two-year cohort default rate (CDR) on February 13 and the draft three-year cohort default rate on February 20. The cohort default rate is the percentage of student borrowers who enter repayment on select federal loan programs during the relevant cohort year and defaulted by the end of the next fiscal year.

      In September 2012, the Department will publish the final cohort default rates. This is the first year the Department will issue three-year CDRs as directed under the Higher Education Opportunity Act (HEOA) enacted in August 2008. 




    • FY2013 Budget Proposal. The Administration’s FY 2013 budget proposal –- to be transmitted to Congress on February 13, one week after the statutory deadline for submission –- is expected to include temporary proposals to extend $5 billion worth of clean energy tax credits, including the Advanced Energy Manufacturing Tax Credit and the Production Tax Credit. Consistent with a point made in his State of the Union Address, the President is also likely to call for the repeal of all tax preferences that benefit the oil and gas industry, including the section 199 deduction and the write off for intangible drilling expenses. While Members of Congress will be under significant pressure to extend expired or expiring green energy tax credits, it will be difficult in the near-term to secure the funding to “pay for” their extension given budgetary constraints and disparate regional interests in an election year.
    • Nuclear. Following release of a report by the Blue Ribbon Commission on America’s Nuclear Future, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) has said that implementing those recommendations will require legislation and “the political consensus needed to enact a bill into law.”
    • Congressional Hearings. On Wednesday, February 8, a House Energy and Commerce Subcommittee will hold a hearing focused on consumer impacts from EPA’s pending Maximum Achievable Control Technology rule that is intended to reduce mercury and air pollution from coal- and oil-fired power plants (popularly referred to as the “Utility MACT” Rule). The Senate Energy and Natural Resources Committee is scheduled to receive testimony on the Department of Energy’s FY 2013 budget proposal on February 16.


    • Offshore Renewables. The Bureau of Ocean Energy Management (BOEM) has formally released Form 0008 in final form, which will be used to issue commercial renewable energy leases on the Outer Continental Shelf (OCS) effective February 21. BOEM has also requested information about, and is soliciting nominations for, commercial leases to potentially develop offshore wind off the coasts of Maryland and Virginia. Nominations must be submitted by March 19. The Bureau has also noticed the availability of the Environmental Assessment and Finding of No Significant Impact documentation for commercial wind leases and site assessments for the mid-Atlantic.
    • Offshore Wind Funding. The Department of Energy (DOE) will host a pre-solicitation public meeting on Tuesday and is requesting comments through February 14 on a planned Funding Opportunity Announcement for advanced technology offshore wind demonstration projects.
    • OCS Floating Hotels. The Coast Guard has requested that stakeholder comments on appropriate standards for the design, construction and operation of all vessels providing accommodation services on the OCS be submitted by May 1.
    • National Offshore Safety Advisory Committee. The Committee is scheduled to meet via teleconference on February 15.
    • Ultra-Deepwater Advisory Committee. The Committee is scheduled to meet in Houston, Texas on March 1 to discuss the Draft 2012 Annual Plan.




    • Water Storage. On Tuesday, February 7, the House Committee on Natural Resources, Subcommittee on Water and Power will hold an oversight hearing on water and job creation, specifically on regulatory barriers to new surface storage infrastructure for western communities.
    • Nuclear Future. On Wednesday, February 8, the House Committee on Science, Space and Technology will hold a full committee hearing concerning assessing America’s nuclear future and will review the Blue Ribbon Commission’s Report to the Secretary of Energy.


    • Greenhouse Gas Emissions. The Environmental Protection Agency (EPA) will make available, for the first time, comprehensive greenhouse gas (GHG) data reported directly from large facilities and suppliers across the country to the public through EPA’s GHG Reporting Program. GHG data for 2010 is now available and includes information from facilities in nine industry groups that directly emit significant quantities of GHGs.

      GHG data for direct emitters show that in 2010:
      • Power plants were the largest stationary sources of direct emissions, followed by petroleum refineries.
      • CO2 accounted for the largest share of direct GHG emissions with 95 percent, followed by methane with 4 percent, and nitrous oxide and fluorinated gases accounting for the remaining 1 percent.

        Access to EPA’s GHG Reporting Program Data and Data Publication Tool can be found online here
    • Offshore Wind. The Wind and Water Power Program (WWPP) within the U.S. Department of Energy’s (DOE) Office of Energy Efficiency and Renewable Energy will release a Funding Opportunity Announcement (FOA), tentatively titled ‘‘U.S. Offshore Wind: Advanced Technology Demonstration Projects.” The WWPP is planning a pre-solicitation public meeting in order to provide notice in advance of release of the FOA and to afford prospective applicants an opportunity to comment on the planned FOA. DOE will hold a public meeting on Tuesday, February 7, 2012 from 9:30 a.m. to 12:30 p.m. EST at the L’Enfant Plaza Hotel, 480 L’Enfant Plaza Southwest, Washington, DC. Written comments will be accepted through February 14, 2012.
    • Offshore Oil and Gas. The EPA is proposing to reissue the National Pollutant Discharge Elimination System (NPDES) General Permits for Oil and Gas Exploration Facilities on the Outer Continental Shelf and Contiguous State Waters in the Beaufort Sea and on the Outer Continental Shelf in the Chukchi Sea. As proposed, the Beaufort and Chukchi general permits would authorize thirteen types of discharges from facilities engaged in field exploration and drilling activities under the Offshore Subcategory of the Oil and Gas Extraction Point Source Category (40 CFR Part 425, Subpart A), as authorized by Section 402 of the Clean Water Act, 33 U.S.C. 1342. The public comment period for the draft Beaufort and Chukchi general permits ends March 30, 2012.
    • Beach Clean Up. The EPA announced that it will provide nearly $10 million in grants to 38 states, territories and tribes to help protect the health of swimmers at America’s beaches, known as BEACH Act Grants. The agency also launched an upgraded website for beach advisories and closings, in order to allow the public to more quickly access the most current water quality and pollution testing information for more than 6,000 U.S. beaches.

      The website, called BEACON, has the capability to update as frequently as every two hours based on new data provided by states, territories, and tribes. Users will have access to mapped location data for beaches and water monitoring stations, monitoring results for various pollutants such as bacteria and algae, and data on public notification of beach water quality advisories and closures. For the first time, users can also access reports that combine notifications and water quality monitoring data.

      The majority of beach advisories and closures in the United States are due to water test results indicating bacterial contamination, which can make people sick. Bacterial contamination comes from a variety of sources. Some examples are sewer overflows, untreated stormwater runoff, boating wastes, wildlife and pet waste, and malfunctioning septic systems.

      EPA’s enhanced beach advisory and closing information can be obtained online here

      States and territories may obtain information concerning applying for BEACH Act grants on EPA's website here.


    Financial Services


    • Senate Banking Committee Approves Iran Sanctions Bill. On Thursday, February 2, the Senate Banking Committee approved the Iran Sanctions, Accountability and Human Rights Act of 2012 on a bipartisan basis. The proposal would address banking transactions with Iran and financing for its oil shipments, among other activities in the financial services sphere. It remains to be seen whether the Foreign Relations Committee will assert concurrent jurisdiction over the legislation.
    • House Subcommittee to Discuss Extraterritorial Application of the Dodd-Frank Act. On Wednesday, February 8, the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises will hold a hearing to examine legislative proposals to limit the extraterritorial impact of the Dodd-Frank Act. One of the proposals to be considered is the “Swap Jurisdiction Certainty Act” (H.R. 3283), a bipartisan proposal offered by Congressman Scott Garrett (R-NJ) and Jim Himes (D-CT).
    • House Subcommittee to Consider Housing Legislative Proposals. On Tuesday, February 7, the House Financial Services Insurance, Housing and Community Opportunity Subcommittee will markup two proposals related to Federal housing policy: the Affordable Housing and Self-Sufficiency Improvement Act of 2012 and the FHA Emergency Fiscal Solvency Act of 2012.
    • House Subcommittee to Discuss CFPB. On Wednesday, February 8, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit will hold a hearing to discuss legislation concerning accountability and transparency at the Consumer Financial Protection Bureau (CFPB). Proposals will include the Bureau of Consumer Financial Protection Accountability and Transparency Act of 2011 (H.R. 1355) and H.R. 2081, which would remove the CFPB Director from membership on the Board of Directors of the Federal Deposit Insurance Corporation (FDIC).


    • SEC and CFTC Issue Joint Report on Global Swap Regulation. On January 31, the SEC and CFTC issued a report mandated by the Dodd-Frank Act on global swap regulation. The report concludes that global swap regulation is still developing and that U.S. regulators must continue to work closely with other domestic and foreign regulators to analyze requirements and to coordinate regulatory proposals to the greatest extent possible.


    • President Obama Proposed Initiatives to Help Responsible Homeowners and Heal the Housing Market; Geithner Predicts No Legislation Until 2013. On Wednesday, February 1, President Obama released his latest plan to help stabilize the housing market. The proposal, which would require legislation by Congress, would cost $5 to $10 billion and, among other things, allow borrowers to refinance mortgages into new loans backed by the Federal Housing Administration (FHA), reducing payments by as much as $3,000 per year. The White House proposes that the costs be subsidized by a tax on the largest depository institutions. At a press conference at the Treasury Department, Secretary Timothy Geithner admitted it is unlikely that legislation on this issue will progress until after the 2012 elections.


    Health Care


    • Doc Fix/Health Extenders. House and Senate conferees continued to meet this week to negotiate an extension of the payroll tax, unemployment insurance and physician fee fix package. While Members discussed the appropriate policies underlying each of these provisions, the conference committee has not yet found consensus on the central issue of whether and how to offset the cost of this legislation. House Republicans continue to support offsets, including reductions to hospital outpatient department evaluation and management services and bad debt payments, while Senate Democrats seem less inclined to include drastic hospital cuts. The committee will meet again next week.
    • House Approves CLASS Repeal. This week, the House approved by unanimous consent a bill that would repeal the Community Living Assistance Services and Support (CLASS) program which has already been deferred by the Obama Administration. While the Democratic Leadership in the Senate will not take up the measure, the legislation joins a group of House-passed bills that would undo specific provisions included in the Affordable Care Act.
    • Energy and Commerce Hearing. On Tuesday, February 7, the House Energy and Commerce Health Subcommittee will hold a hearing on the new Generic Drug User Fee proposal and Biosimilar User Fee proposal, which will bring additional funds to the FDA to help alleviate the backlog of generic drug applications. Members will also continue to discuss the ongoing issue of drug shortages. Dr. Janet Woodcock, Director of the Center for Drug Evaluation and Research, Food and Drug Administration, is scheduled to testify with additional witnesses to be announced.
    • House Ways and Means Hearing. On Tuesday, February 7, the House Committee on Ways and Means Health Subcommittee will hold a hearing on Programs that Reward Physicians Who Deliver High Quality and Efficient Care. The hearing will focus on innovative quality and efficiency recognition and reward programs developed by physicians and private payers.
    • Energy and Commerce Hearing. On Wednesday, February 15, the House Energy and Commerce Health Subcommittee will hold a hearing on the reauthorization of the Medical Device User Fee Act, which expires on September 30, 2012. These user fees fund FDA’s premarket device applications. Dr. Jeffrey Shuren, Director, Center for Devices and Radiological Health of the Food and Drug Administration will testify.


    • Medical Device Regs. The Internal Revenue Service (IRS) released a notice of proposed rulemaking and public hearing regarding the implementation of a medical device tax under section 4191 of the internal revenue code, as required by the Affordable Care Act. The proposed regulations affect manufacturers, importers, and producers of taxable medical devices. The proposed rule explains the definition of a taxable medical device and clarifies certain exemptions included in the law. The notice also provides information regarding a public hearing on the proposed regulations on May 16, 2012 at 10:00 a.m. Comments will be accepted until May 7, 2012.


    International, Defense, Homeland Security

    • Iran Developments. On Thursday, February 2, the Senate Banking Committee approved, by voice vote, draft legislation to further tighten sanctions on persons or entities involved with Iran’s energy, financial or security sectors. The bill, co-sponsored by Committee Chairman Tim Johnson (D-SD) and Ranking Member Richard Shelby (R-AL), includes several key elements. The legislation would mandate that firms registered with the U.S. Securities and Exchange Commission (SEC) disclose their Iran-related joint ventures to the SEC. The SEC would then investigate further whether the transactions provide sanctionable support to Iran’s conventional energy sector, its nuclear program, or its armed forces. In addition, as a result of a managers’ amendment approved during Thursday’s markup, the President could sanction individual financial institutions that are part of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), if SWIFT does not bar Iranian banks already sanctioned under current European and U.S. laws.

      The Johnson-Shelby legislation also targets persons who conduct transactions with Iran’s Revolutionary Guard or other specifically identified Iranian human rights violators. If enacted into law, the bill would bar such persons’ entry into the United States and would authorize the freezing of their U.S. assets. Moreover, the managers’ amendment includes a provision requiring the Administration to sanction personally Iranian President Mahmoud Ahmadinejad and other senior Iranian officials involved in proliferation projects. Similarly, Senator Robert Menendez (D-NJ) succeeded in including an amendment to sanction the National Iranian Oil Company and the National Iranian Tanking Company, if the U.S. Department of the Treasury concludes they are affiliates of the Revolutionary Guard.

      Meanwhile, despite the drive toward tighter U.S. and multilateral sanctions against Iran and the effect of existing sanctions on Iran’s economy, Israel has again signaled that its tolerance for a sanctions-only approach is finite. Israeli Defense Minister Ehud Barak conveyed that message in comments last Thursday, where he said those counseling patience on a military option against Iran may come to realize that “later is too late.” In other words, Israel may consider a unilateral military strike within months, if a diplomatic breakthrough or a sanctions-spurred economic breakdown does not occur.
    • Cybersecurity Developments. Despite the efforts of the Obama Administration, Senate Majority Leader Harry Reid (D-NV), Senate Commerce Committee Chair Jay Rockefeller (D-WV), Senate Homeland Security Committee Ranking Member Susan Collins (R-ME), and other Senate advocates, a comprehensive cybersecurity bill was not introduced in the Senate last week. Senator Reid would like to schedule floor consideration for cybersecurity legislation for mid-February, but opposition from significant parts of the U.S. business community and many Senate conservatives suggests the Majority Leader cannot garner 60 votes for the current version of the bill. The U.S. Chamber of Commerce and other private-sector groups have opposed proposed language to require regular audits of companies’ security infrastructure.

      On the House side, the House Homeland Security Committee’s (HHSC) Cybersecurity Subcommittee did manage to pass Subcommittee Chairman Dan Lungren’s (R-CA) cybersecurity legislation, H.R. 3674, last Wednesday. HHSC Chairman Peter King (R-NY) is expected to call up the bill for full Committee consideration in the near future. Among other provisions, Congressman Lungren’s bill specifies the Department of Homeland Security will coordinate information-sharing with the private-sector, whereas cybersecurity legislation sponsored by Intelligence Committee Chairman Mike Rogers (R-MI) and Ranking Member Dutch Ruppersberger (D-MD), H.R. 3523, does not address the issue. House Speaker John Boehner (R-OH) ultimately may decide to blend the HHSC and Intelligence Committee bills, if the House Republican Leadership decides to take action on comprehensive cybersecurity legislation later this year.
    • Body Scanner Developments. Last week was a challenging one for supporters of the X-ray-based “backscatter” form of Advanced Imaging Technology (AIT) “body scanners.” First, the Conference Report for the legislation to reauthorize the Federal Aviation Administration (FAA), H.R. 658, which passed the House on Friday and is expected to pass the Senate this week, contains a provision urging the Transportation Security Administration (TSA) to install privacy filters on all 780 of its deployed AIT machines by June 1. The filters translate detailed images of scanned passengers into more general “stick figures” that nevertheless display items of concern. The 540 radio-based “millimeter wave” AIT units, manufactured by L-3, already contain such filters. However, TSA and manufacturer Rapiscan have not yet been able to install effective filters onto the 240 “backscatter” units deployed in U.S. airports. Still, the FAA Conference Report allows TSA to extend the annual deadline, if the filters are not yet effective and if TAA files an accompanying progress report.

      Meanwhile, Senator Collins introduced legislation (S. 2044) on Tuesday, January 31, that would require TSA to commission an independent examination to study the health effects of “backscatter” radiation. TSA’s Inspector General and most third-party experts believe the minimal radiation emitted by backscatter AITs to be safe, but Senator Collins and others believe TSA has not been forthcoming on the issue. Furthermore, since millimeter wave AITs emit no radiation, Senator Collins has stated she is unclear why TSA has pushed forward with the backscatter alternative.




    • House and Senate Continue Conferencing Payroll Tax/Unemployment Insurance/Doc Fix Legislation. On Wednesday, February 1 and Thursday, February 2, the Conference Committee held its second and third meetings on the payroll tax, unemployment insurance and Medicare physicians payment fix – or the so-called “doc fix” – legislation. In December, Congress passed a two-month extension of the bill, which was fully offset by an increase in fees charged by Fannie Mae and Freddie Mac to lenders. As part of the two-month deal, the House and Senate agreed to conference on House-passed legislation that would extend all three provisions through the end of 2012 at an approximate cost of $150 billion (for a 10-month extension). The House bill also included a provision forcing the Administration to make a decision on the Keystone XL Pipeline within 60 days; for the time being, the President has rejected the pipeline proposal, stating that the 60-day deadline leaves too little time for State Department review of the project.

      While the Committee’s first meeting on January 24 was general in nature, House Conference Committee Chairman Dave Camp (R-MI) sought to focus the meetings this week on particular issues. At the Wednesday, February 1 meeting, Chairman Camp asked that the Committee only consider the underlying policies of whether to extend the payroll tax holiday, extend UI benefits and agree on a “doc fix,” while leaving aside contentious issues of offsets and the Keystone XL Pipeline. Although designed in such manner, the discussion did inevitably turn to offsets – both as to whether the bill should be offset and, if so, what offsets should be utilized. Democrats argued that such extensions are emergency measures that have not historically been offset, while Republicans countered that the U.S. is facing extreme deficit problems and must take a more fiscally prudent approach by “paying for” such measures. Senate Conference Committee Chairman Max Baucus (D-MT) and the Democrats conceded that the measure will most likely be offset and argued that, if so, it be paid for through a combination of tax increases on high-income earners and the closing of corporate tax “loopholes.” Most Republicans called for the legislation to be fully offset with spending cuts.
      At the third meeting on Friday, February 3, Democrats and Republicans agreed that the final legislation should include a 100 percent bonus depreciation provision for capital expenditures made in 2012 (increasing the 50 percent bonus for 2012 currently in law). This would permit employers to write-off investments on capital expenditures in the year of purchase. Democrats, led by Chairman Baucus, also called for the inclusion of other recently-expired business and individual tax extenders in the final legislation, including the R&D tax credit and the above-the-line deduction teachers can take for certain education expenses. However, while acknowledging the importance of at least certain tax extenders, Chairman Camp maintained that the discussion in the Conference Committee should remain within the scope of the House and Senate passed bills.
    • House Ways and Means Holds Markup of H.R. 3826. On Friday, February 3, the Ways and Means Committee marked up a financing package for a five-year surface transportation reauthorization, reporting out the measure on a largely party-line vote (20–17). The legislation is part of a broader bill that House Republicans intend to bring to the floor later this month.

      The Senate Finance Committee continues to debate offsets for its own two-year highway and transit plan.

      Under present law, revenues from the highway excise taxes (including motor fuels taxes), as imposed through March 31, 2012, are generally dedicated to the Highway Trust Fund, which has a separate account for mass transit. The Mass Transit Account is funded by a portion of the motor fuels taxes. H.R. 3864 extends the highway excise taxes, at their current rates, through September 30, 2018. It also ends the transfer of motor fuel tax amounts to the Mass Transit Account, and instead funds the account with a one-time appropriation of $40 billion from the general fund. At the markup, Republicans proffered that the proposal would provide more money for the Mass Transit Account than it would have under current provisions and provides longer term security for the Mass Transit Account because of a five year extension. Democrats argued that the general fund transfer would increase the deficit and that it also subjects the Mass Transit Account to an unreliable appropriations process. Democratic amendments, one from Representative Earl Blumenauer (D-OR) striking Section 5 of H.R. 3826 and one from Representative Richard Neal (D-MA) on bond programs, were both rejected on a party-line vote (22-15).
    • Tax Hearings Next Week. The following hearings are scheduled next week in the House Ways and Means and Senate Finance Committees:

      Tuesday, February 7:  House Ways and Means Health Subcommittee hearing on “Programs that Reward Physicians Who Deliver High Quality and Efficient Care.”

      Wednesday, February 8: House Ways and Means hearing on “Interaction of Tax and Financial Accounting on Tax Reform.”


    • IRS Signals Release of FATCA Proposed Rules Near. On Thursday, February 2, an IRS official indicated that proposed regulations under the Foreign Account Tax Compliance Act (FATCA) should be issued soon. The proposed regulations are expected to include a reduced due diligence requirement for preexisting accounts, more administrable new account opening procedures and an extended phase-in period for both the reporting rules and the portion of the statute that imposes a withholding tax on so-called “passthru” payments. Enacted in 2010 as part of the “Hiring Incentives to Restore Employment (HIRE) Act,” FATCA imposes broad requirements on foreign financial institutions to report U.S.-owned accounts to the IRS. The IRS already has issued three major pieces of guidance under the statute: Notice 2010-60, Notice 2011-34 and Notice 2011-53. 



    • Spectrum. Industry stakeholders are keenly awaiting word whether spectrum reform will be included in the payroll tax holiday package that a House-Senate conference committee is debating, and if so, what provisions will be adopted. By all accounts, it is too early in the negotiating process to reach any conclusions. While no members of the Senate Commerce Committee are conferees, the chamber’s telecom leaders are said to be part of the conversation. In the House, Energy and Commerce Committee Chairman Fred Upton (R-MI) and Communications and Technology Subcommittee Chairman Greg Walden (R-WA) are conferees. The deadline for negotiations, however, is fast approaching as a short-term payroll tax holiday fix is set to expire at the end of the month and conferees must reach agreement on a long-term fix by then.

      The key points to be negotiated are ones that remain longstanding divides: the governance structure of the public safety broadband network, whether public safety should return narrowband spectrum to the Federal Communications Commission (FCC), the level of funding to build out the public safety broadband network, whether to allow unlicensed use in broadcast spectrum, and whether to restrict the FCC’s ability to set certain rules on spectrum auctions. Both the House and Senate spectrum bills call for reallocating the 700 MHz D block to public safety.

      Meanwhile, last week, Senator John Kerry (D-MA) and other critics of House spectrum legislation called for grass-roots opposition to the Jumpstarting Opportunity With Broadband Spectrum Act (JOBS Act), in part because it would bar the FCC from reserving spectrum in the television broadcast band for unlicensed use. They cited the recent outreach effort against online piracy legislation as an example. Former FCC Chairman Reed Hundt called the spectrum measure "the single worst telecom bill that I have ever seen."

      Senator Kerry, chairman of the Senate Communications, Technology and the Internet Subcommittee, and other speakers said that it is shortsighted to seek higher auction revenues at the expense of long-term innovation and economic growth. Others who attended a Capital Hill briefing sponsored by the New America Foundation's Open Technology Initiative and the Wireless Innovation Alliance said that setting spectrum aside for unlicensed use would yield higher auction revenues. They also stressed the promise of what some call Super Wi-Fi in unlicensed TV spectrum.

      Senator Kerry was one of four senators who recently wrote Senate Majority Leader Harry Reid (D-NV) and Senate Minority Leader Mitch McConnell (R-KY) to voice concerns with provisions in the “Middle Class Tax Relief and Job Creation Act of 2011” (H.R. 3630), which was passed by the House in December 2011 and included the JOBS Act.
      In addition to the unlicensed spectrum language, the bill would also bar the FCC from imposing auction eligibility limits on carriers to ensure competition - a concern the senators raised in their letter.
    • Cybersecurity. The Senate could drop a new version of its highly anticipated comprehensive reform bill sometime next week. Key members involved in the discussions have been circulating draft proposals for some time. Meanwhile, on Wednesday, February 1, a House panel approved legislation that would require the mostly privately operated national critical infrastructure to adopt information security standards to safeguard their IT systems and networks. The House Homeland Security Subcommittee on Cybersecurity, Infrastructure Protection, and Security Technologies approved by voice vote an amended version of the “Promoting and Enhancing Cybersecurity and Information Effectiveness (PRECISE) Act of 2011” (H.R. 3674). The bill was introduced on December 15, 2011, by Representative Dan Lungren (R-CA). The bill now heads to the full Committee on Homeland Security for consideration.




    • SAFETEA-LU Reauthorization.
      • Senate Action. On Thursday, February 2, the Senate Banking Committee approved, on a unanimous vote, a two-year reauthorization of the mass transit title. The bill maintains inflation-adjusted funding levels for two years and, while making significant reforms to New Starts and other transit programs, and leaves the fundamental structure of the Highway Trust Fund and Mass Transit Account intact. 
      • House Action. In a marathon 17-hour mark up on the same day, the House Transportation and Infrastructure Committee approved by a party-line vote of 29-24 the American Energy and Infrastructure Jobs Act. The House bill provides very near current funding levels for highways and transit for five years. It too makes significant reforms to individual programs, including New Starts. Some of these are of concern to urban transit systems, such as the creation of an $840 million formula program to replace the discretionary Bus and Bus Facilities program that is open only to bus-only systems.

        The issue of greatest stakeholder concern with the House bill, however, is the fundamental restructuring of the Highway Trust Fund, ending the 30-year practice of providing dedicated Highway Trust Fund revenues for mass transit. On Friday, February 3, the House Ways and Means Committee marked-up the revenue title with these fundamental structural changes, passing again by a party-line vote of 20 to 17.

        Under the House bill, mass transit programs (along with CMAQ and territorial highway programs) are transferred into a new Alternative Transportation Account. All gas tax and drilling-related receipts are deposited exclusively into the Highway Trust Fund. By contrast, the Alternative Transportation Account is funded by a one-time appropriation of $40 billion from the General Fund. The bill provides that the Alternative Transportation Account is contract authority, so annual appropriations would not be needed during the pendency of the bill. (Note that this is subject to a point of order because the Congress cannot provide contract authority without a user-fee basis, but the bill waives this point of order).
        The fundamental concern, however, is what would happen after this reauthorization period. Because this $40 billion is a one-time appropriation, after the funds are expended, there would no longer be any guarantee of funding for the nation's mass transit programs – or any source of funding for transit other than competing for new general fund appropriations. As for the $40 billion appropriation, the source of the offset has still not been disclosed, but it is rumored to be linked to increased pension contributions for federal workers. The offset is being handled by the House Leadership and will either be inserted at the Rules Committee or on the floor.
      • Next Steps. In both the House and Senate, there is an intention to move these bills to the floor quickly. In the Senate, the Finance Committee has yet to act to provide the $12-13 billion in offsets needed for a two-year bill at current funding levels. There was some indication that would happen this past week, but it has been pushed until at least next week, ostensibly as that Committee continues to search for a series of offsets that can garner bi-partisan support. On the House side, the Highway Trust Fund/Alternative Transportation Account issue – among many other issues, including the ANWR drilling provisions and other proposed offsets -- are all but certain to mean that there will be no Democratic votes for the bill, and that it will have to pass entirely with Republican votes. However, some conservative groups (such as the Club for Growth) have already attacked the bill from the right for not cutting funding, and have put Members on notice that they will include all votes on the reauthorization on their scorecard. A loss of approximately 25 Republican members would imperil the bill if, as fully expected, there are no Democratic votes. The House Leadership is whipping hard to get the votes, but will have to overcome significant challenges over the coming weeks to move the bill across the finish line.