Washington Policy Issues Update For February

February 5, 2018

Déjà vu all over again, again. This month - like the two before - government funding is set to run out, raising fears of another shutdown like the three-day lapse we just saw, reports Pro Budget and Appropriations' Jennifer Scholtes. And once more, congressional leaders have made little negotiating progresssince the last patch. Top dealmakers, still butting heads on immigration issues, appear no closer to a compromise on budget caps for overall defense and non-defense spending. Without those numbers, lawmakers can't allocate funding levels for all the accounts that make up the federal government's more than $1 trillion yearly allocation.

Now staring down a Thursday shutdown deadline, House leaders are hoping to pass a stopgap spending bill this week that would keep the government running through March 22. But defense hawks and fiscal conservatives could tank this latest tide-me-over, and Democrats still plan to withhold support in the absence of a deal to ensure deportation protections for young immigrants.

Even as Congress struggles to clear updated funding levels for fiscal 2018 (already some four months late), the White House is obligated to put out a budget this month for fiscal 2019. Planning to release that blueprint by Feb. 12, the Trump administration has had to blindly write that wish list without a deal on the budget caps that dictate spending limits for the next two years - a reality that will surely make the already nonbinding guidance even less consequential.

At the same time, the Treasury Department has issued fresh warnings that it may be able to tap "extraordinary measures" to pay the nation's debt only through Feb. 28, raising the possibility the government will default if Congress doesn't lift the debt limit. In its latest estimate, the CBO has laid out a slightly rosier forecast, predicting that Treasury will "most likely" run out of cash in the first half of March.

 

EMPLOYMENT & IMMIGRATION

Four-point immigration plan pleases few: President Donald Trump has proposed what he called a "down-the-middle compromise" in his State of the Union address. But prospects are dim that it will be adopted in anything like its present form.

Trump's proposal would provide a path to citizenship for nearly 2 million undocumented "DREAMers" brought to the United States as children in exchange for $25 billion for a wall on the southwest border, deep cuts to family-based immigration and elimination of the diversity visa lottery, which awards 50,000 visas each year to people from countries with low immigration rates to the U.S. Republican immigration hawks hate the first part, which they consider "amnesty." Democratic immigration doves hate the other three.

Trump created an obstacle for himself by telling congressional negotiators in early January that El Salvador, Haiti and the nations of Africa are "shithole countries" and that he'd prefer to bring in more immigrants from Norway. Since then, Democrats have felt freer to impugn his motives. When the administration put its four-point proposal on the table late last month, Senate Minority Leader Chuck Schumer accused Trump of using DREAMers as leverage "to tear apart our legal immigration system." House Minority LeaderNancy Pelosi said the proposed changes to family-based immigration - estimated to lower legal immigration by 44 percent annually - were part of an "unmistakable campaign to make America white again."

Another obstacle is the consensus among economists that reductions to current levels of legal immigration would constrict economic growth. Democrats know that a majority of the Senate likely agrees with a statement by Sen. Lindsey Graham (R-S.C.): "I want more legal immigration, not less."

Prospects for the four-point plan are even more remote in the House of Representatives. Democrats in that chamber oppose Trump's immigration policies more vigorously than their Senate counterparts, and Democratic support in the House is crucial because a significant portion of House Republicans will never support citizenship for millions of people who crossed the border illegally, even if they were children at the time. To cut a deal on DREAMers, Trump will almost certainly have to appease congressional Democrats by paring back the enforcement parts of his proposal. - Ted Hesson

 

TECHNOLOGY

What's the deal with #ReleaseTheMemo? You may have seen a lot of this hashtag last week, which sparked a furor in Washington over Russian interference in the U.S. political system. Leading Democrats say the social media campaign - in which people posted #ReleaseTheMemo to pressure lawmakers to share a then-classified document alleging FBI misconduct in the probe of a former Trump campaign adviser - was bolstered by Russian bots, or automated accounts. Sen. Dianne Feinstein and Rep. Adam Schiff , both ranking Intelligence committee Democrats from California, asked Twitter and Facebook to look into the bot activity around the hashtag. They said the companies' initial responses were inadequate and demanded the social media giants redouble efforts to get to the bottom of it. At stake is more than just the latest round of partisan bickering in D.C. Democrats fear that Russian bots, if left unchecked, will spread misinformation and exploit divisive issues in the 2018 midterm elections, just as they did in 2016. - Ashley Gold

Missile alert mess : Congress is scrutinizing Hawaii's false emergency alert warning about an incoming ballistic missile. The House Energy and Commerce Committee will examine the issue at a Feb. 16 FCC oversight hearing, and the Senate Commerce Committee plans a field hearing in Hawaii at a still-to-be-determined date, with the panel's chairman, John Thune (R-S.D.), aiming for testimony from the Federal Emergency Management Agency. FEMA briefed committee staff but did not testify at a January hearing, spurring complaints from lawmakers that no one could answer their questions. Hawaii Democratic Sen. Brian Schatz, meanwhile, has pledged to introduce a bipartisan bill giving the feds a role in the transmission of such alerts in the future. Hawaii authorities say the false alert, which was broadcast and sent to mobile phones and caused a nearly 40-minute panic for millions of people, was the result of human error at the state level. The FCC revealed that the now-fired employee, who sent the alert, thought the missile attack was real, not a drill. - John Hendel

 

FINANCIAL SERVICES

Chipping away at Dodd-Frank: A bipartisan bill that would scale back regulations for small and regional banks is in line for a Senate vote on what could be the first successful effort to scrap key parts of the landmark Dodd-Frank bill enacted after the financial crisis. Lobbyists are working behind the scenes to add provisions, and opponents - mostly progressive Democrats - are trying to rally opposition. The bill, S. 2155 (115) , probably has enough votes from moderate Democrats to make it out of the Senate, and supporters are mobilizing to fend off major changes that could jeopardize the coalition behind the legislation.

Digital currency crackdown: One of the most-watched financial hearings of the month will focus on government oversight of digital currencies, including Bitcoin. The Senate Banking Committee session Tuesday will feature testimony from SEC Chairman Jay Clayton and Commodity Futures Trading Commission Chairman Christopher Giancarlo. Clayton has taken a particularly hard line against so-called initial coin offerings, recently halting a major ICO and warning that none of the offerings have registered with his agency. Both regulators have said they are disturbed over what they see as efforts to circumvent rules protecting investors. Treasury Secretary Steven Mnuchin is likely to be asked about digital currencies when he testifies before the House Financial Services Committee on the same day.

Puerto Rico tries again: Puerto Rico will push for billions of dollars more in federal funding, and the board appointed by Congress to oversee the commonwealth's finances is expected to approve a new fiscal plan. That plan is aimed at extricating the U.S. territory from its decade-plus-long recession, which has been fueled by a crippling debt crisis and, more recently, its struggle to recover from devastating storms.

CFPB succession: The Trump administration may name a nominee to head the Consumer Financial Protection Bureau, the Obama-era agency that Republicans and businesses intensely dislike because of its aggressive enforcement. Trump's interim CFPB director, Mick Mulvaney, has already taken major steps to curb the bureau's power, and his successor is expected to do the same.

Powell era begins: February will mark the Federal Reserve's first month under Chairman Jerome Powell, who replaces the departing Janet Yellen. Although the Fed's top policymaking body won't meet until March, Powell will offer clues to his plans for the central bank in public appearances, including testimony before the two congressional committees with jurisdiction over the Fed.

Rethinking community reinvestment: Keep an eye out for suggestions from the Treasury Department on how to overhaul the decades-old Community Reinvestment Act, which is designed to spur lending to low-income borrowers. Mnuchin has said he wants it to be more than a "check-the-box" program and to ensure that money is actually benefiting communities. Treasury has also said regulations need to be modernized to reflect how technology has changed the way financial services are delivered. - Mark McQuillan

 

TRANSPORTATION

Infrastructure month: Expect to see at least a few more details this month about the president's infrastructure plan to use $200 billion in federal dollars to leverage up to $1.5 trillion in investments - possibly pegged to the Trump administration's fiscal 2019 budget request, due Feb. 12. The White House has said it plans to put out another set of "principles" that it wants Congress to turn into legislative language. Rep. Bill Shuster (R-Pa.), outgoing chairman of the House Transportation Committee, has said he plans to make pushing the plan through Congress his top priority. But Shuster and the administration will need bipartisan support, and so far Democrats in both chambers are skeptical about the proposal, in large part because the $200 billion federal share is seen as inadequate. In addition, the administration hasn't identified any way to pay for the $200 billion beyond proposing unspecified cuts to other programs, which isn't likely to fly in Congress.

FAA, too: With just a little under two months left before the FAA's authorization expires at the end of March, another extension is all but assured to give lawmakers more time to hash out a multiyear bill. Lawmakers and their staffs will likely spend at least some time on FAA negotiations in February. But another extension would mean that serious deliberations, or attempts to bring either chamber's long-term bill (S. 1405 (115), H.R. 2997 (115)) to the floor for a vote, will probably be pushed off until spring at the earliest. - Kathryn A. Wolfe

 

 

DATAPOINT

Trump credits passage of the tax overhaul, H.R. 1 (115), with U.S. companies' plans to increase employee wages and salaries. Many firms have announced they will increase wages and award bonuses to employees in anticipation of the new tax law's influence on the GDP and corporate investment in the U.S. economy. The tax law's supporters say it is supposed to incentivize companies to increase the spending power of the workforce, including lower-wage workers. - Cristina Rivero

 

 

TAX

Regulations, please: Corporate America is usually averse to new regulations, but it wants the IRS to come up with rules for implementing the new tax law, pronto. The longer businesses and others have to wait for rules of the road, the more uncertainty there will be about things like paying taxes on revenue businesses hold abroad and how pass-through companies can take advantage of their tax cut. Regulators at the IRS and the Treasury Department haven't exactly been a geyser of guidance so far (to be fair, the law is only two months old). But they did propose another rule in January for the repatriation of those overseas dollars and more guidance on payroll withholding. Regulators have said they will soon provide a plan that addresses small business accounting, corporate interest deductions and depreciation rules.

IRS officials think they need more money to implement the legislation, and they've asked appropriators for an extra $397 million over two years.

Extenders ride again: On Capitol Hill, legislators are still looking to revive some three dozen expired tax breaks, and a bill could see action as soon asThursday, which would conveniently coincide with the need to pass another short-term spending plan to avoid a government shutdown. The "extenders" could take a ride on that legislation. The benefits include a number of energy-related credits, as well as breaks for race horse owners, auto-racing tracks, railroads and homeowners.

In other IRS news: Lawmakers are developing legislation that would reshape the way taxpayers interact with the agency. Members of Congress argue that individuals and businesses should have a better opportunity to make appeals or resolve disputes with the IRS, and that agency operations should be modernized in the process.

There's been a leadership vacuum at the IRS since November, but that may soon change. Sources told POLITICO in January that Trump intends to nominate tax attorney Charles "Chuck" Rettig as the next IRS commissioner. Rettig, a tax controversy specialist, is well-known and well-regarded by tax practitioners. IRS officials are probably familiar with him, too, since he's represented clients who have had run-ins with the agency, - Aaron Lorenzo and Toby Eckert

 

CYBERSECURITY

Next NSA chief? - In the coming weeks, look for the White House to tap the Army's cyber chief, Lt. Gen. Paul Nakasone, to be the next director of the NSA and U.S. Cyber Command. The role is being vacated soon by Adm. Mike Rogers, who recently announced he would retire in the spring after nearly four years leading the two agencies.

Picking Nakasone - who took the reins at Army Cyber Command in late 2016 - would place someone deeply versed in cyberspace operations atop the country's premier intelligence-gathering service. While not a household name, Nakasone, 54, is well respected within the cybersecurity and military community. He is known for his role in helping shape the burgeoning digital war against the Islamic State in Iraq and Syria, as well as for assisting with the rapid buildout of Cyber Command, which has added thousands of digital warriors in recent years. Former colleagues describe Nakasone as thoughtful, engaging and intelligent.

It's unclear when the administration might formally announce the choice, but it's believed it could come in the next week or two, which means the Senate Armed Services Committee would hold a confirmation hearing in early March. The Senate Intelligence Committee may also hold a hearing, given the job's heavy surveillance focus.

Election security findings: The long-awaited findings from the House Democrats' election security task force could drop any day. Six months in the works, the meaty report - based on several hearings and numerous interviews with state election officials, voting security experts and former government officials - is expected to offer a slate of policy proposals, including some it will encourage Congress to take up. The report will likely reignite public pressure for Congress to act with primary season only weeks away. Capitol Hill has yet to pass a bill that specifically addresses election security.

Escalating fights: Expect lawmakers to ramp up pressure on DHS in the coming weeks to hand over more information about an initiative to eradicate Russia-based Kaspersky Lab software from federal networks. DHS issued the directive last fall amid concerns that Moscow might use the company's cybersecurity software to gain access to government secrets. While DHS has indicated that most agencies are complying with the order, there are a few holdouts - raising lawmakers' ire over both the process and DHS' progress. In the past two weeks, a top Democrat and a Republican committee chairmansent letters to DHS, pressing for more details and expressing frustration that they haven't been adequately kept in the loop.

Ride-hailing giant Uber will also face congressional scrutiny at an early February hearing over its decision to give hush money to hackers who had infiltrated the company and stolen user data. - Cory Bennett

 

DEFENSE

Budgets collide: A deal to boost defense spending caps is still elusive as lawmakers face a Thursday deadline to avert another government shutdown. And with the Trump administration set to deliver its fiscal 2019 budget Feb. 12, the task of funding the military for a full year is about to get even tougher.

The administration will reportedly seek $716 billion for defense for fiscal 2019, a hefty increase from its previous budget request. But with Republicans likely to push for another temporary spending measure and no clear path to a deal on defense and domestic spending caps, lawmakers will start work on fiscal 2019 defense programs and spending before it's clear how much they've secured in military spending for the current 2018 fiscal year.

McCain is absent, but in charge: Senate Armed Services Chairman John McCain (R-Ariz.) has been away from Washington since mid-December battling brain cancer back home in Arizona, though he'd been expected to return to Washington sometime in January.

In the meantime, the panel's No. 2 Republican, Jim Inhofe of Oklahoma, has chaired several hearings, though he says McCain is still very much involved in the committee's business. "He's calling the shots, and I'm showing up," Inhofe said recently on C-SPAN. - Connor O'Brien

 

HEALTH CARE

Another HHS want ad: Trump is looking for a new top public health official after Brenda Fitzgerald stepped down as director of the CDC last week amid mounting questions about financial conflicts of interest.

POLITICO reported that one month into her tenure, Fitzgerald bought shares in a tobacco company. Tobacco use is the leading cause of preventable death, and discouraging it is an issue Fitzgerald, a former Georgia public health official, had long championed. The CDC's principal deputy director, Anne Schuchat, was appointed acting CDC director.

The public health community, which tends to favor Democrats over Republicans, was supportive of Fitzgerald's appointment. Jerome Adams - who has a good reputation on Capitol Hill - was in contention for the job last year but appears to be settling into his job as surgeon general, according to sources familiar with his work. Republican state health officials such as Celeste Philip from Florida or John Dreyzehner from Tennessee could emerge as front-runners, according to sources in the public health world.

Fitzgerald's departure gave new HHS Secretary Alex Azar an earlier-than-expected opportunity to send a message that organizational disarray and ethically questionable behavior will not be tolerated. Azar has emphasized to Congress, department employees and the White House that his HHS will be far more businesslike in advancing the GOP's health priorities than it was during the tenure of his predecessor, Tom Price, who resigned in a scandal over his use of private jets. - Adriel Bettelheim

 

EDUCATION

Off to college: Congress is plowing forward with its rewrite of the Higher Education Act, the sweeping law that governs the federal government's $1.3 trillion student loan portfolio and many other aspects of higher education. As the first rewrite of HEA since 2008 gets underway, education watchers are paying attention to what will be in the Senate version. Sen. Lamar Alexander(R-Tenn.), chairman of the HELP Committee, is working with Patty Murray of Washington, the panel's top Democrat, on a bipartisan rewrite. Alexander recently said he expects to start writing the bill "in the next few weeks," with a markup by "early spring." The House Education and the Workforce Committee, led by Chairwoman Virginia Foxx (R-N.C.), advanced its own partisan version, H.R. 4508 (115), in December on a party-line vote, which is awaiting a vote in the House.

Back to court: The Supreme Court will hear oral arguments Feb. 26 in Janus v. AFSCME - a case that has teachers' unions extraordinarily nervous. The case addresses whether public-sector employees who choose not to join a union must pay so-called fair-share fees to cover their portion of collective-bargaining costs. Plaintiff Mark Janus, a child-support specialist, says the fees violate his First Amendment rights - an argument embraced by the U.S. solicitor general. The American Federation of Teachers has argued that requiring all employees to share in the cost of developing and negotiating their contracts does not violate their First Amendment rights because the funds finance "workplace speech," not lobbying. With conservative Neil Gorsuch now on the bench, Janus is expected to prevail. The high court deadlocked 4-4 on a similar case in 2016.

Confab on state plans: The Every Student Succeeds Act, the K-12 education law that replaced No Child Left Behind in 2015, required that every state submit a plan to the Education Department that spelled out how the state would hold schools accountable. The Education Department continues to weigh the proposals, with more than 30 of the state plans approved by late January. But while the law was bipartisan, the handling of the plans has created a partisan divide. Murray has said the department is approving plans that don't meet requirements under the law, while Alexander has said he's seen no instances of that. The HELP chairman recently said that Education Secretary Betsy DeVos has asked to meet with committee leadership to discuss the issue. - Kimberly Hefling

 

TRADE

NAFTA progress sought: The trade world is looking ahead now that the sixth round of talks to renegotiate NAFTA are over. Much work needs to be done before the seventh round, scheduled to start Feb. 26 in Mexico City.

Although only one chapter - on anti-corruption - was completed in the latest round of talks in Montreal, negotiators made progress on several others and began to dig in for the first time on some of the most controversial issues, which are expected to take center stage once officials reconvene. Those include the amount of U.S. content that will be required for North American cars to qualify for reduced tariffs, as well as a proposed performance review of the pact every five years.

The Mexico City round is also expected to give a clearer indication of how negotiations will proceed in the coming months and whether they will continue past the three countries' self-imposed deadline of March 31.

Trump's tone on trade: Three major actions could take place this month, even though their deadlines aren't until later in the year. An investigation by the Office of the U.S. Trade Representative into China's intellectual property practices and forced technology transfers could wrap up. After that, the Trump administration may impose additional tariffs, export controls or restrictions on investment and visas against China.

The Commerce Department has also submitted completed reports to the White House examining the effect of steel and aluminum imports on U.S. national security. Trump could act anytime between now and mid-April to place tariffs or quotas on foreign imports of the materials - a move that would be opposed by U.S. allies, as well as China.

More tough talk on China: On Thursday, the U.S. International Trade Commission will hold a final hearing on whether U.S. industry is harmed by imports of aluminum foil from China. Last summer, the Commerce Department slapped huge duties on imports in an action brought by American foil manufacturers. The U.S. has said it will not recognize China as a market economy in the case, despite Beijing's insistence to the contrary, meaning China will almost certainly challenge the ruling. Non-market economy status usually results in higher anti-dumping duties. - Megan Cassella

 

AGRICULTURE

Farm bill watch: Both the House and Senate Agriculture committees are trying to figure out how to get a farm bill done quickly. The bill, which Congress tries to reauthorize every five years, sets policy for food stamps, crop insurance and environmental conservation, among other programs. The House is expected to introduce its version first, as soon as this month.

However, several budget and policy dynamics have to play out first. In December, the House passed a sweeping $81 billion disaster aid package, H.R. 4667 (115), that included provisions that would make cotton growers eligible for additional subsidies and give dairy producers more insurance options. If those provisions are passed by both chambers as part of a spending deal, it could make the farm bill process a lot easier.

Unfreezing the personnel pipeline: The Department of Agriculture is still struggling to get its top political appointees in place. Sen. Ted Cruz (R-Texas) has kept his hold on Bill Northey's nomination to serve as USDA undersecretary for farm production and conservation, citing a dispute involving the cost of biofuel credits that oil refiners purchase. In addition, the Trump administration has not yet nominated top officials for USDA's efforts on food safety; food, nutrition and consumer services; and research, education and economics.

The recent news that Sen. Jeff Flake (R-Ariz.) has released his hold on Gregg Doud, Trump's pick to be chief agricultural negotiator at the Office of the U.S. Trade Representative, is seen as a positive sign that the personnel freeze may be thawing.

Ag meeting season kicks off: We're entering peak agricultural conference season this month, with gatherings planned for industries that are concerned about wheat, cattle and crop insurance. One of the biggest is the USDA's Agricultural Outlook Forum in Arlington, Va. featuring Agriculture Secretary Sonny Perdue and other top USDA officials. Also invited are African Development Bank Group President Akinwumi Adesina and Mehmood Khan, vice chairman and chief scientific officer at PepsiCo. - Helena Bottemiller Evich

 

ENERGY

Battle at sea: The controversy over the Trump administration's plan to open up most of the U.S. coast for oil exploration will heat up this month as the Interior Department holds 16 open meetings across the country. Trump and Interior Secretary Ryan Zinke have argued that keeping the Atlantic and Pacific coasts off limits hampers oil and gas production that's part of their effort to make the U.S. "energy dominant." But residents of the coastal states are preparing to give the agency an earful, and many groups have already argued that the plan could put tourist beaches, fisheries and other shoreline businesses at risk of oil spills. Zinke's plan is also sure to come under attack because of his quick about-face on opening up Florida's coastal waters after Gov. Rick Scott objected. Now governors up and down the Atlantic and Pacific coasts are asking for the same treatment. Even Alaska Gov. Bill Walker - no enemy of drilling - has argued parts of the Arctic Ocean should be off limits. - Matt Daily

 

EHEALTH

Business takes the lead: A series of health IT-related announcements in late January show that, nine years after the Obama administration started its $40 billion program to bring health care into the digital age, the action is being led by the business sector, not government.

On Jan. 24, Apple rolled out a pilot that allows patients at 12 hospital systems to download medical records onto their iPhones, allowing patients to be more directly engaged in their care. Then, Google on Jan. 28 released a study showing that its software programs, examining seven years of electronic health records from 114,000 patients, could predict (retrospectively, of course) most deaths and other major outcomes with remarkable precision. Finally, on Jan. 30, Amazon, Berkshire Hathaway and JPMorgan announced they were launching a health care enterprise for their collective 1 million employees. The companies were vague about their plan, but said they would cut costs and employ technology - presumably phone-and-video consults, as well as sophisticated analytics, to help the firms better manage health care costs.

Big plans to transform health care have come and gone, and if high tech is going to turn the health care industry on its head, it won't happen overnight.

Government plugs along: On Feb. 21, HHS' Health IT Advisory Committee will meet for a second time as it urges members to tackle major problems such as seamless sharing of health records. At the meeting, the committee will unveil a Trusted Exchange Framework Task Force, which is supposed to recommend the best structure for overseeing health data exchange, and the U.S. Core Data for Interoperability Task Force, which deals with standards for a limited set of key health data.

HHS' Office of the National Coordinator for Health IT will continue its work on defining information blocking - it expects to finish in April - and there could be hearings within the next few months on a bill that would expand efforts by the federal government and states to strengthen prescription drug monitoring programs, which curtail doctor-shopping for opioids.

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