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

See the full graphic here and learn more about DataPoint here.

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.