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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

113t h CONGRESS OVERVI EW  

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CONGRESS RECAP

   

THE WHI TE HOUSE

CONGRESS: SENATE SENATE DEMOCRATS     The  2012  elections  were  an  unexpected  boon  for  Senate  Democrats,  turning  what  most   thought  would  be  a  year  in  which  Democrats  lost  the  Senate  majority  into  one  where  they   gained  two  seats.  But  even  though  they  increased  their  majority  to  55  seats,  Senate  filibuster   rules  –  especially  given  recent  practice  –  means  60  votes  are  still  required  for  Democrats  to   truly  control  the  Senate.    Even  with  new  curbs  on  the  filibuster,  60  votes  will  still  be  the  brass   ring  for  legislation  to  pass  the  Senate.    With  at  least  10  incumbent  Senate  Democrats  facing  re-­‐ election  in  2014  from  Red,  or  recently-­‐Purple  states,  the  challenge  is  even  greater  for  President   Obama’s  agenda.    However,  the  high  bar  to  Senate  passage  means  that  any  item  that  clears  the   Senate  hurdle  has  momentum  when  it  is  sent  to  the  House,  a  dynamic  that  proved  successful   on  budget-­‐related  deals  in  the  112th  Congress  and  one  which  will  be  in  play  in  the  113th.     Democratic  Agenda   Not  all  Senate-­‐passed  legislation  sailed  through  the  House  in  the  112th  Congress.    Notable   exceptions  were  the  Violence  Against  Women  Act,  the  farm  bill,  Postal  Service  reform,  and  the   Hurricane  Sandy  Supplemental  Appropriations  bill.    The  Senate  has  already  acted  again  this  year   on  a  bi-­‐partisan  basis  to  clear  a  new  version  of  the  Sandy  Supplemental,  similar  to  the  one  it   passed  in  the  waning  days  of  the  112th  Congress.    Majority  Leader  Reid  announced  in  January   that  the  Senate  would  revisit  the  other  major  Senate-­‐passed  legislation  that  failed  to  pass  the   House.         Senate  Democrats  in  late  January  also  laid  out  their  top  10  bills  for  the  113th  Congress  which,   other  than  a  reauthorization  of  a  veteran’s  employment  bill  and  the  farm  bill  reauthorization,   are  essentially  a  statement  of  Democratic  legislative  priorities  and  principles.  Included  in  this   list  are  resolutions  calling  on  Congress  to  act  on:    immigration  reform;  issues  resulting  from  the   2


2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

Sandy Hook  massacre  embodied  in  Vice  President  Biden’s  task  force  recommendation;   infrastructure  investment;  VAWA  reauthorization;  measures  to  prevent  the  impact  of  extreme   weather  events,  including  clean  energy  and  infrastructure  investments;  tax  loophole  reforms;   and,  election  and  campaign  finance  reforms.    Some  of  these  are  Democratic  perennials  but   others  are  a  new  response  to  recent  headline  news  events.    Either  way,  they  are  an  attempt  to   present  themes  that  have  widespread  popular  support  and  that  unify  the  Democratic  caucus.         Caucus  Dynamics   Among  these  caucus  members  are  a  number  of  Red-­‐  or  Purple-­‐state  freshmen  who  were  swept   into  office  during  the  Democratic  wave  election  of  2008  including  Senators  Hagan  (NC),  Warner   (VA),  Begich  (AK),  Shaheen  (NH),  and  Udall  (CO).    All  except  Warner  could  face  a  tough  re-­‐ election  challenge  and  even  Warner  will  likely  hew  to  a  moderate-­‐to-­‐conservative  line  based  on   past  performance.    Another  group  of  veteran  Democrats  will  face  the  voters  in  states  that  two   years  earlier  will  have  voted  decisively  against  President  Obama  including  Senators  Baucus   (MT),  Pryor  (AR),  Landrieu  (LA),  and  Johnson  (SD).    The  2014  Democrats  will  run  in  the   aftermath  of  a  big  class  of  nine  Democratic  freshmen  elected  in  2012,  three  of  whom,  Donnelly   (IN),  Heitkamp  (ND),  and  Kaine  (VA),  triumphed  in  challenging  climates  for  Democrats  and  one,   King  (ME),  will  look  to  maintain  his  independence  from  the  Democratic  caucus  as  much  as   possible.    At  the  same  time,  new  liberal  Democratic  women  Senators  Warren  (MA)  and  Baldwin   (WI),  illustrate  the  diverse  ideological  range  of  this  freshmen  class  –  and  the  Democratic  caucus   as  a  whole  –  which  will  be  a  blessing  and  a  curse  to  Democratic  leadership.       For  the  most  part,  Democratic  leaders  should  expect  unity  on  most  bread-­‐and-­‐butter  economic   issues  that  define  the  party  such  as  infrastructure  investment  and  veteran’s  employment.    On   other,  more  contentious  issues  such  as  gun  control  and  aspects  of  immigration  reform,   leadership  will  be  content  to  let  the  chips  fall  where  they  may  and  let  defectors  stray  with   impunity.    At  the  same  time,  the  Administration  will  actively  engage  its  campaign-­‐style   grassroots  operation  to  maximize  political  leverage  in  these  tough  debates  while  seeking  to   avoid  alienating  moderates  they  may  need  on  other  issues.         Filibuster  Changes   The  new  filibuster  rules  changes  and  standing  orders,  agreed  to  by  the  Senate  in  late  January,   give  incremental  momentum  to  efforts  to  speed  up  debate,  which  has  bogged  down  in  recent   years  on  all  but  the  most  important  and  bi-­‐partisan  legislation  and  nominations.    The  majority   can  still  choose  the  traditional  path  on  debatable  motions  to  proceed  –  file  cloture,  wait  two   days,  invoke  cloture  if  60  votes  are  attainable,  wait  up  to  30  more  hours.    More  likely  will  be  the   process  under  the  new  standing  order  (good  only  for  the  duration  of  the  113th  Congress)  where   debate  is  expedited  at  the  price  of  guaranteeing  the  minority  two  amendments  of  its  choosing.       In  recent  years,  both  parties  –  when  they’ve  been  in  the  majority  –  have  been  reluctant  to  allow   the  minority  to  offer  amendments  without  pre-­‐clearing  them.    The  prerogative  of  the  majority   leader  to  fill  the  amendment  tree,  and  block  minority  amendments,  has  resulted  in  a  chicken-­‐ or-­‐the-­‐egg  blame  game  where  the  minority  has  responded  by  blocking  the  majority’s  efforts  to   proceed  to  favored  legislation.    Now,  at  least  two  amendments  of  the  minority’s  choosing  will   be  voted  on,  although  the  rules  changes  allow  the  majority  the  indirect  route  of  tabling  the  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

minority’s amendments  by  a  majority,  not  a  supermajority,  vote.    But  it  has  been  this   reluctance  to  even  face  tough  votes  on  tabling  amendments  that  has  made  the  Senate  into  not   much  more  of  an  elite  debating  society,  with  dueling  political  messaging  strategies.         So,  in  order  to  make  progress  on  Democratic  agenda  items,  Majority  Leader  Reid  will  have  to   give  Republicans  votes  on  at  least  two  amendments,  no  matter  how  noxious  they  are  to  the   majority  of  Democrats,  or  tempting  to  vulnerable  moderate  Democrats.    This  will  be  a  feature   of  the  Senate  in  the  113th  Congress  that  bears  close  scrutiny.    If  there  is  bi-­‐partisan  satisfaction   with  this  baby  step,  it  could  be  made  permanent  in  the  Senate  rules  and  even  expanded-­‐upon   in  the  next  Congress.    Additionally,  the  reduction  in  post-­‐cloture  debate  time  on  sub-­‐cabinet   and  district  court  judicial  nominations  may  produce  an  incremental  uptick  in  executive  calendar   activity,  although  these  nominations  will  still  require  60  votes  if  they  face  determined   opposition.    This  may  be  the  only  consolation  available  to  the  Obama  Administration  in  the   wake  of  a  recent  court  decision  invalidating  the  President’s  pro  forma  recess  appointments  in   the  112th  Congress.     SENATE  REPUBLICANS     Senate  Republicans  now  hold  45  seats  and  remain  the  minority  opposition  to  the  President,   losing  two  seats  in  the  November  elections.    Senator  Mitch  McConnell  (R-­‐KY),  re-­‐elected   asMinority  Leader,  leads  a  more  conservative  conference  due  to  the  loss  of  moderates  from  the   caucus.    Senator  John  Cornyn  (R-­‐TX)  was  elected  Minority  Whip  while  Senators  John  Barrasso   (R-­‐WY)  and  John  Thune  (R-­‐SD)  kept  their  leadership  positions  also.     Significantly,  the  resolution  of  a  critical  debate  surrounding  Senate  rules  and  the  use  of  the   filibuster  avoided  an  otherwise  destructive  and  poisonous  issue.    By  working  out  an  agreement   with  Senate  Democrats,  the  agreement  sets  a  better  tone  for  the  collegial  body  beginning  its   work  in  the  133th  Congress.    The  critical  fiscal  issues  facing  the  Congress  early  in  the  session  will   be  a  true  test  of  the  rule  changes  and  the  early  comity  exhibited  in  the  Senate.        

CONGRESS: HOUSE OF REPRESENTATI VES HOUSE  REPUBLICANS     The  House  of  Representatives  will  have  fewer  moderates  and  as  a  result  be  more  polarized.     The  Republican  majority  will  focus  on  the  economy  and  the  need  to  stop  excessive  government   spending.    The  House  Republican  Leadership  will  adopt  a  more  deliberative  legislative  process   with  the  goal  of  confronting  Senate  Democrats,  and  not  the  President,  to  be  accountable  for   specific  policy  choices.    The  lesson  learned  from  the  past  Congress  was  the  Speaker  creates   dynamic  tension  within  his  party  when  he  secretly  negotiates  with  the  President,  a  member  of   the  opposing  party  and  it  is  impossible  to  govern  from  the  House  in  a  divided  government  with   the  opposing  party  controlling  the  Presidency.    

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

The Republicans  emerged  from  the  election  in  a  strong  position  in  the  House.    The  234  House   Republican  membership  is  the  second  largest  since  1947.    Republicans  overwhelmingly   represent  safe  congressional  districts  with  only  a  handful  elected  with  less  than  55%  of  their   electorate.    The  outlook  for  continued  Republican  control  through  the  remainder  of  the  decade   until  the  next  redistricting  occurs  is  likely.  The  election  saw  the  continued  reduction  in  the   number  of  conservative  Blue  Dog  Democrats  whose  seats  were  claimed  by  conservative   Republicans  and  the  defeat  and  departure  of  influential  moderate  Republicans  with  the  result   being  a  more  polarized  House  of  Representatives.    As  a  rule,  the  President  did  not  perform  well   against  Governor  Romney  in  the  Presidential  election  in  their  congressional  districts.  This  led  to   the  result  of  conservative  Republicans  being  elected  with  very  strong  margins  while  the   President  simultaneously  was  being  decisively  defeated  in  the  constituency.    House  Republicans   feel  they  are  instructed  delegates  representing  voters  who  solidly  backed  their  conservative   views  while  overwhelmingly  rejecting  the  President’s  reelection  and  his  first  term  policy  record.     This  view  is  best  summarized  by  a  widely  heard  opinion  “I  cannot  believe  the  President  won   because  everyone  I  know  voted  against  him”.     The  House  Republicans  risk  becoming  a  regional  southern  party.    The  Republican  House   majority  is  based  on  the  57  seat  advantage  it  holds  in  the  eleven  southern  states  stretching   from  Virginia  through  Texas.    Outside  the  Deep  South  the  Democrats  hold  a  24  seat  margin.     Redistricting  has  shifted  more  seats  away  from  the  northern  states  where  Democrats  are   strongest  to  the  fast  growing  southern  states  where  t  he  Republicans  dominate  rural  and   suburban  areas.    The  Deep  South  is  by  far  the  most  conservative  area  of  the  country  and  this   southern  Republican  dominance  heavily  affects  policy  decisions  and  internal  politics  within  the   entire  Republican  conference  of  House  members.      For  example,  almost  90%  of  southern   Republicans  opposed  the  fiscal  cliff  budget  deal  while  a  majority  of  Republicans  from  outside   the  South  supported  the  fiscal  cliff  deal.    We  also  saw  the  same  voting  pattern  emerge  with  the   recent  vote  on  aid  for  Hurricane  Sandy.    The  increased  regionalization  of  the  House  Republicans   creates  a  brand  problem  because  of  the  growing  perception  in  other  areas  of  the  country  that   the  party  is  a  Southern  and  rural  party.    Population  shifts  have  increased  the  perception  which   leads  to  the  party’s  declining  popularity  outside  of  the  South  and  rural  areas.    This  disparity   does  not  appear  as  much  in  the  Senate  where  successful  nominees  have  to  build  broader  bases   of  support  to  win  statewide  election.    That  explains  why  southern  senators  voted   overwhelmingly  in  favor  of  the  fiscal  cliff  deal  while  their  same  state  fellow  Republican   congressmen  opposed  the  same  deal.     The  Democrats  need  to  takeover  17  seats  to  gain  a  majority  in  the  House  of  Representatives.     That  will  be  difficult  in  a  midterm  election  where  both  the  turnout  composition  is  much   different  than  in  a  Presidential  election  year  and  where  the  President’s  congressional  party  has   a  long  record  of  losing  seats.    In  midterm  elections  since  1946,  the  President’s  congressional   party  has  lost  an  average  of  26  seats  in  the  House.    The  President’s  congressional  party  has   gained  seats  only  four  times  since  the  Civil  War  and  only  most  recently  in  special  circumstances     in  1998  (a  reaction  to  the  Clinton  impeachment)  and  again  in  2002  (rallying  of  support  for   Bush’s    response  to  the  attacks  of  9-­‐11)  .    Turnout  in  Presidential  election  years  is  always  higher   because  of  the  greater  participation  of  minorities  and  youth  voters.    These  voters  tend  not  to   participate  as  much  in  midterm  elections  which  creates  an  older  less  diverse  electorate  which  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

favors Republican  nominees.    A  late  surge  by  House  Democrats  in  2012  captured  several  of  the   most  vulnerable  Republican  held  seats  and  narrowed  the  margin  of  defeat  for  many  losing   House  Democratic  nominees.    Unless  the  turnout  composition  changes  historically  in  2014   those  opportunities  will  not  be  available  and  the  Democrats  will  have  to  substantially   outperform  their  2012  effort  to  win  control  of  the  House  with  a  likely  far  more  conservative   electorate.     Redistricting  plays  a  much  greater  role  in  the  midterm  election.    The  2010  congressional   redistricting  left  few  truly  competitive  seats  available  for  Democratic  takeover.    Democrats  will   have  to  win  some  conservative  districts  to  regain  the  majority.  Those  districts  with  their  less   diverse  and  older  constituencies  favor  Republicans  and  are  where  the  President’s  approval   becomes  a  much  greater  factor.     Another  important  factor  is  the  role  of  the  primary  election  in  safe  congressional  districts.    It  is   well  known  that  a  highly  motivated  charismatic  challenger  can  defeat  an  incumbent  with  far   greater  financial  assets.    As  a  result,  incumbents  in  safe  districts,  both  urban  Democrats  and   rural  Republicans,  always  have  an  eye  on  the  possibility  of  a  primary  challenger.    The  potential   primary  keeps  incumbents  focused  on  keeping  their  voting  records  as  close  as  possible  to  what   they  perceive  to  be  the  views  of  the  primary,  not  the  general,  electorate  in  their  congressional   districts.    This  leads  to  more  conservative  Republican  and  more  liberal  Democratic  voting   patterns.     Against  this  electoral  background  which  shapes  the  views  of  incumbent  Republicans,  it  is   important  to  look  at  the  approach  the  House  Leadership  governs.     The  House  Republicans  have  a  relatively  unified  policy  position  but  lack  the  power  to  govern.    In   the  past  two  elections  Republican  congressional  nominees  were  focused  on  the  economy  and   the  need  to  reduce  government  spending.    House  Republicans  have  been  split  into  two  factions   over  governance  of  the  House.    One  faction  feels  it  represents  a  mandate  from  their   constituents  to  support  a  limited  smaller  government.    This  group  believes  control  of  the  House   grants  the  power  to  govern  the  country  and  there  is  no  need  to  collaborate  with  the  President.     This  model  is  exemplified  by  the  Gingrich  speakership  of  1995  and  the  Tea  Party  Republicans  of   2011  -­‐12.    The  other  faction  recognizes  you  cannot  govern  from  the  House  because  control  of   one  half  of  one  third  of  the  government  does  not  provide  the  power  needed  to  force  through   policy  positions,  such  as  we  saw  with  the  fiscal  cliff  showdown.    This  model  is  best  exemplified   by  Speaker  Boehner  and  Representative  Paul  Ryan.     House  Republicans  in  the  new  Congress  will  focus  on  confronting  Senate  Democrats  rather  than   directly  challenging  the  President  .    The  goal  will  be  to  force  Senate  Democrats  to  be  held   accountable  for  specific  policy  options  to  define  the  differences  between  the  two  political   parties  and  using  the  process  to  increase  pressure  on  moderate  Senate  Democrats  who  are   seeking  reelection  in  2014  to  side  with  their  Republican  senate  colleagues.    The  House   Republicans  will  follow  a  more  deliberative  legislative  process  and  avoid  simply  passing  lots  of   legislation  which  quietly  never  sees  the  light  of  day  in  the  Senate.    Instead,  the  House   Republicans  will  use  the  tactic  of  sending  bills  to  the  Senate  that  moderate  Democrats  will  find  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

difficult to  oppose;  particularly,  the  significant  number  of  moderates  who  face  reelection  in   2014.    There  also  will  be  much  more  emphasis  on  oversight  and  holding  the  Administration   responsible  for  how  the  implementation  of  its  highly  controversial  first  term  achievements  of   the  Affordable  Care  Act  and  Dodd  Frank  is  proceeding.    Former  Speaker  Hastert  used  the   guiding  principle  of  never  bringing  a  bill  to  the  House  floor  unless  a  majority  of  his  Republican   majority  supported  the  legislation.    This  principle  became  known  as  “the  majority  of  the   majority”.    It  will  be  interesting  to  see  if  Speaker  Boehner  follows  this  principle.               HOUSE  DEMOCRATS     In  2013,  House  Democrats  already  have  been  called  upon  to  deliver  votes  (and  the  majority)  for   major  legislative  initiatives.    The  fiscal  cliff  deal  (passed  in  the  last  days  of  the  112th  Congress)   and  the  Hurricane  Sandy  supplemental  appropriations  package  were  passed  only  after   Democrats  delivered  a  solid  majority  of  their  caucus  in  favor.    With  the  House  GOP  caucus   searching  for  greater  cohesion,  House  Democrats  may  have  a  stronger  role  to  play  than   typically  afforded  to  a  House  minority  caucus.     The  House  Democratic  leadership  remains  largely  unchanged  from  the  previous  Congress.     Following  a  pickup  of  8  seats  in  November’s  election,  Nancy  Pelosi  chose  to  lead  her  caucus   again  in  the  113th  Congress.    With  only  17  seats  between  Democrats  and  the  majority,  Leader   Pelosi  and  her  caucus  will  continue  to  search  for  opportunities  to  splinter  the  GOP  caucus  and   marginalize  House  Republicans  as  extreme  and  out  of  step  with  mainstream  America.     Opportunities  to  do  so  are  forthcoming,  with  debt  ceiling  and  government  funding  bills  on  the   horizon.  

KEY POLI CY I SSUES FOR THE 113

th

CONGRESS

Appropri at i ons Once considered  the  most  plum  of  assignments,  the  Appropriations  Committee  has  suffered   under  the  weight  of  Washington  gridlock  and  the  continuing  congressional  battle  over  the   nation’s  fiscal  policies.  Last  year,  not  a  single  annual  appropriations  bill  was  enacted  into  law— 7


2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

the latest  example  of  the  deleterious  trend  away  from  regular  legislative  order  in  the   appropriations  process.  This  broken  process,  the  ongoing  pressure  to  cut  spending  and  the   renewed  ban  on  earmarks  were  enough  to  dissuade  two  senior  Democratic  senators  from   chairing  the  committee  following  the  death  of  Senator  Daniel  Inouye  in  December.           On  a  bicameral  and  bipartisan  basis,  congressional  appropriators  are  pledging  to  restore  regular   order  in  the  appropriations  process,  but  that  goal  is  likely  to  remain  out  of  reach  unless   Congressional  leaders  agree  on  a  broader  budgetary  framework.  They  will  have  their  first   opportunity  to  hammer  out  such  a  framework  in  the  coming  weeks  as  Congress  works  to  wrap   up  fiscal  2013  appropriations.  Last  October,  Congress  approved  a  six-­‐month  continuing   resolution  which  expires  on  March  27,  2013.  By  that  date,  Congress  will  either  need  to  pass  the   appropriations  bills  (likely  in  the  form  of  an  omnibus)  or  advance  another  continuing   resolution.         Fiscal  2013  negotiations  have  taken  on  greater  import  given  the  decision  by  House  Republicans   to  bypass  a  high  stakes  fight  over  an  increase  in  the  federal  debt  ceiling.  Instead,  they  will  take   their  stand  on  further  spending  cuts  in  the  context  of  fiscal  2013  appropriations.  House   Republicans  are  vowing  to  adhere  to  a  $974  billion  cap  on  discretionary  spending—a   considerable  sum  below  the  $1.047  in  annual  discretionary  spending  that  was  assumed  in  the   six  month  continuing  resolution  passed  in  October.  Complicating  matters,  the  sequestration  of   $1.2  trillion  over  ten  years  is  scheduled  to  take  effect  in  March  as  well.  Sequestration’s  across-­‐ the-­‐board  cuts  are  not  strategic  or  flexible  by  design,  but  replacing  them  may  prove  politically   untenable,  especially  if  fiscal  2013  wrangling  leads  to  a  government  shutdown.       Even  as  Congress  considers  its  legislative  options  for  funding  government  through  the   remainder  of  fiscal  2013,  appropriators  will  have  to  begin  the  fiscal  2014  spending  bills.  This   appropriations  cycle  too  is  likely  to  get  off  to  a  rocky  start.  The  Obama  Administration  is   signaling  that  it  will  not  send  up  its  budget  request  to  Congress  until  March,  calling  into   question  the  timing  of  the  House  and  Senate  budget  resolutions.  These  budget  resolutions   provide  the  appropriations  committees  the  topline  spending  numbers  that  become  the  basis   for  the  subcommittee  302(b)  allocations.  This  delayed  start  and  ongoing  congressional  battle   over  spending  will  only  strain  efforts  by  appropriators  to  restore  regular  order  in  the   appropriations  process,  and  as  a  result,  this  year  is  unlikely  to  be  first  time  since  1993  that   Congress  passes  each  of  the  12  spending  bills  before  the  start  of  the  new  fiscal  year.           Senate  Appropriations  Committee   The  Senate  Appropriations  Committee  will  have  new  leadership  in  the  113th  Congress.  Senator   Barbara  Mikulski  (D-­‐MD)  was  named  chair  of  the  committee  in  December  following  Senator   Daniel  Inouye’s  passing.  Senator  Richard  Shelby  (R-­‐AL)  is  the  committee’s  new  ranking  member,   replacing  Senator  Thad  Cochran  (R-­‐MS)  who  moved  to  be  the  top  Republican  on  the  Agriculture   Committee.  New  members  of  the  committee  include  Senators  Tom  Udall  (D-­‐NM),  Jeanne   Shaheen  (D-­‐NH),  Jeff  Merkley  (D-­‐OR),  Mark    Begich  (D-­‐AK),  Mike  Johanns  (R-­‐NE),  and  John   Boozman  (R-­‐AR).      

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

In assuming  the  leadership  of  the  committee,  Chairwoman  Mikulski  stated,  “Our  committee  will   function  in  a  way  that  is  open,  transparent  and  follows  regular  order.”  She  underscored  the   need  to  work  in  bipartisan  fashion  to  “meet  our  national  security  needs  but  also  the  compelling   human  needs  in  this  country.”       House  Appropriations  Committee   Congressman  Harold  Rogers  of  Kentucky  returns  as  chairman  of  the  committee.  He  welcomes   new  members:  Jeff  Fortenberry  (R-­‐NE),  Tom  Rooney  (R-­‐FL),  Chuck  Fleischmann  (R-­‐TN),  Jaime   Herrera  Beutler  (R-­‐WA),  and  two  freshmen  David  Joyce  (R-­‐OH)  and  David  Valadao  (R-­‐CA).     On  the  Democratic  side,  Congresswoman  Nita  Lowey  won  her  bid  to  replace  Congressman   Norm  Dicks  as  ranking  member  of  the  committee.  Tim  Ryan  (D-­‐OH)  and  Debbie  Wasserman-­‐ Schultz  return  to  the  committee  after  a  two  year  hiatus,  joined  by  new  members  Henry  Cuellar   (D-­‐TX),  Chellie  Pingree  (D-­‐ME),  Mike  Quigley  (D-­‐IL),  and  Bill  Owens  (R-­‐NY).         Congressman  Rogers  is  already  warning  the  committee  members  that  “we’re  going  to  be   squeezed  like  we’ve  never  been  squeezed  before  with  a  [budget  allocation]  that’s  going  to  be   severe.”  This  ominous  message  portends  tough  decisions  and  spirited  debate  within  the   committee.  Chairman  Rogers  has  also  suggested  that  the  committee  will  bolster  its  oversight   activities  to  keep  busy  while  waiting  for  the  president’s  budget  request.       Earmarks   Efforts  by  earmarking  proponents  to  reconsider  their  use  in  the  annual  spending  bills  have   failed  to  gain  traction.  President  Obama  has  said  that  he  will  veto  spending  bills  with  earmarks,   and  the  House  has  renewed  their  ban  for  the  113th  Congress.  In  the  Senate,  appropriators  are   more  reluctant  to  formally  foreclose  the  possibility  of  earmarks,  but  there  is  no  clear  path  for  a   return  to  earmarking  this  year  and  likely  next.    

Agri cul t ure Enactment of  a  new  long-­‐term  farm  bill  will  be  the  most  pressing  agriculture  issue  in  the  new   Congress.    H.R.  8,  The  American  Taxpayers  Relief  Act  of  2012,  provided  for  a  temporary   extension  of  the  current  farm  bill  through  the  end  of  September  2013.    This  will  give  Congress   more  time  to  consider  the  many  thorny  issues  that  have  bedeviled  consideration  of  a  new  farm   bill  to  date.    The  work  in  both  the  House  and  Senate  in  2012  to  draft  farm  legislation  will  help   jump  start  the  legislative  process.    However,  as  the  need  for  deficit  reduction  forces  further   spending  cuts  in  agricultural  accounts,  the  competition  for  scarce  funds  will  only  fan   longstanding  controversies  over  commodity  price  supports,  crop  insurance  premium  subsidies,   SNAP  outlays,  disaster  assistance  programs  and  the  “orphan”  programs  that  were  not  part  of   the  temporary  extension  of  current  law  and  lack  CBO  baselines  beyond  September  2012.     In  2012  there  was  general  consensus  around  the  need  to  eliminate  direct  payments  to  farmers.     However,  that  consensus  was  based  on  a  trade-­‐off—do  away  with  direct  payments  in  exchange   for  a  “shallow  loss”  revenue  program  that  would  work  in  tandem  with  crop  insurance  to  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

provide protection  against  reduced  yields  and  low  prices.    This  appealed  to  corn,  soybean  and   wheat  producers  but  caused  heartburn  for  rice,  peanut  and  cotton  farmers  who  prefer  the   target-­‐price  format  of  current  farm  programs.    This  issue  remains.    With  Sen.  Cochran  (MS)   assuming  the  position  of  ranking  Republican  on  the  Senate  Agriculture  Committee,  southern   crops  can  expect  more  favorable  consideration  in  a  new  farm  bill.     Crop  insurance  will  be  subjected  to  scrutiny  given  the  large  outlays  incurred  as  a  result  of  the   drought.    Attention  will  focus  on  reducing  premium  subsidies  and  limiting  payments  based  on  a   farmer’s  income.     Most  of  the  savings  associated  with  both  the  Senate  and  House  versions  of  the  farm  bill  were   derived  from  SNAP  (formerly  known  as  food  stamps).      But  there  was  a  big  difference  in  the   level  of  SNAP  savings  between  the  Senate  and  the  House.    It  was  this  disparity,  by  and  large,   which  kept  House  Republican  leaders  from  bringing  the  farm  bill  to  the  floor.    Controversy   around  SNAP  will  continue  to  rage  in  the  new  Congress.     Disaster  assistance  for  livestock  producers  lapsed  in  2011.    It  had  been  assumed  that  such   assistance  would  be  renewed  in  the  rewrite  of  the  farm  bill.    When  the  record-­‐setting  drought   struck  the  nation  last  summer,  livestock  producers  were  especially  hard  hit,  as  feed  costs  sky-­‐ rocketed,  pastures  dried  up  and  relief  in  the  form  of  emergency  disaster  payments  were   unavailable.    The  short-­‐term  extension  of  the  current  farm  bill  did  nothing  to  address  this   situation,  and  so  livestock  producers  continue  to  be  exposed  to  natural  disaster  emergencies   they  way  row-­‐crop  farmers  are  not.     Producers  of  fruits  and  vegetables,  organic  farmers  and  conservationists  did  not  fare  well  in  the   farm  bill  extension.    Programs  benefiting  these  parties  were  among  those  whose  “orphan”   status  prevented  them  from  being  continued.    Moreover,  because  they  have  no  CBO  budget   baselines,  inclusion  of  these  programs  in  a  new  long-­‐term  farm  bill  will  require  Congress  to  find   as  much  as  $10  billion  in  additional  offsets  in  order  to  fund  them.    

Def ens e With budget  sequestration  widely  expected  to  reduce  FY  2013  defense  spending  by  $43  billion,   effective  on  March  1,  the  Pentagon  has  already  implemented  a  civilian  hiring  freeze  and  a   possible  temporary  furlough  of  the  department’s  791,000  civilian  employees.    However,  the   congressional  appropriations  committees  will  have  an  opportunity  to  address  this  issue  in   whatever  action  they  take  to  respond  to  the  March  27  expiration  of  the  current  CR.     Sequestration  is  expected  to  have  across-­‐the-­‐board  application  for  all  DoD  programs,  projects   and  activities.    This  will  have  a  significant  downward  impact  on  force  structure,  research  &   development  spending,  and  new  procurement  and  acquisition,  including  total  units  ordered.     The  defense  industrial  base  will  likely  experience  substantial  contraction,  depending  on  the   duration  of  the  sequester,  ie.  unless  Congress  and  the  President  can  agree  on  a  “grand   bargain”,  a  long-­‐term  budget  solution.    

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

In this  very  uncertain  period,  defense  authorizers  and  appropriators  will  be  challenged  to  set   spending  levels  and  make  choices  among  competing  priorities.    Big  ticket  items  would  appear  to   be  most  vulnerable,  including  shipbuilding,  aircraft  production  and  ground  vehicle  fleets.     Another  casualty  will  almost  certainly  be  much  needed  reform.    In  2001,  then-­‐Secretary  Donald   Rumsfeld  launched  a  series  of  studies  looking  at  reform  of  the  military  personnel  and   retirement  system,  procurement  reform,  among  others.    But,  these  efforts  were  overwhelmed   by  the  need  to  respond  to  9/11.    And,  after  eleven  years  of  preoccupation  with  war  in  Iraq  and   Afghanistan  there  is  little  reason  to  hope  that  those  efforts  can  easily  be  reignited  under  the   added  strain  of  sequestration.    That  said,  the  withdrawal  from  Iraq  and  the  drawdown  from   Afghanistan,  combined  with  unprecedented  budget  pressures  and  a  new  defense  secretary  may   be  a  winning  formula  for  taking  on  reform.  

Educat i on Energy and Envi ronment President Obama  sought  energy  reform  and  climate  change  legislation  during  his  first  term,   support  he  reaffirmed  during  his  Inaugural  Address.    A  divided  Congress,  however,  suggests   much  of  the  energy  policy  activity  will  be  driven  by  the  Executive  Branch  while  Congress   attempts  to  tackle  energy/climate  policy  either  through  a  comprehensive  approach  or  through   more  modest  legislative  efforts.  No  major  energy  legislation  has  passed  Congress  since  2007   and  prospects  for  a  successful  comprehensive  bill  are  slight.    That  said  the  next  two  years  will   find  advocates  of  robust  energy  and  climate  reforms  continuing  to  lay  the  groundwork  for  a   time  when  comprehensive  legislation  can  be  enacted.     The  President,  his  allies  in  Congress  and  the  environmental  community  argue  we  need  to  act,   citing  Superstorm  Sandy,  record  temperatures,  and  unprecedented  droughts  and  wildfires  as   evidence  that  the  climate  is  changing.    Meanwhile  the  entire  energy  landscape  is  being   rewritten  by  advances  in  oil  and  gas  exploration  techniques  that  are  projected  to  propel  the   U.S.  to  energy  independence  by  as  early  as  the  end  of  this  decade.    In  this  policy  environment,   making  long-­‐term  decisions  on  energy  investments  is  getting  much  harder  to  handicap  for   utilities  and  industry  executives.    Long-­‐term  certainty  in  energy  policy,  as  with  tax  policy,  would   be  welcome  on  Wall  Street  and  in  corporate  board  rooms.    While  energy  policy  and  its  impact   on  climate  will  be  in  the  forefront  of  the  policy  debate,  the  113th  Congress  unlikely  will  muster   the  huge  political  and  regional  tradeoffs  needed  to  fashion  a  comprehensive  energy  bill.    While   lightning  could  strike  and  lead  to  major  compromises  on  energy  regulatory  decisions  and   smaller  but  still  significant  legislative  skirmishes  are  more  likely  and  they  collectively  could  alter   the  energy  landscape  and  affect  energy  industry  investments.         The  president’s  2nd  term  will  see  a  significant  change  in  the  makeup  of  his  Cabinet  with   jurisdiction  over  energy  policy.    Most  significantly,  the  Administrator  of  the  Environmental   Protection  Agency,  Lisa  Jackson,  will  be  stepping  down.    This  provides  EPA  and  the  White  House  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

an opportunity  to  revisit  their  aggressive  (many  say  heavy-­‐handed)  regulatory  approach  that   has  focused  largely  on  fossil  fuel  extraction  and  emissions.    While  some  candidates  for  the  job   are  considered  more  moderate  than  the  outgoing  Administrator,  it  is  unlikely  the   administration  changes  course  on  its  regulatory  goals  in  this  area.    Leaving  along  with   Administrator  Jackson  is  Interior  Secretary  Ken  Salazar,  who  has  overseen  energy  exploration   on  federal  lands.    Secretary  of  Energy  Stephen  Chu  has  not  announced  his  plans  but  is  also   rumored  to  be  on  the  way  out.    Finally,  the  new  Secretary  of  State,  John  Kerry  promises  to  be   aggressive  in  pursuing  international  action  on  climate  which  could  increase  pressure  on  the   Administration  to  deliver  on  the  domestic  front.         In  Congress,  incoming  Chairman  of  the  Senate  Energy  &  Natural  Resources  Committee  Ron   Wyden  and  incoming  Ranking  Member  of  the  Senate  Environment  &  Public  Works  David  Vitter   represent  major  leadership  changes.    (Ed  Markey,  Ranking  Member  of  the  House  Natural   Resources  Committee,  is  running  for  the  open  Senate  seat  in  Massachusetts.)    Wyden  in   particular  is  reaching  across  the  aisle  to  find  ways  to  work  with  his  Ranking  Republican  Lisa   Murkowski  and  with  coast  state  Senators  interested  in  promoting  expanded  energy  exploration   through  revenue  sharing  or  oil  and  gas  royalties.    Tradeoffs  are  possible  but  politically   challenging.    The  smart  money  say  they  will  not  succeed  by  an  effort  to  fashion  a   comprehensive  bill  can’t  be  ruled  out.     We  know,  however,  that  the  Executive  Branch  will  dictate  the  fate  of  three  major  policy  issues:   construction  of  the  Keystone  XL  pipeline,  applications  to  export  domestic  natural  gas  to  foreign   markets  and  the  nature  of  further  carbon  regulations  for  new  (and  potentially  current)  sources   of  emissions.    These  decisions  and  potentially  others  will  have  longstanding  and  significant   impacts  to  the  future  of  energy  policy  and  have  the  real  potential  to  change  fundamentally  the   nature  of  economic  drivers  in  the  United  States.    They  are  also  likely  to  trigger  legislative  efforts   to  affect  the  Executive  Branch  outcomes.       A  decision  on  the  Keystone  XL  pipeline  is  due  in  2013  –  coincidentally  around  the  time  the  next   wave  of  major  budget  and  fiscal  negotiations  come  due  with  Congress.    While  the  State   Department  has  had  a  major  role  in  the  development  of  administration  policy  regarding  the   pipeline  –  and  incoming  Secretary  John  Kerry  is  a  strong  advocate  for  an  international  climate   change  regime  –  the  ultimate  decision  will  rest  with  President  Obama.    The  president’s  base  is   split  over  this  issue,  with  labor  unions  in  support  of  the  pipeline’s  construction  and   environmentalists  opposed.    It  is  possible  a  decision  to  proceed  with  the  pipeline  will  be   coupled  by  a  demand  from  the  administration  for  investment  in  renewable  energy  and  energy   efficiency  programs  or  other  progress  on  broader  climate  issues.     Regarding  natural  gas  exports,  the  administration  is  expected  to  decide  whether  to  grant   approval  to  build  liquefied  natural  gas  (LNG)  export  terminals,  for  which  15  applications  are   pending  at  the  Energy  Department.    The  domestic  natural  gas  boom  is  seen  as  a  future  game   changer  for  the  U.S.  economy  and  for  major  international  markets,  but  already  has  altered   fundamentally  the  economics  of  other  energy  sources  including  coal,  nuclear  and  renewables.     Studies  conflict  over  the  impact  LNG  exports  will  have  on  the  upward  price  of  natural  gas,  which   will  be  determining  factor  in  the  ultimate  decision  of  whether  to  grant  export  approval.    

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

Chairman Wyden  has  been  skeptical  of  natural  gas  exports  and  will  use  his  committee’s  gavel  to   influence  the  decision  making  process.     EPA  is  scheduled  in  2013  to  issue  its  final  rule  on  carbon  emissions  performance  standards  for   new  fossil-­‐fueled  power  plants.    As  a  result,  all  new  coal-­‐fired  units  would  be  required  to  install   expensive  emissions  control  technologies.    By  regulating  new  sources,  EPA  would  trigger  a   requirement  of  the  Clean  Air  Act  to  issue  similar  standards  for  existing  sources,  a  process  that   could  take  several  years.    By  all  accounts,  the  new  source  rule  (coupled  with  the  existing   sources  rule)  will  touch  all  sectors  of  the  economy  and  continue  to  marginalize  coal  as  a  viable   energy  fuel.    EPA  also  will  study  the  issues  of  hydraulic  fracturing  (fracking),  coal  ash  and  other   sensitive  issues  with  wide-­‐ranging  impacts.  Republicans  in  Congress  (along  with  coal-­‐friendly   Democrats)  will  continue  attempts  to  challenge  the  EPA  through  legislative  action.    A  successful   effort  to  put  this  to  a  vote  in  the  Senate  could  put  moderate  Democrats  in  a  tough  position   creating  the  possibility  of  either  action  to  limit  EPA’s  authority  or  a  political  issue  that  can  be   used  against  them  in  the  election..     While  the  administration  will  be  driving  many  of  the  energy  policy  decisions  during  the  next   two  years,  the  opportunity  remains  for  Congress  to  play  a  significant  role  in  the  future  of   America’s  energy  landscape.    Comprehensive  tax  reform  is  clearly  on  the  table  but  is  likely  to  be   a  multi-­‐year  process.    As  part  of  that,  a  number  of  energy-­‐related  measures  will  be  considered.     At  a  minimum  the  various  tax  incentives  for  oil  and  gas  as  well  as  renewables  will  be  in  the  mix.     Energy  tax  incentives  for  both  traditional  and  renewable  sources  will  be  reviewed  during  the   tax  reform  debate.    In  an  effort  to  streamline  the  tax  code,  many  of  the  incentives  will  be  on  the   chopping  block,  generating  great  activity  from  interest  groups  and  advocates  on  Capitol  Hill.     Through  this  debate,  specific  subsidies  may  be  traded  for  a  more  robust  policy  on  federal   investment  in  energy  and  its  related  technologies.  In  addition,  a  proposal  to  raise  revenue   through  a  carbon  tax  regime  may  be  considered.    The  Obama  Administration  has  said  it  will  not   take  the  lead  on  advancing  a  carbon  tax  proposal,  leaving  the  issue  to  Congress.    Taxing  carbon   would  raise  billions  of  dollars  annually  but  will  be  fought  in  Congress  from  many  quarters  and  is   unlikely  to  be  included  in  any  final  reform  package.    (Tax  reform  likely  will  be  a  multi-­‐year   process.)     Congress  may  also  attempt  to  muster  agreement  on  a  more  modest  package  of  energy  reforms   focused  on  energy  efficiency  and  renewable  energy  either  as  part  of  a  larger  effort  or   separately.    Members  of  both  parties  are  seeking  common  ground  on  authorizing  legislation  for   energy  conservation  programs  in  the  federal  and  commercial  markets,  and  the  administration   will  pursue  greater  energy  efficiency/renewable  standards  through  executive  orders  and   rulemakings.     For  the  past  several  years,  both  parties  have  advocated  an  “all  of  the  above”  energy  policy.     However,  the  two  sides  continue  to  talk  past  on  another.    We  believe,  the  White  House,   through  unilateral  action,  will  drive  much  of  the  significant  activity  although  Congress  will  seek   to  have  a  role.    In  addition  to  their  oversight  role  and  the  prospect  of  delivering  consensus  on   more  modest  approaches,  we  can’t  rule  out  an  effort  to  craft  something  broader,  particularly  if  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

consensus on  other  earlier  measure  like  immigration  and  sequestration  paves  the  way  for  a   more  cooperative  and  effective  Congress  that  the  112th.      

Fi nanci al Servi ces Five years  after  the  financial  crisis  began  and  nearly  three  years  after  the  epic  Dodd  Frank   omnibus  regulatory  response  was  signed  into  law,  the  outlook  for  banking  and  financial  services   activity  in  the  Congress  has  both  an  aggressive  and  go  slow  look.    The  continued  very  slow   growth  of  the  economy  has  led  consumers  and  businesses  to  continue  deleveraging  their   financial  positions  maintaining  their  risk  adverse  outlook.    This  economic  backdrop  combined   with  the  zero  interest  rate  policy  of  the  Federal  Reserve,  increased  capital  requirements    for   financial  institutions  and  the  tsunami  of  new  federal  and  state  regulation  has  resulted  in   formidable  challenges  for  the  financial  services  sector  of  the  economy.     2013  begins  with  a  substantial  change  of  the  key  policymakers  in  the  financial  services  sector.     The  departure  of  Treasury  Secretary  Geithner  and  the  expected  confirmation  of  his  successor   former  OMB  Director  Jack  Lew  will  lead  to  a  transition  period  likely  marked  by  less  activity  as   the  new  Secretary  gets  comfortable  with  the  myriad  issues  confronting  the  Treasury   Department.    Senate  Banking  Committee  Chairman  Tim  Johnson  (D-­‐SD)  is  joined  by  a  new   ranking  Republican  Senator  Mike  Crapo  (R-­‐ID)  and  a  new  Chairman  of  the  House  Financial   Services  Committee  Jeb  Hensarling  (R-­‐Dallas,  TX)  and  a  new  ranking  Democratic  member   Representative  Maxine  Waters  (D-­‐Los  Angeles,  CA).    The  go  slow  approach  of  the  Senate  and   the  activist  focus  of  the  House  of  Representatives  likely  will  continue,  but  with  several   important  changes.    The  Senate  Banking  Committee  is  expected  to  become  a  much  tougher   investigative  panel  with  the  addition  of  Massachusetts  Democratic  Senator  Warren.    Senator   Crapo  is  well  known  for  his  deliberative  style  that  will  emphasize  oversight  to  understand  the   effect  and  interaction  of  the  hundreds  of  new  regulations  being  imposed  on  the  financial   services  sector  of  the  economy.    The  go  slow  approach  of  the  Senate  Banking  Committee  is   expected  to  continue.    Just  the  opposite  can  be  expected  from  the  House  Financial  Services   Committee  where  new  Chairman  Hensarling,  an  outspoken  free  market  advocate,  will  oversee   not  only  aggressive  oversight  of  bank  and  financial  regulators  ,  but  also  will  push  legislative   ideas  to  reform  government  housing  support    and  address  problems  exposed  as  the   implementation  of  Dodd  Frank  continues.    Representative  Waters  is  well  known  for  her   advocacy  for  the    inclusion  of  minorities  and  women  in  the  financial  services  industry,  but  has   made  a  concerted  effort  to  broaden  her  reach  to  the  financial  services  industry  since  being   named  the  senior  Democrat  on  the  committee  following  the  retirement  of  former   Representative  Barney  Frank.      Her  evolving  role  and  her  relationship  with  Chairman  Hensarling   will  be  interesting  to  observe  for  clues  whether  the  Financial  Services  Committee  could  actually   become  more  bipartisan  with  a  free  market  conservative  Chairman  setting  the  agenda.    The   President  has  named  a  new  head  of  the  Securities  and  Exchange  Commission  who  brings  a     background  as  a  federal  prosecutor  to  the  role  of  leading  the  agency  with  significant   responsibility  for  implementing  the  historic  sweeping  Dodd  Frank  law.    Does  this  appointment  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

signal a  shift  to  an  emphasis  on  enforcement  at  the  same  time  the  agency  is  overwhelmed  both   from  a  personnel  and  financial  standpoint  with  the  burdens  of  implementing  Dodd  Frank?       There  are  three  dominant  issues  likely  to  dominate  the  congressional  agenda  in  2013:    the   continuing  implementation  of  Dodd  Frank,  reforming    government  support  of  housing,  and   responding  to  the  Consumer  Financial  Protection  Bureau  (CFPB).     Repeal  of  Dodd  Frank  will  not  occur,  but  change  is  certain.    Implementation  grinds  on  with  only   35%  of  the  mandated  nearly  400  rulemakings  completed  as  final  rules.    This  is  complex  and   arcane  work  that  has  engulfed  the  regulators  at  the  Securities  and  Exchange  Commission  (SEC)   and  the  Treasury  Department  .    Haste  to  enact  the  rules  has  led  to  mistakes  which  have  been   successfully  challenged  in  the  federal  courts.    The  demand  for  change  will  increase   exponentially  going  forward  as  implementation  shows  both  the  ineffectiveness    and   unintended  consequences  of  final  rules  once  they  are  issued.    Congressional  oversight  of  the   interaction  and  compliance  burdens  of  the  regulations  inevitably  will  lead  to  more  legislative   proposals  to  address  problems  discovered  with  Dodd  Frank.     Chairman  Hensarling  has  been  an  outspoken  proponent  for  abolishing  the  government   sponsored  enterprises  (GSE’s)  Fannie  and  Freddie,  but  addressing  the  insolvency  of  the  Federal   Housing  Administration  (FHA)  will  be  a  first  priority.    FHA  has  at  least  a  $16  billion  shortfall  as  its   share  of  mortgage  originations  increased  six-­‐fold  since  2009  in  response  to  private  lenders   leaving  the  market  during  the  Great  Recession.    FHA  recapitalization  likely  will  occur  only  after   Congress  reexamines  the  mission  of  the  agency  and  reduces  its  scope  of  operation  to  avoid   future  taxpayer  losses.    There  is  broad  support  among  House  Republicans  on  the  Financial   Services  Committee  to  replace  the  GSEs  with  a  fully  privatized  mortgage  finance  system.    There   is  no  interest  by  the  Democratic  controlled  Senate  Banking  Committee  for  eliminating  the  GSEs.     With  Chairman  Hensarling  expected  to  press  omnibus  reforms,  and  possible  outright  repeal,  of   the  GSEs  is  compromise  a  possibility?    The  fact  the  GSEs  survived  Dodd  Frank  without  change,   the  dramatic  shift  of  their  financial  position  to  a  more  positive  basis  and  nervousness  over   dramatic  change  as  the  housing  market  shows  signs  of  real  recovery  all  are  points  arguing   against  significant  change  to  the  GSEs.     The  roll  out  of  the  infamous  Consumer  Financial  Protection  Bureau  (CFPB)  nurtured  by  then   consumer  advocate    now  Senator  Elizabeth  Warren  will  result  in  much  legislative  activity.     Republicans  will  continue  to  demand  the  CFPB  convert  to  a  five  member  board,  rather  than  the   single  administrator,  and  be  subject  to  the  congressional  appropriations  process.    The  CFPB  is   funded  by  the  Federal  Reserve  and,  as  a  result,  is  not  subject    to  the  congressional   appropriations  process  and  its  oversight.    The  CFPB  has  a  large  budget  and  a  broad  scope  of   potential  consumer  finance  jurisdiction  including  mortgages,  private  education  lenders,  pay  day   lenders,  debt  consolidation  and  collection  activities,  credit  reporting  agencies,  consumer  credit   providers  and  prepaid  payment  cards.    The  CFPB  with  its  vast  funding  and  strong  support  from   the  President  will  undertake  a  bold  agenda  certain  to  create  legislative  demands  as  a  backlash.     How  the  conservative  House  and  the  liberal  Senate  address  the  actions  of  the  CFPB  will  be  of   substantial  interest  during  the  second  term  of  the  President.      

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

There are  a  number  of  financial  services  sector  tax  issues  that  will  be  reviewed  when  the  House   Ways  and  Means  Committee  develops  its  individual  and  corporate  tax  reform  proposal.    In   addition,  payment  card  issues  (credit  ,  debit  and  prepaid  cards)  likely  will  be  addressed  again  as   well  as  the  relationship    of  credit  unions  with  depository  institutions,  the  regulation  of  mutual   funds,  insurance  coverage  for  disasters  in  wake  of  the  experiences  of  Super  Storm  Sandy  all  are   other  issues  likely  to  receive  scrutiny  in  the  new  Congress.    

Heal t h Care Homel and Securi t y and Cyber Securi t y This year,  the  Department  of  Homeland  Security  marks  its  10th  anniversary.    Throughout  the   past  10  years,  Senator  Joe  Lieberman  (I-­‐CT)  and  Senator  Susan  Collins  (R-­‐ME)  led  the  Senate   Homeland  Security  and  Governmental  Affairs  Committee  (SHSGA),  the  primary  Senate   committee  of  jurisdiction  for  DHS.    Homeland  issues  were  a  principal  focus  for  Senators  Lieberman  and  Collins,  and  the  two   worked  closely  on  oversight  of  the  Department.    Leadership  of  SHSGA  has  now  moved  to   Chairman  Tom  Carper  (R-­‐DE)  and  Ranking  Republican  Tom  Coburn  (R-­‐OK).    While  both  senators   have  worked  on  homeland  issues,  they  have  focused  most  of  their  committee  efforts  on  the   inner  workings  of  government  agencies  generally.    Senator  Coburn  has  been  a  strong  advocate   of  reducing  the  size  of  the  federal  bureaucracy,  and  issued  a  report  critical  of  DHS  work  with   state  and  local  grants  and  the  use  of  fusion  centers  for  information  collection  and  analysis.     Senators  Carper  and  Coburn  share  a  cordial  relationship,  but  it  remains  to  be  seen  whether   they  will  develop  the  same  level  of  cooperation  and  interest  in  promoting  homeland  issues  as   did  their  predecessors.     Chairman  Carper  has  already  indicated  that  cybersecurity  will  be  a  primary  agenda  item  for  the   committee.    He  was  a  co-­‐sponsor  of  the  Lieberman-­‐Collins  cyber  bill  in  the  last  Congress.    This   year,  he  has  already  joined  Senator  Jay  Rockefeller  (D-­‐WVA)  and  others  in  offering  a   cybersecurity  bill  (S  21),  and  has  said  he  will  work  closely  with  his  Senate  colleagues,  affected   industries  and  outside  interests  to  consider  changes  to  the  bill  that  will  enhance  the  possibility   of  passage.    As  currently  written,  S  21  is  more  of  a  “placeholder”  bill  to  allow  supporters  the   time  to  work  on  more  detailed  language.    Some  of  the  more  controversial  issues  from  last   year’s  bills,  including  the  “standards”  language,  have  yet  to  be  decided.    Chairman  Carper  has   also  been  in  discussions  with  the  new  Chairman  of  the  House  Homeland  Committee,  Cong.   Michael  McCaul  (R-­‐TX).     Other  items  on  Chairman  Carper’s  homeland  agenda  include  border  security,  public  safety   communications,  FEMA  oversight,  and  passage  of  a  DHS  Authorization  bill.    Both  Carper  and   Coburn  will  focus  on  DHS  management,  including  ways  to  reduce  spending  and  limit  waste.  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

The  House  Homeland  Security  Committee  will  also  see  a  shift  in  leadership  as  Cong.  Michael   McCaul  (R-­‐TX)  replaces  Cong.  Peter  King  (R-­‐NY)  as  Chairman.    Cong.  Bennie  Thompson  (D-­‐MS)   will  remain  as  Ranking  Democrat.    Also,  there  will  be  several  new  members  on  the  committee,   most  of  whom  will  not  have  the  “in  at  the  beginning”  relationship  with  DHS,  and  may  be  more   critical  generally  of  its  operations  and  performance.  While  we  do  not  expect  any  efforts  to   “undo”  DHS,  there  continue  to  be  comments  regarding  the  Department’s  track  record.     Chairman  McCaul  has  met  with  Secretary  Napolitano  to  discuss  the  Department,  and  he  has   released  an  extensive  agenda  for  his  committee.    Like  his  Senate  counterparts,  McCaul  stressed   the  urgency  of  acting  on  cyber  legislation  (he  is  Co-­‐Chairman  of  the  Congressional  Cybersecurity   Caucus).    He  will  also  focus  on  border  security,  DHS  management  (he  has  offered  legislation  to   improve  the  DHS  management  process),  chemical  security  (CFATS),  first  responders,  terrorism,   TSA  (more  privatization)  and  passing  a  DHS  authorization.         Both  House  and  Senate  committees  will  also  be  active  in  the  immigration  debate.    Though  this   is  primarily  a  Judiciary  domain,  Homeland  involvement  derives  from  the  role  of  DHS  in   immigration  services,  border  security,  enforcement,  and  programs  such  as  E-­‐Verify.       House  and  Senate  Appropriators  will  also  review  DHS  spending  and  program  performance.       Cong.  John  Carter  (R-­‐TX)  will  assume  Chairmanship  of  the  House  DHS  Appropriations   Subcommittee  and  has  particular  interest  in  border  security,    immigration,  transportation   security  and  FEMA.     CYBER  SECURITY     Despite  wide-­‐spread,  bipartisan  agreement  on  Capitol  Hill  and  in  the  Administration  that  our   vulnerability  to  cyber  attacks,  crime,  theft,  and  economic  disruption  must  be  addressed,   Congress  was  unable  to  agree  on  a  legislative  solution  and  the  issue  has  resurfaced  as  a  high   profile  agenda  item  for  the  113th  Congress.       Numerous  bills  were  introduced  in  the  last  Congress.    In  the  Senate,  a  comprehensive  bill    (S   3414)introduced  by  Senators  Lieberman  (I-­‐CT)  and  Collins  (R-­‐ME)  would  have  provided  a  new   regulatory  framework  and  organizational  changes  along  with  incentives  for  improving  private-­‐ sector  security.    An  alternative  measure  (S  3342)  was  introduced  by  Senators  McCain  (R-­‐AZ)  and   Hutchison  (R-­‐TX)  with  less  regulatory  authority  and  more  focus  on  cybercrime  provisions.     Neither  bill  passed  the  Senate.    While  comprehensive  bills  were  introduced  in  the  House  as   well,  the  House  Leadership  took  a  more  piecemeal  approach  to  cyber  reform,  and  passed   several  bills  dealing  with  information  sharing  and  R&D,  and  the  development  of  technical   standards.    The  most  notable  of  these  was  a  bill  (HR  3523)  offered  by  Cong.  Mike  Rogers  (R-­‐MI)   to  promote  information-­‐sharing  between  the  government  and  businesses  that  own  critical   infrastructure.    None  of  the  House  measures  were  taken  up  in  the  Senate.      One  reference  to   cyber  was  included  in  the  Defense  Authorization  bill  which  was  passed.    That  provision  directs   DOD  to  establish  a  process  for  defense  contractors  with  classified  information  to  report  cyber   attacks  to  DOD.  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

 Citing  this  lack  of  Congressional  action,  President  Obama  has  said  that  he  would  issue  an   Executive  Order  dealing  with  cybersecurity.    The  President  has  met  with  various  private  sector   groups  to  discuss  their  interests  and  concerns.    It  has  been  suggested  that  an  Executive  Order   might  be  based  on  the  Lieberman/Collins  bill,  but  with  some  modifications  to  address  issues   raised  by  various  stakeholders.        Everyone  agrees  legislation  will  ultimately  be  necessary  since   there  are  limits  on  what  an  Executive  Order  can  legally  accomplish.    In  the  meantime,  some   Members  of  Congress  have  publicly  encouraged  the  President  not  to  use  this  approach,  while   others…including  incoming  House  Homeland  Committee  Chairman  Michael  McCaul  (R-­‐ TX)…acknowledge  that  Congress’s  own  inaction  opened  the  door  for  the  Administration  to   move.     House  and  Senate  committee  leaders  on  both  sides  of  the  aisle  have  indicated  that   cybersecurity  will  be  a  priority  this  year.  Senate  Commerce  Chairman  Jay  Rockefeller  (D-­‐WVA),   Senate  Homeland  Security  Chairman  Tom  Carper  (D-­‐DE)  and  others  have  already  introduced  S.   21,  a  “placeholder”  cyber  bill  which  will  be  fleshed  out  during  further  discussions  among   senators,  outside  groups,  stakeholders  and  other  affected  industries.    In  the  House,  primary   focus  will  be  in  the  Homeland  Security  and  the  Oversight  and  Government  Reform  Committees.     In  each  case,  several  other  committees,  including  Judiciary,  Intelligence,  Armed  Services,  and   Commerce  will  also  be  active.    House  Homeland  leaders  have  also  put  a  high  priority  on  cyber   issues,  and  are  talking  with  their  Senate  colleagues.    A  primary  concern  will  be  whether  to  move   a  more  comprehensive  measure,  or  to  move  quickly  on  less  controversial  aspects  in  a  piece-­‐ meal  approach.     In  any  case,  Congress  will  have  to  address  the  major  concerns  that  arose  during  last  year’s   debate.    These  include:    the  impact  on  consumer  use,  costs,  innovation,  privacy,  and  liability.     Some  critics  also  objected  to  giving  DHS  control,  and  suggested  that  the  constant  changes  in   technology  make  it  difficult  to  agree  on  setting  specific  technical  standards.    Since  many  of   these  issues  have  been  aired  at  length,  Congress  can  draw  on  existing  work  and  consider   modifications  that  could  enable  legislation  to  move  this  year.    One  other  challenge  will  be   finding  the  time  in  view  of  all  the  “cliffs”  and  other  priority  issues.     Several  things  could  impact  the  schedule  in  this  case:  first,  a  high-­‐profile  cyber  event;  second,   issuance  of  the  President’s  Executive  Order;  and  third,  membership  changes  in  Congress  and  on   the  jurisdictional  committees  may  create  a  new  dynamic  for  moving  ahead.     One  other  cyber-­‐related  issue  is  worth  noting.    Several  departments,  including  DOD  and  DHS   have  noted  the  need  for  more  qualified  personnel  and  resources  to  deal  with  the  growing  cyber   threat.      While  there  will  continue  to  be  some  debate  about  “who  mans  the  tiller”  with  regard   to  some  cyber  programs,  it  appears  likely  that  this  is  one  area  where  spending  may  be  less   curtailed  than  others,  even  in  view  of  the  general  concern  that  IT  spending  overall  may  see   some  reduction.    

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

I mmi grat i on I nt ernat i onal Af f ai rs The Senate  Foreign  Relations  and  House  Foreign  Affairs  Committees  have  undergone  a  sea   change  of  leadership  with  all  new  Chairmen  and  Ranking  Members.    Senator  John  Kerry’s  (D-­‐ MA)  ascension  to  Secretary  of  State  and  Senator  Richard  Lugar’s  (R-­‐IN)  primary  election  defeat   have  resulted  in  the  rise  of  Robert  Menendez  (D-­‐NJ)  and  Bob  Corker  (R-­‐TN)  to  be  Chairman  and   Ranking  Member,  respectively.    In  the  House,  term  limits  and  a  primary  defeat  resulted  in  Ed   Royce  (R-­‐CA)  and  Elliot  Engel  D-­‐NY)  replacing  Illeana  Ros-­‐Lehtinen  (R-­‐FL)  and  Howard  Berman’s   (D-­‐CA),  respectively.    These  changes  will  have  major  repercussions.     In  both  cases,  the  chances  of  bipartisan  cooperation  and,  as  a  result,  greater  productivity   increase  exponentially.    Furthermore,  while  more  modest  due  to  institutional  constraints,  there   are  also  real  opportunities  for  bicameral  cooperation  between  the  committees.    For  example,   the  shared  background  and  interests  of  Royce  and  Corker  in  international  financial  and   economic  issues  may  spawn  cooperative  efforts  and  will  certainly  drive  their  respective   agendas.     Royce  has  made  no  secret  of  his  interest  in  promoting  free  trade  and  competitiveness  and  his   committee’s  role  in  authorizing  OPIC  and  the  Trade  and  Development  Agency.    In  addition,  he   will  promote  energy  security  and  intellectual  property  protection.    He  also  intends  to  conduct   more  active  oversight  of  the  State  Department,  USAID,  the  Broadcasting  Board  of  Governors   and  other  agencies/entities  under  the  committee’s  jurisdiction.     Menendez  is  likely  to  cooperate  with  Corker  in  much  the  same  way  Kerry  and  Lugar  worked   together  on  many  issues.    Menendez  supports  Cuba  economic  sanctions  and  he  will  be  pitted   against  freshman  Jeff  Flake  (R-­‐AZ)  who  has  made  a  name  for  himself  in  the  House  opposing   Cuba  sanctions.    John  McCain  (R-­‐AZ)  is  also  new  to  the  committee  and  his  overall  seniority  and   stature  will  make  him  a  player  as  he  has  already  demonstrated  in  hearings  with  Secretary   Clinton  on  Benghazi  and  Kerry’s  confirmation.     Both  committees  will  be  consumed  with  complex  country  issues  including  Iran  –  expect  more   sanctions  tightening,  Syria,  North  Korea,  and  the  rise  of  al-­‐Qaeda  splinter  groups  in  Mali  and   North  Africa.    Russia,  China,  and  Venezuela  will  also  receive  attention.    Also  expect  to  see  a   Foreign  Relations  Authorization  Act  considered  in  both  chambers  this  year  which  will,  no  doubt,   address  the  weaknesses  that  led  to  the  Benghazi  murders,  among  many  other  things.  

Judi ci ary

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

Gun control.    With  the  strong  backing  of  the  Obama  Administration,  Congress  is  expected  to   consider  legislation  that  reinstates  the  “assault  weapon”  ban  enacted  in  the  1990s  and  which   expired  during  George  W.  Bush’s  Presidency,  affecting  semi-­‐automatic  weapons  with  certain   features,  including  militaristic  appearance.  The  President  has  also  called  for  universal   background  checks  for  anyone  seeking  to  buy  a  firearm,  closing  existing  exceptions  to  the   background  check  requirement.    Congress  will  also  debate  a  limit  on  the  size  of  ammunition   clips.  President  Obama  and  other  gun  control  advocates  have  called  for  a  10-­‐round  limit.   Congress  may  also  legislate  to  require  better  record  keeping  to  enhance  the  effectiveness  of   background  checks  and  better  track  guns,  as  well  as  to  make  changes  to  federal  mental  health   programs.       Intellectual  property.  The  Judiciary  Committees  in  both  Houses  can  be  expected  to  undertake   oversight  on  implementation  of  the  America  Invents  Act,  which  overhauled  the  nation’s  patent   laws.    Oversight  hearings  might  also  be  had  on  the  use  of  standard  essential  patents,  an  issue   with  both  intellectual  property  and  competition  components.  Piracy  on  the  internet  will  remain   an  oversight  focus  of  both  Committees  as  they  grapple  with  the  desire  to  protect  copyrighted   material  on  the  internet  without  interfering  with  the  legitimate  operation  of  internet.  After  the   uproar  in  the  last  Congress  over  the  SOPA/PIPA  bills,  Congress  will  tread  carefully  here,  likely   looking  first  for  areas  of  clear  consensus.       Privacy.    The  Judiciary  Committees  are  likely  to  address  various  privacy  issues  in  the  113th   Congress,  such  as  data  breach  legislation;  location  data  protection;  review  and  possible   amendment  of  the  Electronic  Communications  Privacy  Act  (ECPA);  and  Committee  members   will  play  a  role  in  the  cyber  security  issue.    President  Obama  has  been  considering  issuing  an   Executive  Order  concerning  cyber  security  which,  if  undertaken,  would  shape  Congressional   consideration  of  that  issue.       The  two  Judiciary  Committees  can  be  expected  to  continue  their  oversight  role  on  general   competition  issues.    This  will  include  issues  affecting  the  internet,  as  well  as  oversight  of  the   activities  of  the  Justice  Department’s  Antitrust  Division.  The  House  Judiciary  Committee  will   likely  renew  its  consideration  of  the  Business  Activity  Tax  Simplification  Act,  which  clarifies  the   nature  of  the  nexus  a  business  outside  of  a  state  must  have  for  the  state  to  tax  it.    The   Committee  is  also  likely  to  consider  legislation  addressing  marketplace  equity  authorizing  states   to  require  remote  sellers  to  collect  and  remit  sales  and  use  taxes  on  sales  into  the  state.     Chairman  Pat  Leahy  has  said  that  the  Senate  Judiciary  Committee  will  take  up  renewal  of  the   Violence  Against  Women  Act  (VAWA).  

Labor With recent   decisions   this   year   in   Michigan   and   Indiana   enacting   “right-­‐to-­‐work”   laws   that   allow  employees  to  opt  out  of  paying  union  dues  when  they  work  for  union  shops,  a  series  of   blows   have   been   dealt   to   organized   labor   in   states   that   were   once   at   the   heart   of   the   labor   movement.   Though   these   decisions   were   made   at   the   state   level,   they   highlight   an   ongoing   movement  against  unionization.  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

It   is   through   this   prism   that   we   assess   the   implications   of   the   Presidential   and   Congressional   elections   of   2012   and   the   outlook   for   2013   for   organized   labor   and   the   future   role   of   the   National  Labor  Relations  Board  (NLRB),  wage  and  hour  issues,  Employee  Free  Choice,  and  Title   VII.     NLRB  Appointments   On   January   25,   2013,   the   U.S.   Court   of   Appeals   for   the   District   of   Columbia   Circuit   ruled   that   President   Obama's   January   2012   recess   appointment   of   three   members   to   the   five-­‐member   National  Labor  Relations  Board  (NLRB)  was  unconstitutional.  Last  January,  the  President  made   three   "recess   appointments”   -­‐   Sharon   Block,   Terence   Flynn,   and   Richard   Griffin   to   serve   as   Members   of   the   NLRB   -­‐-­‐   the   federal   agency   tasked   with   protecting   employees   from   unfair   management   or   union   practices.     The   court’s   ruling   sides   with   Republican   lawmakers   and   a   canning  company  that  challenged  the  appointments.     The  decision  could  reshape  a  long-­‐standing  practice  by  U.S.  presidents  to  make  recess   appointments.  Such  appointments—which  bypass  Senate  approval  to  install  top  administration   personnel—have  been  used  by  presidents  for  at  least  90  years.  The  January  25  decision,  if  it   holds,  would  restrain  that  power  and  could  void  some  of  the  Board’s  actions  over  the  past  year.   The  Board  made  more  than  200  case  rulings  last  year,  including  a  decision  that  protected   workers  from  being  fired  for  complaining  about  working  conditions  on  sites  like  Facebook,  a   decision  that  gave  greater  rights  to  unions  in  employee-­‐discipline  cases.  The  decision  also  puts   in  jeopardy  recent  moves  by  the  Consumer  Financial  Protection  Bureau,  since  its  director,   Richard  Cordray,  also  was  installed  via  a  recess  appointment.     The  long  term  impact  of  the  ruling  will  depend  on  what  the  Obama  administration  does  next.  If   the  administration  appeals  the  decision  to  the  full  D.C.  Circuit  Court  and  the  Supreme  Court,   the  rulings  would  determine  the  validity  of  all  board  decisions  since  Obama  made  his   appointments  and  the  validity  of  the  board  members  themselves.  If  no  appeal  is  made,  every   NLRB  ruling  since  January  2012  would  be  invalidated.   While  the  NLRB  has  said  that  it  plans  to  move  forward  with  business  as  usual,  issuing  decisions   in  labor  disputes  as  though  nothing  has  changed,  the  decision  raises  major  questions  and  such   uncertainty  creates  confusion  in  the  short  term  for  banks,  financial  markets  and  the  mortgage   industry.  The  NLRB  continues  to  represent  organized  labor’s  most  preferred  and  sympathetic   venue  for  consideration  of  their  agenda.  No  matter  the  outcome  of  the  case,  the  Obama   Administration  will  continue  to  stock  the  Board  with  appointees  sympathetic  to  labor   organizations.   Committee  Perspective   While  Democrats  have  stayed  largely  silent  on  the  issue,  House  and  Senate  Republicans  on  the   committees  of  jurisdiction  -­‐  the  House  Education  and  the  Workforce  Committee  and  the  Senate   Health,  Education,  Labor  and  Pensions  Committee  have  loudly  supported  the  D.C  Circuit  court   decision,   calling   on   the   NLRB   to   cease   all   activity   until   “qualified’   nominees   have   been   21


2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

constitutionally appointed   to   the   board.   From   their   perspective,   any   attempt   to   continue   the   battle  in  federal  court  prolongs  the  uncertainty  the  unilateral  action  has  created  for  America’s   workers  and  job  creators.     Wage  and  Hour  Issues     In  President  Obama's  second  term,  we  expect  to  see  even  more  vigorous  enforcement  of  the   wage  and  hour  laws.  Wage  and  hour  law  is  the  body  of  law  that  establishes  and  regulates  wage   standards,  including  minimum  wage  and  overtime.  This  year  the  U.S.  Department  of  Labor   (DOL)  is  committed  to  an  aggressive  approach  with  employers  that  seeks  to  maximize  recovery   of  backpay  and  other  monetary  remedies.  Also  expect  to  see  more  DOL  regulatory  initiatives  in   this  space.     Income  Disparity   As  part  of  a  more  comprehensive  initiative  aimed  at  reducing  the  growing  problem  of  income   inequality   in   America,   it   is   likely   that   the   President   will   call   for   an   increase   in   the   Federal   minimum   wage.   Currently   set   at   $7.25   per   hour,   the   last   Congressional   action   authorizing   an   increase  in  the  wage  was  signed  into  law  in  2009.  States  have  been  taking  the  issue  into  their   own  hands  with  nearly  half  having  increased  their  minimum  wage  this  year  or  considering  plans   to  raise  it.       Employee  Free  Choice  Act  (EFCA)  and  the  “Notice  Poster”  Rule   The  general  consensus  is  that  the  Employee  Free  Choice  Act  (EFCA)  will  not  come  to  the  floor  in   the   113th   Congress.   However,   the   NLRB   will   seek   to   support   unionizing   efforts   through   the   rulemaking  and  regulatory  process.  Rules  such  as  the  NLRB’s  “Notice  Poster”  rule,  is  one  such   case.   The   rule   would   require   employers   to   display   an   11-­‐by-­‐17-­‐inch   poster   in   their  workplace   that  provides  a  list  of  employee  rights  under  the  National  Labor  Relations  Act  (NLRA).     The   rule   has   been   subject   to   several   legal   challenges   asserting   that   the   NLRB   lacks   authority   under   the   NLRA   to   issue   and   enforce   the   poster   requirement.   The   NLRB   is   prevented   from   enforcing   the   rule   while   such   appeals   are   pending.   The   “Notice   Poster”   rule   could   have   a   significant   impact   on   small   businesses.   The   rule   is   ultimately   about   power   and   whether   the   NLRB  has  the  right  to  enforce  such  actions  or  if  it  is  outside  of  their  authority.  The  decision  in   this   case   will   have   major   implications   as   to   how   far   the   NLRB   can   go   within   this   rulemaking   realm.      While  a  decision  was  expected  at  the  end  of  January,  the  court  has  yet  to  rule  on  the   case.  A  decision  is  not  likely  until  early  spring.       Ambush  Election  Rule   The  outlook  for  the  “Ambush  Election”  rule  is  currently  a  positive  one  from  a  business   perspective,  though  much  depends  on  the  outcome  of  the  Noel  Canning  case  and  whether  it   will  affect  the  makeup  of  the  NLRB.  As  it  stands,  the  NLRB  has  taken  its  appeal  to  court,  but  has   not  pushed  a  response.  We  do  not  expect  one  until  later  in  the  year.  If  the  NLRB  membership   gets  restructured  (this  would  take  place  if  Obama’s  recess  appointments  are  found   unconstitutional)  the  decision  on  the  “ambush  election”  rule  could  be  mute.  However,  in  the   case  of  a  new  NLRB,  they  would  likely  re-­‐issue  an  “ambush  election”  rule.    If  this  is  the  case,   many  in  the  business  community  will  likely  fight  it  and  be  in  a  strong  position  to  do  so.    

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

Persuader  Rule   The   Department   of   Labor’s   (DOL)   proposed   “Persuader”   rule   would   narrow   the   exemption   of   “advice”  from  the  “persuader  activity”  reporting  requirements  under  current  law.  The  final  rule   is   not   yet   out,   but   is   expected   in   late   April.     Primarily   at   issue   is   DOL’s   intent   to   drastically   change   the   accepted   definition   of   “advice,”   which   for   over   50   years   has   been   held   to   refer   to   a   consultant’s  activity  that  “is  submitted  orally  or  in  written  form  to  the  employer  for  his  use.”  As   a   result,   consultants   do   not   have   to   disclose   advice   on   behalf   of   their   clients   regarding   union   issues   to   the   Department   of   Labor.   However,   DOL   is   now   proposing   to   broaden   the   scope   of   reportable   persuader   activity   –   and   its   own   regulatory   reach   –   by   expanding   what   "persuasion"   means.  With  the  proposed  expansion  of  “persuasion,”  the  narrowing  of  the  "advice  exemption"   is   especially   significant.   Any   advice   that   a   consultant   might   give   to   a   client   regarding   “collective   bargaining”   issues   would   have   to   be   filed   and   formally   disclosed   as   public   information.   This   is   a   concern   for   a   number   of   reasons,   not   the   least   of   which   is   protecting   the   proprietary   information  and  advice  that  a  consultant  provides.           Title  VII  and  Equal  Employment  Opportunity  Commission     With  President  Obama  remaining  in  power,  we  expect  that  there  will  be  a  move  to  add  sexual   orientation  as  a  protected  category  under  Title  VII  of  the  Civil  Rights  Act  of  1964.  The  Equal   Employment  Opportunity  Commission  (EEOC)  will  also  continue  to  strengthen  its  initiative   targeting  systemic  discrimination.  

Tax The Fiscal  Cliff   The  American  Taxpayer  Protection  Act  (ATPA)  avoided  the  fiscal  cliff  in  early  January.    With  the   passage  of  the  ATPA,  some  are  questioning  the  need  or  urgency  for  tax  reform  this  year,  or   even  in  the  113th  Congress.    It  is  true  the  next  few  months  will  be  filled  with  more  fiscal  and   budgetary  drama,  but  the  need  for  comprehensive  tax  reform  with  lower  rates  is  as  necessary   and  relevant  as  ever.    Significantly,  the  ATPA  inverted  who  pays  the  top  rates:  individuals  now   pay  the  highest  tax  rates  in  the  United  States.    Prior  to  the  ATPA,  corporations  and  individuals   shared  the  top  statutory  tax  rate  of  35  percent.    However,  small  businesses  and  multinational   corporations  will  continue  the  fight  for  a  lower  tax  rate.       Issues  that  add  to  the  economic  uncertainty  early  this  year  include  the  sequester  of  funds  from   the  federal  budget  for  deficit  reduction  scheduled  to  take  effect  on  March  1,  2013;  the   expiration  of  the  current  six-­‐month  funding  for  the  federal  government  which  expires  on  March   27,  2013;  and  the  ever  present  federal  debt  limit  which  will  need  to  be  increased  again  in  the   summer  of  2013.    Congress  will  have  to  address  these  issues  immediately.       Despite  this  immediate  fiscal  focus,  Chairman  Camp  has  indicated  publically  and  privately  that   he  intends  to  bring  a  legislative  product  to  the  Ways  and  Means  Committee  soon  –  even  ad   early  as  this  summer.    While  it  is  true  that  some  revenues  were  gained  by  the  increased  tax   rates  in  ATPA,  there  were  significant  cost  items  swept  away  as  well.    For  example,  the  tax   writing  committees  will  not  have  to  manage  the  $1.8  Trillion  cost  of  fixing  the  alternative   minimum  tax.    And  there  are  still  revenues  to  be  gained  by  eliminating  various  tax  deductions  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

and credits  while  the  need  to  lower  the  corporate  tax  rate  –  now  the  highest  in  the  developed   world  with  Japan–  is  still  paramount.           Tax  Reform   The  tax  writing  committees  in  Congress  were  assertive  with  their  hearing  schedules  and   legislative  initiatives  in  the  last  Congress.    As  we  have  noted,  the  leadership  of  both  parties  in   Congress  is  committed  to  comprehensive  tax  reform,  most  likely  in  this  Congress.     • Chairman  Dave  Camp  (R-­‐MI)  of  the  House  Ways  and  Means  Committee  recently   released  a  discussion  draft  of  tax  changes  to  the  financial  services  industry.    Other   discussion  drafts  are  expected  early  this  year.    He  has  also  asked  Committee  Republicans   to  withhold  bill  introductions  on  tax  matters  until  the  Committee  acts.[Sensitive,   include?]    It  has  been  suggested  that  Chairman  Camp  may  want  to  hold  a  markup  as   soon  as  this  summer.       • The  President’s  2011  “framework”  for  tax  reform,  while  not  comprehensive,  was  a   signal  that  the  Administration  was  ready  to  engage  on  corporate  tax  reform.    [New   Treasury  Secretary  Jack  Lew  stated  that  the  Administration  supports  efforts  by  Congress   for  a  more  competitive  tax  system  in  his  confirmation  hearings.    Watch  this  to  confirm.]       A  key  element  will  be  whether  the  President  will  put  the  political  force  and  emphasis   behind  a  comprehensive  deal.           • Chairman  Max  Baucus  (D-­‐MT)  of  the  Senate  Finance  Committee  has  also  stated  his   support,  though  not  as  aggressively  as  Chairman  Camp,  for  comprehensive  tax  reform.     He  is  up  for  reelection  in  2014  and  he  will  take  great  care  to  be  responsive  to  the  many   small  businesses  in  Montana  over  the  next  two  years.           Could  corporate  tax  reform  be  considered  first?    This  is  possible  because  both  the  President’s   “Framework”  and  the  discussion  drafts  offered  by  Chairman  Camp  address  the  corporate  side   of  the  tax  code.    However,  as  more  than  half  of  the  U.S.  economy  is  driven  by  S  corporations   and  partnerships,  great  care  will  need  to  be  given  to  ensure  that  business  deductions  and   credits  that  are  eliminated  in  order  to  lower  the  corporate  tax  rate  are  not  to  the  disadvantage   of  pass-­‐through  taxpayers.    It  is  noted  that  the  two  Chairmen  have  stated  their  strong  desire  for   comprehensive  reform  and  not  individual  or  corporate  reform  as  standalone  measures.    We   believe  that  they  will  keep  to  their  word  on  this  matter  and  will  incorporate  individual  tax   reform  into  a  comprehensive  package.       Comprehensive  tax  reform  could  be  a  key  component  of  an  overall  deficit  reduction   package.    We  anticipate  that  this  package  will  take  shape  this  year  and  could  include  the   various  issues  reviewed  here.    Several  tax  and  budget  legislative  opportunities  exist  in  the  new   Congress,  even  early  this  year.    We  will  keep  you  informed.  

Technol ogy Against the  political  backdrop  of  President  Obama’s  reelection  and  numerous  changes  in   Congressional  committee  membership,  Congress  faces  a  robust  agenda  of  technology-­‐related   issues,  many  of  which  were  discussed  at  length  in  the  112th  Congress,  but  with  no  legislative   results.    These  issues  fall  into  several  categories:  first,  the  “perennial  headliners”  such  as  

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cybersecurity, privacy-­‐related  issues,  and  copyright  protection;  second,  the  “event-­‐related”   issues  such  as  media  violence  (part  of  the  gun  control  debate),  hi-­‐tech  visas  and  STEM  issues   (related  to  immigration),  emergency  communications  systems  (fallout  from  Sandy  and  other   disasters)  ;  and  third,  a  growing  concern  that  communications  laws  written  in  the  “copper  wire,   cable  and  wireless  days”  may  no  longer  address  the  realities  of  today’s  IP-­‐based  network.    Also,   issues  regarding  federal  spending  on  IT  systems,  research,  and  the  need  for  more  “tech-­‐savvy”   government  workers  will  arise  during  the  budget  oversight  process.     Congressional  committee  leaders  in  the  new  Congress  have  already  listed  some  of  these  issues   as  agenda  “priorities”,  and  are  undertaking  renewed  efforts  with  their  colleagues  and  outside   stakeholders  to  find  consensus.    In  some  cases,  success  may  depend  on  whether  members   pursue  a  “comprehensive”  approach  or  agree  to  a  “piece-­‐meal”  strategy  for  passing  smaller,   less  contentious  bills.    A  number  of  outside  activities  could  influence  Congressional  action.    For   example,  a  Presidential  directive  or  Executive  Order  on  cyber  or  other  areas  could  prompt   Congress  to  act.  Similarly,  FCC,  FTC  or  court  decisions  (think  net  neutrality  or  spectrum   auctions)  could  also  have  Congressional  reaction.    Marketplace  and  business  activities  could   invite  hearings.    And  of  course,  another  incident  of  violence,  cyber  attack,  or  natural  disaster   could  add  “crisis  pressure”  for  some  action.     In  terms  of  cyber  legislation  (also  discussed  in  another  section),  both  House  and  Senate  leaders   have  designated  this  a  priority  issue.    Senate  Commerce  Chairman  Jay  Rockefeller  (D-­‐WVA),   Senate  Homeland  Security  and  Governmental  Affairs  Chairman  Tom  Carper  (D-­‐DE)  and  others   have  introduced  S.  21,  a  sense  of  the  Senate  place-­‐holder  bill  to  be  finalized  after  further   discussions  with  colleagues  and  others.    House  Homeland  Chairman  Michael  McCaul  (R-­‐TX)  is   also  working  on  a  cyber  strategy  with  his  colleagues.      House  Intelligence  Chairman  Mike  Rogers   (R-­‐MI)  plans  to  re-­‐introduce  his  cyber  information-­‐sharing  bill  which  the  House  passed  last   Congress.     Privacy  issues  also  remain  front  and  center,  particularly  those  dealing  with  mobile  privacy.     Senator  Rockefeller  will  renew  his  push  for  do-­‐not-­‐track  legislation  and  Senate  Judiciary   Chairman  Patrick  Leahy  (D-­‐VT)  will  seek  to  reform  the  Electronic  Communications  Privacy  Act.     Also,  Senator  Al  Franken  (D-­‐MN)  will  renew  his  geolocation  data  bill.    Two  House  Members-­‐-­‐-­‐ Cong.  Mary  Bono-­‐Mack  (R-­‐CA)  and  Cliff  Stearns  (R-­‐FL)  have  left,  but  Cong.  Joe  Barton  (R-­‐TX)   who  co-­‐chairs  the  House  Privacy  Caucus  is  expected  to  pursue  privacy  issues,  including  do-­‐not-­‐ track,  protecting  children  online,  and  how  data  brokers  collect  and  use  consumer  information.     FCC  efforts  to  conduct  a  spectrum  auction  and  free  up  additional  spectrum  for  wireless  use,  an   issue  which  concerns  broadcasters  and  wireless  carriers,  and  also  raises  the  question  of   licensed  versus  unlicensed  spectrum  use  has  generated  Congressional  interest.    Cong.  Greg   Walden  (R-­‐OR)  who  chairs  the  House  Technology  Subcommittee  will  conduct  oversight  hearings   in  this  area  to  ensure  that  the  FCC  doesn’t  “pick  winners  and  losers”  and  responds  to  the  need   for  mobile  broadband  as  well  as  public  safety  communications.     The  Satellite  TV  Extension  and  Localism  Act  expires  in  2014,  and  both  House  and  Senate   Commerce  Committees  are  expected  to  act  on  an  extension  this  year.    Because  this  is  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

considered “must  pass”  legislation  and  raises  the  thorny  issue  of  retransmission  consent,  it   could  become  a  vehicle  for  other  telecom  issues,  including  the  possibility  of  efforts  to  change   the  1992  Cable  Act  and  the  1996  Telecommunications  Act.    While  many  suggest  that  current   telecom  law  and  common  carrier  rules  do  not  reflect  technology  and  marketplace  changes  that   have  produced  the  IP-­‐based  network  of  today,  the  likelihood  of  a  major  re-­‐write  of  either  the   Cable  Act  or  the  96  Telecommunications  Act  in  this  session  is  highly  unlikely.     Other  issues  which  have  been  mentioned  include  the  possibility  of  state  taxes  on  video  goods   and  services.    Both  Senator  Wyden  (D-­‐OR)  and  Congressman  Lamar  Smith  (R-­‐TX)  had  legislation   in  the  last  Congress.    Despite  the  demise  of  anti-­‐piracy  legislation  (SOPA)  last  year,   Congressman  Goodlatte  (R-­‐VA)  may  want  to  revisit  the  issue.    The  Immigration  Innovation  Act,   offered  by  Senators  Hatch  (R-­‐UT)  and  Klobuchar  (D-­‐MN)  reforms  the  H-­‐1B  visa  program,   student  visas,  employment  green  cards  and  promotes  STEM  programs.    This  will  likely  be   considered  as  part  of  the  larger  immigration  debate.   Also,  as  various  jurisdictional  committees  conduct  oversight  of  the  Executive  Departments,  we   could  see  concerns  raised  about  the  level  and  effectiveness  of  IT  spending  in  the  departments.     While  this  could  produce  some  budget  revisions,  one  likely  exception  will  be  funding  for  cyber-­‐ related  technology  and  resources.      

Trade Trans Pacific  Partnership  and  Trade  Promotion  Authority  Renewal  Head  Trade  Agenda     While  the  committees  with  jurisdiction  over  trade  issues  want  to  renew  fast  track  or  trade   promotion  authority  (TPA),  the  Obama  Administration  has  indicated  that  the  initial  focus  in   2013  should  be  provided  behind  realization  of  the  Trans  Pacific  Partnership  (TPP).    House  Ways   and  Means  Committee  Chairman  Dave  Camp  (R-­‐MI)  and  Senate  Finance  Committee  Chairman   Max  Baucus  (D-­‐MT)  have  prioritized  the  renewal  of  trade  promotion  authority  this  year,  but  the   Administration  is  suggesting  that  TPA  consideration  wait  until  TPP  negotiations  near  conclusion.         The  Obama  Administration  is  focusing  on  moving  ahead  on  the  most  controversial  elements  of   the  TPP  talks  so  that  negotiations  can  move  toward  completion.    This  effort  will  demand   working  closely  on  difficult  issues  with  Congress  on  what  the  TPA  will  contain.    One  can  expect   that  influential  Members  and  Senators  like  Camp  and  Baucus  will  have  a  number  of   opportunities  to  get  commitment  on  renewal  of  TPA  should  the  Administration’s  desire  to   conclude  a  TPP  be  realized.             Some  trade  analysts  are  predicting  that  the  Administration  could  attempt  to  couple  the  TPP   deal,  which  is  targeted  to  reach  conclusion  as  soon  as  October,  2013,  with  a  broader  vote  on  a   TPA  bill  that  would  address  future  negotiations.    While  such  combined  legislation  would  not   enjoy  fast  track  protections,  it  would  provide  the  Administration  with  the  objective  of  having   only  one  major  fight  over  trade  instead  of  two.    Another  scenario  that  may  play  out  would  be   that  the  Administration  hold  off  on  asking  for  TPA  until  there  is  greater  momentum  behind  TPP,   but  before  a  definitive  close  to  the  negotiations  is  realized.    A  third  scenario  could  be  that  the  

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Administration move  to  pass  TPP  without  fast  track  protections,  and  only  then  engage  Congress   on  the  issue  of  future  fast  track  negotiation  authority.         Republicans  on  Capitol  Hill  have  long  sought  the  renewal  of  trade  promotion  authority.    Some   Democrats,  including  Chairman  Baucus,  have  TPA  as  a  top  priority  for  the  first  session  of  the   113th  Congress.    There  remains,  however,  much  less  urgency  for  TPA  from  House  Democrats.     Given  that  the  most  recent  TPA  bill  was  enacted  in  2002,  the  business  community  is  seeking   changes  to  the  now  lapsed  legislation.    The  changes  will  fall  into  two  categories.    The  first   covers  so  called  “new  issues”  that  relate  to  electronic  commerce,  free  data  flows,  and  state   owned  enterprises.    Such  issues  were  not  covered  by  the  2002  bill  but  have  been  pursued  by   the  Administration  in  TPP  talks  and  Congress  may  want  to  include  new  language  in  these  areas   in  a  new  TPA  bill.       The  second  category  will  be  how  a  new  TPA  bill  handles  protections  for  the  environment,  labor   rights,  and  intellectual  property.  Members  of  the  New  Democrat  Coalition  in  January  suggested   that  revised  TPA  negotiating  objectives  ought  to  reflect  such  provisions  contained  in  the  so   called  May  10th  deal,  which  provided  enhanced  environmental  and  labor  protections  in  US   trade  deals  as  opposed  to  the  “enforce  your  own”  standard  that  was  the  basis  in  the  2002   legislation.    Senator  Orrin  Hatch(R-­‐UT),  the  Ranking  Member  on  Senate  Finance  Committee,  has   continued  to  express  concerns  of  such  provisions  in  the  May  10th  deal.         The  business  community  meanwhile  sides  with  many  on  Capitol  Hill  in  that  waiting  to  engage   on  fast  track  reauthorization  until  nearly  concluding  the  Trans  Pacific  Partnership  negotiations   would  be  a  mistake.    There  have  been  suggestions  that  TPA  negotiations  will  be  difficult  and   that  they  will  not  get  any  easier  if  negotiations  are  postponed  until  later  this  year.    Additionally,   business  interests  speculate  that  waiting  to  address  TPA  issues  will  likely  bring  about  delay  on   the  realization  of  TPP.    TPA  could  well  provide  for  an  easier  consideration  and  passage  of  the   TPP.    But  the  Administration  argues  that  having  a  strong  TPP  deal  in  hand  would  make  it  easier   to  convince  skeptics  about  the  benefits  of  moving  ahead  on  other  deals,  including  possibly  a  US   /  European  Union  deal.         Congress  can  and  may  choose  to  kick  off  the  TPA  process  prior  to  receiving  the  request  from   the  Administration  for  trade  promotion  authority.    We  expect  to  get  a  sense  of  how  things  will   shake  out  soon  from  the  Ways  and  Means  Committee  leadership  under  Chairman  Camp  and   Trade  Subcommittee  Chairman  Devin  Nunes  (R-­‐CA).    A  hearing  in  Ways  and  Means  on  fast  track   /  TPA  in  the  ensuing  weeks  may  well  result.    Meanwhile,  we  will  continue  to  monitor  relevant   developments  involving  the  final  few  rounds  on  the  Trans  Pacific  Partnership  negotiations  that   take  place  leading  up  to  the  Asia-­‐Pacific  Economic  Cooperation  forum  scheduled  to  take  place   in  Indonesia  this  October.    Whether  a  final  TPP  agreement  can  be  reached  before  the  October   meeting  remains  to  be  seen.     Whether  or  not  Congress  moves  to  consider  tax  reform  will  also  factor  into  whether  or  not  fast   track  reauthorization  is  pursued  during  the  113th  Congress.    Prior  to  the  agreement  on   individual  income  tax  rates  earlier  this  year,  it  was  anticipated  that  Congress  would  have  a  

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primary focus  on  working  on  corporate  and  individual  tax  reform  in  the  113th  Congress,  which   would  possibly  take  up  much  of  the  schedule  for  the  House  Ways  and  Means  Committee  and   Senate  Finance  Committee.    With  the  individual  income  tax  rate  debate  having  been  settled  in  a   deal  earlier  this  year,  urgency  for  tax  reform  has  been  lessoned  according  to  some  legislators,   and  certainly  according  to  officials  in  the  Obama  Administration.    This  may  provide  the   committees  of  jurisdiction  more  time  to  work  on  realization  of  the  Trans  Pacific  Partnership  and   Trade  Promotion  Authority.     US  /  EU  Move  to  Launch  Comprehensive  Trade  Negotiations     The  United  States  and  European  Union  (EU)  are  expected  announce  in  the  weeks  ahead  the   launch  of  comprehensive  trade  negotiations,  and  are  currently  considering  an  approach  that   would  allow  different  areas  to  move  forward  along  various  schedules  while  under  a  broader   unified  undertaking.    Such  an  approach  could  allow  for  difficult  areas,  like  regulatory  issues,  not   to  side  track  other  areas  that  could  move  more  efficiently.    Decision  like  these  will  be  finalized   as  the  High  Level  Working  Group  negotiations  are  expected  to  conclude  and  the  launch  of   formal  negotiations  results.           Earlier  this  month,  foreign  ministers  from  the  European  Union  reacted  with  guarded  optimism   to  Vice  President  Joe  Biden’s  indication  that  an  FTA  with  the  EU  is  a  top  priority  of  the   Administration  and  that  they  wish  to  realize  the  FTA  “on  one  tank  of  gas”  as  the  Vice  President   put  it.    There  was  some  skepticism  to  such  remarks  but  trade  proponents  should  add  the  EU   deal  to  TPP  as  targets  to  shoot  for  through  which  the  Administration  may  reach  goals  set  forth   in  the  President’s  National  Export  Initiative  (NEI).    Announced  in  2010,  NEI  hopes  to:    (1)   improve  trade  advocacy  and  export  promotion  efforts;  (2)  increase  access  to  credit,  especially   for  small  and  medium-­‐sized  businesses;  (3)  remove  barriers  to  the  sale  of  U.S.  goods  and   services  abroad;  (4)  robustly  enforce  trade  rules;  and  (5)  pursue  policies  at  the  global  level  to   promote  strong,  sustainable,  and  balanced  growth.      The  Administration  states  that  it  remains   committed  to  realization  of  the  targets  set  forth  in  NEI  and  realization  of  additional  FTAs  should   help  meet  the  significant  growth  targets  set  forth  in  2010.         USTR  Kirk  Stepping  Down  at  End  of  February     United  States  Trade  Representative  Ron  Kirk  announced  January  22,  2013  that  he  would  be   leaving  his  post  in  late  February.    Kirk  was  successful  in  ratifying  agreements  negotiated  under   the  Bush  Administration,  which  included  FTAs  with  South  Korea,  Panama,  and  Colombia.    The   following  individuals  are  rumored  candidates  to  be  named  as  Kirk’s  replacement:   • Lael  Brainard,  current  Undersecretary  of  the  Treasury    for  International  Affairs   • Francisco  Sanchez,  current  Undersecretary  of  Commerce  for  International  Trade   • Mike  Froman,  current  Undersecretary  of  National  Security  Administration  for   International  Economic  Affairs   • Chris  Gregoire  –  outgoing  Governor  of  Washington   • Howard  Berman  –  former  Member  of  Congress   • Cal  Dooley  –  former  Member  of  Congress  

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Tom Donilon  –  National  Security  Advisor  

Trans port at i on Priorities for  transportation  in  the  113th  Congress  include:         Reauthorization  of  the  Water  Resources  Development  Act  (WRDA)   The  last  reauthorization  of  water  resources  development  programs  occurred  in  2007,  over  five   years  ago.    Congress  made  attempts  in  the  last  Congress  to  move  a  WRDA  bill,  even  most   recently  in  the  lame  duck  Congress  after  Hurricane  Sandy,  but  has  thus  far  been  unsuccessful.     The  WRDA  bill  authorizes  projects  and  programs  of  the  US  Army  Corps  of  Engineers  affecting   navigation  with  inland  waterways  and  seaports,  as  well  as  flood  control  and  environmental   issues.    Financing  these  programs  going  forward,  as  with  all  federal  infrastructure  programs,  will   be  the  biggest  issue  to  address.           Reauthorization  of  Federal  Passenger  (Amtrak)  and  Freight  Rail  programs       Current  authorizations  for  Federal  passenger,  freight  rail  and  safety  programs  expire  at  the  end   of  this  fiscal  year.    Major  issues  to  be  addressed  include  private  sector  involvement  in  the   provision  of  passenger  rail  service,  a  controversial  issue  which  divides  along  partisan,   geographic  and  labor  lines,  high  speed  rail  and  freight  rail  safety  regulatory  issues.                 Oversight  of  Federal  Surface  Transportation  and  Aviation  Programs   With  the  passage  of  Federal  surface  transportation  and  aviation  reauthorization  bills  in  the  last   Congress,  the  113th  Congress  will  engage  in  oversight  of  implementation  issues  of  new   provisions  in  both  these  programs.      Oversight  of  Moving  Ahead  for  Progress  for  the  21st   Century  (MAP-­‐21)  will  include  hearings  on  its  environmental  streamlining,  federal  approvals   process  for  federal  transportation  projects  and  other  reforms,  as  well  as  the  volume  of   significant  new  safety  regulations  on  the  commercial  motor  vehicle  sector.    Oversight  of  the   Federal  Aviation  Administration  Modernization  and  Reform  Act  of  2012  will  include  hearings  on   implementation  of  NextGen  to  improve  efficiencies  in  air  traffic  control,  as  well  as  consumer   issues.             Reauthorization  of  Federal  Surface  Transportation  Programs  –  MAP-­‐21   Current  authorizations  for  Federal  highways,  transit,  motor  carrier  and  highway  safety   programs  expire  at  the  end  of  fiscal  year  2014  (MAP-­‐21).    The  113th  Congress  will  begin  the   process  to  reauthorize  those  programs  through  hearings  in  the  1st  Session.    The  major   overarching  issue  to  be  resolved  remains  finding  a  long-­‐term,  stable  source  of  revenue  to   finance  these  programs  into  the  future.          

Travel and Touri s m Last year  was  pivotal  for  the  travel  industry  in  America’s  public  policy  agenda.  In  January,   President  Obama  announced  a  goal  of  attracting  100  million  international  travelers  to  the  U.S.  

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by the  year  2021.  In  May,  the  Obama  Administration  announced  the  plan  to  achieve  that  goal   called  the  National  Travel  and  Tourism  Strategy.    The  Strategy  enumerated  the  first-­‐ever   Presidential  vision  for  a  national  travel  and  tourism  policy.    The  plan  included  an   intergovernmental  approach  to  achieve  its  goals  including  the  Department  of  State,  the   Department  of  Homeland  Security,  the  Department  of  Commerce  and  the  Department  of  the   Interior.  In  doing  so,  President  Obama  acknowledged  the  industry’s  extraordinary  role  as  the   number  one  contributor  to  our  balance  of  trade;  its  14.4  million  jobs;  and  $1.9  trillion  of   economic  activity.  His  vision  was  to:     • Work  with  Brand  USA,  the  first  ever,  Congressionally  authorized  effort  to  better  market   the  United  States’  travel  brand  around  the  world,  and   •

To improve  travel  facilitation  to  and  within  the  US,  including:   o Expanding  the  VWP  (the  38  countries  in  the  VWP  account  for  65%  of  all   international  travel  to  the  U.S.).   o Improve  the  visa  experience   o Expand  the  trusted  traveler  program   o Improve  and  expedite  the  airport  screening  process  

The good  news  is  that  the  economy  and  industry    are  already  seeing  real  improvement  on  a   number  of  these  fronts:  visa  wait  times  are  dramatically  down  in  China,  Brazil,  Argentina,  and   numerous  other  countries;  TSA  is  reporting  shortening  lines  nationwide;  TSA  personnel  are  now   receiving  hospitality  training  so  as  not  to  offend  travelers;  and  airport  signage  is  becoming   clearer  and  more  universal  in  application.  The  travel  industry  plans  to  build  on  the  successes  of   2012  and  plan  for  a  future  of  sustained  achievement.  The  travel  caucuses  in  the  House  and   Senate  are  planning  for  a  robust  agenda  to  keep  the  momentum  of  the  industry  moving   forward.     However,  policy  makers  and  stakeholders  alike  are  intensely  aware  of  the  myriad  challenges   that  exist.  Working  within  budgetary  and  political  constraints  will  be  a  delicate  matter.  Some  of   the  challenges  are:   •

International travel  is  booming  and  global  travel  spending  is  set  to  reach  $2.1  trillion  by   2020.  Domestic  travel  remains  strong  as  well.    However,  U.S.  aviation  infrastructure  is   outdated  and  cannot  keep  up  with  demand.  Our  air  traffic  control  system  is  a  relic  of   WWII;  we  have  the  most  congested  skies  in  the  world;  our  airports  don’t  have  enough   runways  and  our  terminals  have  become  chokepoints.    

Our global  competitors  are  spending  like  crazy  on  promotion;  infrastructure;  and   infrastructure  modernization.  

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As these  national  issues  go  unaddressed,  the  consequences  become  more  acute:     o Delays  lead  to  lost  productivity:  Each  year,  Americans  lose  $9  billion  in   productivity  due  to  flight  delays.  The  NY  Metropolitan  Region  estimates  that  by   2025  air-­‐traffic  congestion  will  create  productivity  losses  costing  the  region   5,600  jobs,  $16  billion  in  lost  output,  and  $5.5  billion  in  lost  labor   o Trips  never  taken  costs  U.S.  businesses:  The  flights  Americans  avoid—due  to   travel  hassles,  delays  and  frustrations—weaken  our  economy.  One  study   estimates  airlines  lost  $9  billion,  hotels  $6  billion,  and  restaurants  $3  billion  in   revenues  due  to  avoided  trips.  Overall,  the  government  lost  the  opportunity  to   capture  $4  billion  in  tax  revenue.  A  2008  travel  industry  study  reported  that   frustration  with  the  travel  process  caused  people  to  avoid  41  million  trips  that   year.     o By  2025  delays  at  Newark,  LaGuardia,  and  JFK  airports  could  cost  the  regional   economy  some  $79  billion.     Industry  organizations  are  trying  to  maximize  their  growing,  bipartisan,  economic  stature  in   Washington  by  initiating  or  expanding  ongoing  travel  initiatives  that  intersect  with  various   public  policy  debates:     •

Meetings Mean  Business:  Every  ill-­‐advised  comment  knocking  meetings  and  events,   travel  to  Las  Vegas,  corporate  meetings  and  the  like,  creates  unfair  disincentives  to   travel.  As  all  of  you  know,  no  conference  call  can  ever  replace  the  value  of  a  handshake   and  a  shared  meal.    

Vacations provide  more  than  just  a  respite:  Time  off  is  good  for  the  body  and  the  soul,   and  Americans  have  nothing  to  be  proud  of  as  the  developed  nation  whose  citizens  are   least  inclined  to  use-­‐up  their  annual  leave.    

Our 20th  Century  infrastructure  is  stifling  economic  growth.  Meaningful  new   investments  in  infrastructure  would  create  jobs  and  spur  economic  growth.    

Lastly,  it  is  worth  noting  the  two  Federal  legislative  issues  that  are  most  likely  to  affect  the   travel  space  and  demand  the  attention  of  law  makers.  Both  issues  will  be  dramatically  affected   by  the  recent  election  results  and  the  changing  demographics  in  America.   The  first  is  comprehensive  immigration  reform.  The  needs  of  American  employers  and   employees  will  best  be  addressed  through  a  new  process  that  better  reflects  21st  century   marketplace  realities.  The  travel  industry,  with  probably  the  most  diverse  workforce  in  America,   will  seek  to  use  the  legislation  to  codify  improvements  to  the  Visa  Waiver  Program  (VWP)  and   other  entry-­‐exit  programs.  Having  endorsed  an  aggressive  national  travel  strategy,  the  support  

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of the  Obama  Administration  and  Congressional  Democrats  is  near  certain.  For  political  reasons   manifestly  obvious  in  last  month’s  election  results,  most  GOP  leaders  are  likely  to  support   immigration  legislation  this  time  around.       The  second  and  larger  challenge  will  be  comprehensive  tax  reform  which  will  be  considered   later  this  year,  separate  and  apart  from  the  fiscal  cliff  deal,  and  will  have  two  components:       • At  the  corporate  level,  taxes  paid  affect  capital  available.  In  many  companies,  capital   available  defines  corporate  discretionary  spending  for  functions  like  travel  budgets,   meetings,  and  events.       • At  the  personal  level,  taxes  directly  affect  the  highly  elastic,  discretionary  spending   decisions  that  we  all  make  about  choices  for  things  like  dining  out,  vacations,  retail   shopping,  and  the  like.       According  to  the  U.S.  Travel  Association,  business  travel  serves  as  an  enormous  economic   catalyst  that  improves  corporate  productivity  and  generates  additional  economic  activity  that   greatly  exceeds  the  direct  expenditure  on  travel  by  a  factor  of  10  to  1.     Authors  of  comprehensive  tax  reform  will  have  a  host  of  travel  related  questions  to  ponder   while  fully  consider  the  overlapping  and  sometimes  incongruous  needs  of  reducing  the  deficit   while  still  stimulating  the  economy.    In  practical  terms,  that  means  asking  questions  like:   • • •

Will business  meal  deductibility  be  retained  at  any  level?   Will  the  spousal  travel  deduction  ever  be  restored   What  will  Congress  do  about  the  current  panoply  of  Federal  airline  taxes?  Did  you  know   that  right  now  there  are  17  separate  Federal  taxes  and  fees  that  account  for  $61  of  the   cost  of  a  $300  roundtrip  domestic  airline  ticket?   Will  they  use  the  tax  code  to  create  new  incentives  or  disincentives  for  meetings  and   events  

     

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Although the  largely  status  quo  election  increases  the  likelihood  that  President  Obama  and   Congress  will  adopt  a  framework  in  the  Lame  Duck  session  to  avert  the  fiscal  cliff,  actually   addressing  the  structural  issues  that  underlie  the  fiscal  cliff  will  likely  remain  a  task  for  the  113th   Congress.    

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

The fiscal  issues  looming  in  the  new  year  are  daunting  by  any  measure.  Absent  a  Lame  Duck   budget  deal,  in  January  2013  most  taxpayers  will  see  an  immediate  increase  in  their  taxes  with   the  expiration  of  the  payroll  tax  cut,  the  marginal  rate  for  all  taxpayers  will  increase,  and  the   statutory  sequestration  of  $1  trillion  in  defense  and  domestic  spending  cuts  over  ten  years  will   begin  to  take  effect.  In  addition,  the  current  Continuing  Resolution  (CR)  is  set  to  expire  on   March  27,  2013.     Even  if  all  parties  reach  a  Lame  Duck  deal  to  avoid  sequestration,  it  is  unlikely  that  Congress  can   achieve,  either  in  the  Lame  Duck  or  in  the  first  months  of  2013,  the  breakthrough  agreement   that  definitively  addresses  all  aspects  of  the  Grand  Bargain.  Instead,  the  more  likely  scenario  is   a  more  incremental  package  requiring  Congress  to  meet  the  established  targets  by  a  certain   deadline  and  impose  harsh  mandate  penalties  should  Congress  fail  to  meet  the  goals  presented   in  the  framework  agreement.     The  most  likely  scenario  for  a  Grand  Bargain  deal  is  one  that  re-­‐engineers  a  package  similar  to   the  $4  trillion  in  debt  reduction  negotiated  by  President  Obama  and  Speaker  Boehner  in  the   summer  of  2011  –  which  both  parties  walked  away  from  after  the  deal  fell  through.  Given  the   sweeping  nature  of  that  2011  package,  and  the  professed  willingness  of  both  sides  to  take  on   other  issues  such  as  tax  reform,  the  Grand  Bargain  debate  will  likely  include  changes  to  the   individual  and  corporate  tax  rates,  mandatory  cuts  to  discretionary  spending,  reforms  to   entitlement  programs  such  as  Social  Security  and  Medicare,  and  a  revisiting  of  the  sequestered   cuts  to  defense  and  Medicare  programs  mandated  by  the  Budget  Control  Act  of  2011.       Congress  is  likely  to  deliberate  on  the  thorny  issues  of  energy  and  immigration.  Each  of  these   two  issues  played  a  major  role  in  the  election,  and  President  Obama  is  likely  to  press  Congress   on  these  matters.  In  addition,  the  Congress  will  take  up  a  host  of  possible  unfinished  legislative   initiatives  from  the  previous  Congress  including  the  Farm  Bill,  cybersecurity,  and  unfinished   fiscal  2013  appropriations  bills.  Also  looming  in  2014  is  the  expirations  of  the  federal  surface   transportation  programs.       OTHER  EXPIRING  REAUTHORIZATIONS:   H.R.  2269  S.  550   FIRE  Grants  Reauthorization   H.R.  5949  S.  3276     FISA  Reauthorization   H.R.  4310  S.  3254     Defense  Reauthorization   H.R.  1418  S.  2231/S.509     H.R.  5743  S.  1458     H.R.  1852  S.  958     H.R.  4970  S.  4982     H.R.  1291  /  H.R.  1234  S.  676    

Credit Union  Lending   Intelligence  Reauthorization   Children's  Hospitals  GME  Reauthorization   Violence  Against  Women  Reauthorization   Carcieri  Fix  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

The  Congress  is  sure  to  consider  a  great  number  of  weighty  issues  in  the  113th  Congress,  but  it   is  much  less  clear  whether  the  two  parties  can  come  to  an  agreement  on  the  big  deals  that   eluded  them  in  the  previous  Congress.      

KEY LEGI SLATI VE DATES November  13:  Lame  Duck  Session  Convenes     November  13:  House  Republican  Leadership  elections  possible  this  week     November  14:  Two  party  leadership  elections  in  the  Senate       November  22:  Thanksgiving  Day       November  29:  House  Democratic  Leadership  Elections     Late  November  –  Early  December  (House  leadership  to  set  exact  date):  Retiring  or  defeated   Members  have  to  be  out  of  their  offices     December  25:  Christmas  Day       December  31:  Expiration  of  Bush  tax  cuts,  expiration  of  unemployment  benefits,  expiration  of   “Doc  Fix,”  and  the  deadline  given  by  Treasury  to  address  the  debt  ceiling.       January  2:  Sequestration  occurs      

*SENATORS UP  FOR  ELECTION  IN  2014   Democrats  (20)   Republicans  (13)   Baucus,  Max  (MT)   Begich,  Mark  (AK)   Coons,  Chris  (DE)   Durbin,  Richard  J.  (IL)   Franken,  Al  (MN)   Hagan,  Kay  (NC)   Harkin,  Tom  (IA)   Johnson,  Tim  (SD)   Kerry,  John  (MA)  

Alexander, Lamar  (TN)   Chambliss,  Saxby  (GA)   Cochran,  Thad  (MS)   Collins,  Susan  (ME)   Cornyn,  John  (TX)   Enzi,  Michael  B.  (WY)   Graham,  Lindsey  (SC)   Inhofe,  James  M.  (OK)   Johanns,  Mike  (NE)  

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2012 POST- ELECTION ANALYSIS | NOVEMBER 2012

Landrieu, Mary  L.  (LA)   Lautenberg,  Frank  R.  (NJ)   Levin,  Carl  (MI)   Merkley,  Jeff  (OR)   Pryor,  Mark  (AR)   Reed,  Jack  (RI)   Rockefeller,  John  D.,  IV  (WV)   Shaheen,  Jeanne  (NH)   Udall,  Mark  (CO)   Udall,  Tom  (NM)   Warner,  Mark  (VA)  

McConnell, Mitch  (KY)   Risch,  Jim  (ID)   Roberts,  Pat  (KS)   Sessions,  Jeff  (AL)                

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