January CEO Report - Policy Update From Washington, D.C.

Welcome to the January edition of the CEO Report, POLITICO Pro's high-level outlook on the policy issues driving the month ... and beyond.

BUDGET & APPROPRIATIONS

Another spending showdown: A shutdown deadline looms this month, more than a quarter of the way into the fiscal year, Pro Budget and Appropriations' Jennifer Scholtes reports. Government funding is now set to run out on Jan. 19, the same day sequestration - or across-the-board spending cuts - will take effect if lawmakers don't strike a deal to lift budget caps. Despite several meetings between top lawmakers and White House officials, leaders have yet to settle on new limits for defense and non-defense spending. Other thorny issues are getting tangled up in those negotiations, including debate over protections for young undocumented immigrants, shoring up Obamacare and aid to disaster-hit states.

Even if a deal on budget caps is reached by Jan. 19, lawmakers will still need to pass another stopgap spending bill to extend current funding levels for a few more weeks. Appropriators say it will take about a month to divvy up spending among the entire federal government once those fiscal guideposts are agreed upon.

Disaster aid held hostage: It has been almost two months since the White House made its latest disaster aid request, and Congress has yet to clear a third infusion of cash to help states devastated by hurricanes and wildfires last year. The House passed an $81 billion measure (H.R. 4667 (115)) in late December that far exceeds the Trump administration's request. But the bill is still languishing in the Senate, where Minority Leader Chuck Schumer seeks tweaks for Puerto Rico, including more help for the territory's cash-strapped Medicaid program, further cost-sharing lenience and the nixing of a new business tax that he said "treats Puerto Rico as if it's a foreign country."

EMPLOYMENT & IMMIGRATION

DACA deadline is now: The clock is also ticking to find a solution for undocumented immigrants covered under the Deferred Action for Childhood Arrivals program. The problem isn't lack of popular support for so-called DREAMers, who were brought to the country at a young age: A December pollconducted by Quinnipiac University found 85 percent of voters wanted them to be able to remain in the U.S. (and fully 77 percent backed citizenship). The obstacle is partisan division. President Donald Trump has said he's open to a DACA deal, but wants commitments in return, including funding for a border wall, restrictions on family-based immigration and changes to a visa lottery program. Democrats favor a clean DREAM Act, S. 1615 (115), which would offer conditional legal status to an estimated 2.1 million undocumented immigrants.

A bipartisan group of senators is trying to hash out a plan that would include a DREAMer fix and also boost border security, but pressures from outside groups are making that difficult. On one side, immigration hardliners - skeptical of any "amnesty" - will agree to codify DACA only if they can ramp up enforcement and throttle back on legal immigration. NumbersUSA, a grassroots group that favors lower levels of immigration, wants any DACA deal to include cuts to family ("chain") immigration, an end to the visa lottery, and mandatory E-Verify, which enables employers to confirm workers' legal status. "It's going to take a lot for us to come out and support any kind of any amnesty," said Roy Beck, the organization's executive director.

But if a DACA bill is laden with new enforcement measures and reductions in legal immigration, it may lose the support of DREAMers and their backers. Tyler Moran, managing director of the DC Immigration Hub, said the conversation has already tilted too far toward the immigration hawks. "People are getting a little bit greedy," she said.

Under the timeline set by the Trump administration, DACA enrollment will begin to expire in large numbers on March 5. But Congress doesn't have that long if it wants to protect DREAMers currently covered by the program. Any new immigration initiative will require weeks, if not months, to implement, and the left-leaning Center for American Progress calculates that 122 DREAMers are losing protected status each day. "If members of Congress were forced to take a vote on this, I really think it would pass," said Moran, a former adviser to retired Democratic Sen. Harry Reid. "So there's no reason to hold this up." - Ted Hesson

CYBERSECURITY

The midnight hour is nigh ... again: Lawmakers yet again face a deadline to renew expiring online surveillance tools after passing a temporary extension in late December to allow more debate.

Capitol Hill was originally up against an end-of-year deadline to reauthorize the powerful snooping efforts authorized under Section 702 of the Foreign Intelligence Surveillance Act, which target overseas suspects but also ensnare personal information of an unknown number of Americans. Amid the hectic fight over funding the government, lawmakers were unable to get enough votes to pass a long-term extension of the 702 statute and instead kicked the deadline to Jan. 19.

Disagreement among Republicans is the major impediment to re-upping 702. While leaders and hawkish lawmakers are on board with a long-term renewal that makes few changes to the programs, the House Freedom Caucus and other powerful Republicans - such as House Judiciary Chairman Bob Goodlatte - want to see major revisions that they say would better protect the privacy of Americans. These revisionists are seeking to impose a warrant requirement in certain instances for officials seeking to access the content of Americans' communications stored in the database of 702-intercepted chatter.

Still, observers expect lawmakers to push through an extension that largely keeps the 702 statute in place with only slight tweaks. They'll just have to do it over objections - and filibuster threats in the Senate - from not only the House Freedom Caucus, but also privacy-minded Democrats like Sen. Ron Wyden.

Can't we all just get along?: The House Intelligence Committee may be wrapping up its investigation into Russia's digital meddling in the 2016 election, much to the consternation of panel Democrats. The two parties have been squabbling in recent weeks over witness lists, with Intelligence top Democrat Adam Schiff complaining in a Wall Street Journal op-ed that Republicans are rushing the probe, refusing to bring in some witnesses desired by the Democrats, conducting interviews without proper preparation and failing to schedule any more interviews after the new year.

Republicans leading the probe downplaythe disputes as "natural disagreements among professionals," as Rep. Mike Conaway of Texas, a top Republican on the panel, put it recently. "The investigation is not over," he added. "We're moving forward aggressively." Given the fractious exchanges, it looks increasingly like the panel might produce two reports - one from each party.

Meanwhile, the Senate's parallel Russia probe has operated with more comity - for now. Most signs point to the upper chamber investigation continuing a little longer than that of its House counterpart. The examination's leaders have also stressed their report will include election security recommendations for states looking to keep out Russian hackers in the future.

New year, new rules: As of Jan. 1, defense contractors are expected to meet new cybersecurity requirements for systems operated for the Pentagon. A federal contracting rule gave firms until the new year to "provide adequate security on all covered contractor information systems," with the technical standards agency NIST publishing a list of required security measures.

The new regulation is the government's most serious attempt yet to protect military data from hackers who have breached a series of sensitive targets in recent years, including the email network of the Joint Chiefs of Staff. But businesses will be grappling with what exactly constitutes "adequate security," a common concern when it comes to meeting federal regulators' cybersecurity expectations. And it's unclear exactly how or whether the Defense Department will be able to certify contractors' compliance. Still, the new rule could be the test case ahead of an expected regulation sometime this year that standardizes data protection requirements no matter what agency a contractor is supporting. - Cory Bennett

FINANCIAL SERVICES

Moment of truth for flood insurance: Congress has repeatedly punted on a long-term reauthorization of the National Flood Insurance Program, but the next expiration deadline on Jan. 19 could be the impetus for a deal. Lawmakers have spent months trying to hash out proposals to overhaul the program, which protects millions of homeowners from the risks of flooding. The House has passed a five-year reauthorization bill, but the Senate has lagged. In the absence of a deal, Congress has extended the program in sync with short-term government funding bills. Lawmakers are looking to break the cycle in the coming weeks.

Regulatory rollback: The Senate is gearing up to pass bipartisan legislation that would dial back a number of financial regulations enacted as part of the landmark 2010 Dodd-Frank law. The bill would ease rules for small lenders as well as larger, regional banks. Once the Senate acts, the big question will be how much the House will try to put its own stamp on the proposal. House Republicans have taken a more aggressive approach to undoing Dodd-Frank but are aware of the challenges of getting a package through the Senate to the president's desk.

Trump's new hires: A number of Trump's financial nominees could see Senate action in the first quarter of 2018. Federal Reserve Chair Janet Yellen's term at the helm of the central bank ends in February, so the Senate is likely to move quickly to approve Jerome Powell's nomination as her replacement. Yellen's impending departure could also spur speedier action on Marvin Goodfriend, Trump's nominee for one of the three, soon to be four, open seats on the Fed's board. Also pending before the Banking Committee: Jelena McWilliams to be FDIC chair and Thomas Workman for the insurance seat on the Financial Stability Oversight Council.

Tax law's fallout: Fannie Mae and Freddie Mac will take a one-time hit to earnings as a result of tax reform, which will require them to write down the value of tax-deferred assets. As a result, both companies could need an infusion of taxpayer aid to balance their books.

Bitcoin focus: Regulators will try to wrap their arms around digital currency regulation through more published guidance and enforcement action. Bitcoin in particular may also receive more anti-money-laundering scrutiny as U.S.-sanctioned regimes or individuals use it to skirt those penalties. - Mark McQuillan

TAX

Now the real work starts: With the Republican tax overhaul now the law of the land, the IRS and the Treasury Department will be plenty busy implementing it. Hundreds of rules, regulations and "guidances" are likely. With tax filing season beginning Jan. 29, it'll be like building a plane while they're flying it. The IRS has already issued three missives on the law, governing withholding, property tax deductions and how corporations should calculate how much tax they have to pay on money they'll be required to bring home from abroad. Businesses that pay taxes through the individual side of the tax code, known as pass-throughs, will be expecting quick guidance on major changes affecting them, as will universities facing a new tax on their endowments.

Is the IRS up to it? One question the daunting task of implementation raises is whether the resource-starved IRS can do it. The agency has suffered round after round of budget cuts at the hands of the same lawmakers who now want it to make their tax overhaul work. Before he stepped down as IRS commissioner in November, John Koskinen warned of a "potential for a catastrophic system failure" from aging technology that the agency hasn't been able to upgrade. He put the blame squarely on Congress.

The day before the president signed the bill into law, Rep. Vern Buchanan (R-Fla.), chairman of the House Ways and Means Oversight Subcommittee, said lawmakers were discussing an IRS infusion of around $500 million early this year. One possible vehicle is the spending plan Congress has to approve by Jan. 19. Don't hold your breath, though. Ways and Means Chairman Kevin Bradyand Sen. Chuck Grassley , a member of the Finance Committee, have thrown cold water on the idea. Meanwhile, the tax world waits for Trump to nominate a replacement for Koskinen. - Toby Eckert

DATAPOINT

Minimum wage hikes: Eighteen states boosted their minimum wage as of Jan. 1 - eight as a result of inflation adjustments and 10 through legislation. - Christina Rivero

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ENERGY

Perry's plan to protect power plants: The energy market regulators at FERC will decide by Jan. 10 whether to heed the call from Energy Secretary Rick Perry to take action to prop up struggling coal-fired and nuclear power plants - a move the administration has pitched as crucial to safeguarding "grid resiliency." The Energy Department has argued that protecting power plants that keep 90 days' supply of fuel on site is matter of national security. But its proposal was narrowly written, and largely focused on the PJM Interconnection region, which comprises all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and D.C.

That's also the location of most of the customers of Trump backer and coal miner Bob Murray, who has met regularly with Perry. While the Federal Energy Regulatory Commission isn't required to follow Perry's recommendation - which would represent a significant step back from the pro-market stance the agency has long espoused - it has shown a willingness to study the issue. - Matt Daily

TRADE

High-stakes negotiations: Trade has an unusually crowded January agenda, involving talks with South Korea, Canada, Mexico and China and several high-profile trade remedy actions. U.S. and South Korea negotiators met Friday to discuss modifying the nearly six-year-old U.S.-Korea Free Trade Agreement. No major developments were announced but more talks are expected in the coming months.

Around mid-month, the U.S. International Trade Commission will vote on whether there is enough evidence for anti-dumping and countervailing cases "self-initiated" by the Commerce Department against imports of common aluminum alloy sheet from China to proceed. The two cases mark the first time in more than 25 years the department has self-initiated such an investigation, rather than having companies file them.

Due dates for two major reports: Two long-awaited Commerce Department reports on whether imports of steel and aluminum pose a threat to national security by undermining the U.S. industrial base are due to be released by Jan. 16 and 22, respectively. Once Trump receives the reports, he will have another 90 days to decide what, if any, action to take. The case is being closely watched by China, major U.S. allies, steel- and aluminum-consuming industries and the two affected sectors.

Latest NAFTA round: Canada will host the sixth round of talks on revamping NAFTA Jan. 23-28 in Montreal. The U.S., Mexico and Canada are pressing to reach a deal by the end of March, despite major differences in areas such as autos, government procurement and how long the new pact should remain in force. The mood of the talks may change after a U.S. International Trade Commission vote set for Jan. 26 that will decide whether to impose duties of about 300 percent on Canadian aerospace manufacturer Bombardier's exports of C Series passenger jets to the United States.

Actions possible against Asian nations: In another case that could inflame trade relations with Beijing, Trump faces a Jan. 26 deadline to decide whether to impose "safeguard" restrictions on solar cell and module imports from around the world to give the domestic industry time to become more competitive. Trump also faces a similar decision in a case involving washing machines by an early February deadline, although South Korean manufacturers LG and Samsung are the principal targets in that action. - Doug Palmer

AGRICULTURE

Trump woos farmers: The president is slated to address thousands of members of the American Farm Bureau Federation today at the group's annual convention in Nashville, Tenn. It will be Trump's first speech to a major agricultural group. It also marks the first time since 1992 that a sitting president will speak at the Farm Bureau's event. During his first year in office, Trump rarely addressed agricultural policy. But farmers will be looking for reassurances that he won't withdraw the U.S. from NAFTA. The agricultural industry, mired in a sustained economic downturn, will also want to hear about how the tax law will affect their businesses and whether the president is open to revamping a guest worker program for farm laborers that would ease the industry's persistent labor shortage.

Farm bill warmup: Congress later this month will try to pass an $81 billion disaster relief package to send aid to communities from California to Puerto Rico that are trying to rebound from hurricane, flood and wildfire damage. The House passed its version shortly before the holiday recess; it included controversial provisions to bolster farm bill programs for cotton and dairy farmers . But the Senate has yet to take up its own relief package. Senate Agriculture top Democrat Debbie Stabenow said the provisions in the House bill - which would allow cotton growers to be eligible for a price-support program and lift a $20 million cap on crop insurance policies for livestock - didn't go far enough to help dairy producers. The Michigan Democrat is working on crafting alternative provisions.

Personnel slog continues: The Agriculture Department still doesn't have five top political positions filled. The White House has yet to nominate someone for undersecretary of food safety or for undersecretary of food, nutrition and consumer services. Also, with Sam Clovis out of the running for chief scientist, Trump must nominate someone else. Two other nominees continue to be held up: Bill Northey, tapped to be undersecretary for farm production and conservation, and Stephen Vaden, the nominee for USDA general counsel. Whether there is movement on those various positions this month is anyone's guess. - Catherine Boudreau

HEALTH CARE

New HHS secretary likely to be confirmed: The Senate this month could approve Trump's pick to run the Department of Health and Human Services, which has been without a permanent leader since Tom Price's resignation in late September. Alex Azar, a former pharmaceutical executive and HHS official in George W. Bush's administration, is expected to be confirmed easily, despite Democratic scrutiny over his ties to pharma. If confirmed, Azar would oversee the administration's efforts to expand the availability of cheaper, less comprehensive health insurance plans exempt from the 2010 health care law's robust coverage requirements.

Despite Trump's rhetorical broadsides against pharma, Azar is seen as largely sympathetic to the industry and would be unlikely to pursue some of the aggressive tactics Trump himself has sometimes endorsed, such as allowing Medicare to negotiate drug prices. The Senate Finance Committee will hold a hearing with Azar on Tuesday, and it is expected to vote quickly to move his nomination to the full Senate. - Jason Millman

TECHNOLOGY

Lawsuits expected on net neutrality reversal: Since FCC Chairman Ajit Pai rolled back Obama-era net neutrality rules last month, supporters of the overturned rules, including advocacy groups such as Free Press and some state attorneys general, are preparing legal challenges. Lawsuits can't be filed until after the FCC publishes the rollback order either directly or in the Federal Register. Free Press says it will sue within 10 days of that publication. There will likely be multiple lawsuits, and they could be filed in different courts.

Sex trafficking on the web: The technology and anti-sex-trafficking advocacy communities are watching the drama play out on legislation that was once deemed likely to sail through Congress with overwhelming bipartisan support. The bill would change Section 230 of the Communications Decency Act to increase legal liability for websites carrying sex trafficking ads. Aimed initially at Backpage.com, a notorious conduit for trafficking, the change would apply to all websites that carry third-party postings. Those companies balked, but eventually some of the biggest - including Google, Amazon and Facebook - came out in support of the Senate legislation. The initial bills quickly gained traction in both chambers with lawmakers eager to sign on.

But the House bill has been weakened, leading some tech companies and groups to support it, while the stronger Senate legislation Stop Enabling Sex Traffickers Act, S. 1693 (115), remains intact. The Senate bill's sponsors say it should reach the floor early this year. The watered-down House bill H.R. 1865 (115) is under fire from sex trafficking survivors' groups and Senate sponsorRob Portman (R-Ohio). Prospects for the House bill are unclear, with House Energy and Commerce telecommunications subcommittee Chairman Marsha Blackburn saying she expects the full panel to be involved. - Angela Greiling Keane

TRANSPORTATION

Clouds clearing: House Transportation Chairman Bill Shuster announced last month that he will retire after his current term, and that he will "100 percent" dedicate his remaining time to quarterbacking Trump's infrastructure plan through Congress. While arguably good news for the administration's infrastructure effort, the declaration all but waves the white flag on one of the Pennsylvania Republican's signature issues - separating the air traffic control system from the Federal Aviation Administration's daily control. That proposal has been languishing for some time, and it's unclear how the House FAA bill will be dispensed with - although the new developments send a strong signal to the Senate to start moving its own FAA bill. How many more FAA extensions are necessary before lawmakers move to a conference committee will depend on how the House proceeds. The current FAA extension expires at the end of March.

Infrastructure up next? For much of December, the administration signaled it was serious about putting meat on the bones of its infrastructure plan in time for Trump's Jan. 30 State of the Union address. With Shuster the administration's declared point man on this effort, the likelihood of seeing an actual legislative package is now higher. Exactly what it may look like is unclear, but watch for the administration to release its long-promised 70-page proposal by the end of the month. - Kathryn A. Wolfe

DEFENSE

Up next, the 2019 budget: The Trump administration's fiscal 2019 budget is expected to arrive on Capitol Hill on time next month, according to Deputy Defense Secretary Pat Shanahan. The new Pentagon spending plan will seek further increases in defense spending, he said, but the fiscal 2020 budget will be "the masterpiece" in the administration's planned military buildup.

The timing could be tricky in Congress, however, if the budget is released but lawmakers have yet to wrap up this year's spending deal, forcing lawmakers to consider fiscal 2019 spending proposals while still haggling over fiscal 2018.

The Pentagon braces for reports, reforms: Defense Secretary Jim Mattis says the National Defense Strategy, outlining the military's goals and force structure plans, is now scheduled for release on Jan. 19. The long-awaited Nuclear Posture Review and Ballistic Missile Defense Review, which Trump commissioned a year ago, are expected in February. And Shanahan says the Defense Department will begin to implement some of the reorganization and acquisition reforms required by the new National Defense Authorization Act signed by the president in December. - Connor O'Brien

EDUCATION

Congress set to tackle higher education bill: Lawmakers will turn their attention to overhauling the main federal law governing higher education this month. Sen. Lamar Alexander , the Republican chairman of the Senate education committee, has said work on rewriting the Higher Education Act will be his first order of business this year. Senate Democrats and Republicans say they're working together on a bipartisan rewrite of the law, which could see a committee vote as early as this spring.

Meanwhile, in the House, legislation to overhaul higher education policy is expected to head to the floor this year after it cleared a committee late last year on a party-line vote. The GOP bill has drawn fierce opposition from Democrats and most traditional colleges and universities, and would be unlikely to attract the Democratic votes it would need to pass the Senate. - Michael Stratford

EHEALTH

More pressure to deliver on data-sharing: The goal of interoperability takes on increased significance this month as the Department of Veterans Affairs holds up its multibillion-dollar electronic health record contract with Cerner while demanding the health IT company commit to a higher level of data exchange than currently exists. Meanwhile, HHS's Office for the National Coordinator of Health IT hosts the first meeting on Jan. 17 of the 25-member Health IT Advisory Committee, which is supposed to provide advice on interoperability, data blocking and related matters. ONC is also expected to release its trusted exchange framework rule, which sets out rules for data sharing.

Meanwhile, at month's end, the Food and Drug Administration is holding a major workshop to flesh out its plan to pre-certify software companies, enabling them to change the code in their health IT products without resubmitting them each time for FDA approval. - Arthur Allen

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