February CEO Report

QUICK FIX

- Another shutdown scare: Funding for nine federal departments is set to expire, again, on Feb. 15. Conference negotiators are trying to craft a border security package that can pass Congress and please President Donald Trump, who's demanding border wall funding - but hope for a deal is slim. The White House is working on the president's backup plan: a national emergency declaration to let him shift funding toward a wall. Congressional Republicans are growing resistant to the idea of another lapse, so a stopgap spending bill, oreven a veto override, is possible.

- Make-or-break time in China talks: U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will head to China this month to continue high-level negotiations aimed at easing trade tensions between the world's two largest economies. Trump reiterated after last week's trade talks in Washington that March 1 remains a "hard deadline" for a deal - otherwise, he'll raise tariffs on $200 billion worth of Chinese goods. Trump is expected to meet with Chinese President Xi Jinping in the coming weeks, in what is shaping up to be a crucial moment in the trade war.

- Reviving tax breaks: House and Senate tax writers want to try again to extend more than two dozen tax breaks that expired at the end of 2017, a task that eluded them last year, possibly by attaching them to the legislation needed to avert another partial shutdown. Many of the 28 tax credits and other incentives are for energy projects. But other businesses would benefit as well, including motorsports and horse racing.

Here's a deeper dive on the month's policy agenda:

TRADE

Devil in the details: The Commerce Department is set to release on Feb. 5 its final trade deficit figures for 2018. Those numbers are expected to show that the U.S. trade deficit with China reached a record for a second year under Trump, who has placed great importance in using tariff policy to drastically lower the imbalance.

Auto tariffs probe : Commerce Secretary Wilbur Ross has a Feb. 17 deadline to deliver a report on whether imports of automobiles and auto parts pose athreat to U.S. national security. After receiving the report, Trump will have 90 days to decide to impose a new set of duties, which is allowed under Section 232 of the Trade Expansion Act of 1962.

Auto tariffs would antagonize a number of important U.S. trading partners. The U.S. and the EU could launch formal talks this month on a trade deal that eliminates tariffs on industrial goods and facilitates regulatory cooperation. But the EU has made clear that those efforts would be derailed if Trump takes tariff action against European autos.

Dueling tariff bills: Trump is expected to mention in his State of the Union address a new House bill aimed at giving him greater powers to impose tariffs, though that legislation is likely dead on arrival in Congress. But a measure that would rein in the president's ability to impose tariffs on national security grounds is gaining traction on the Hill. - Sabrina Rodriguez

EMPLOYMENT & IMMIGRATION

"Remain in Mexico" fallout: The Homeland Security Department launched acontroversial policy in late January that forces some non-Mexican asylum seekers to remain in Mexico while they pursue an asylum claim in the U.S. The policy - formally known as the Migrant Protection Protocols - will likely attract litigation from civil rights groups that argue it oversteps existing laws and puts the lives of migrants at risk. Amnesty International USA Executive Director Margaret Huang told POLITICO that gang violence and limited shelter space in Mexico will present challenges for migrants. She also criticized Mexico's informal system that decides which asylum seekers can proceed with claims each day (the migrants themselves maintain lists that dictate the queue). "It's pretty alarming to see the conditions that they're facing," she said. - Ted Hesson

FINANCIAL SERVICES

Opening round on oversight: House Financial Services Chairwoman Maxine Waters (D-Calif.) will launch a series of hearings to scrutinize the finance industry and Trump appointees. One of the first sessions, expected this month, will feature executives representing Equifax - the credit-monitoring company that suffered an epic security breach - and its rivals, Experian and TransUnion. Federal Reserve Chairman Jerome Powell will also appear before both Waters' panel and the Senate Banking Committee to talk about monetary policy amid growing concern about the economy.

Fannie-Freddie overseer: Mark Calabria, Trump's nominee to lead the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, is expected to face a Senate Banking Committee confirmation hearing. That will set the tone for the coming debate between Congress and the White House over who should take the lead in overhauling the housing finance system, an issue that has vexed Washington since the mortgage giants were seized during the financial crisis.

Big fight over small dollars: The Consumer Financial Protection Bureau is set to release a heavily anticipated revamp of its contentious rule regulating small-dollar and payday lenders, in what would be director Kathy Kraninger's first major move. The rule - which, among other provisions, would require small-dollar lenders to assess whether borrowers can repay loans - was released in October 2017, shortly before then-Director Richard Cordray left. Industry advocates say the ability-to-repay standard is burdensome and would drive smaller lenders out of business. Consumer groups say it's essential to curbing abuses of the high-interest loans.

Foreign affairs: Fed regulatory chief Randal Quarles says the central bank will propose new regulations for foreign banks early this year, as it continues to scale back rules for large lenders. That proposal could come as soon as this month. Treatment of overseas banks was a lightning rod issue during passage of the new bank deregulation law, with Sen. Sherrod Brown (D-Ohio) securing language aimed at ensuring the Fed wouldn't ease up on large European lenders.

Bitcoin boost: The SEC must decide by Feb. 27 whether to approve an exchange-traded fund derived from the price of Bitcoin. The SEC has so far refused to approve a single Bitcoin ETF, a move that would inject desperately needed demand in the market and boost the cryptocurrency's price. - Mark McQuillan

TAX

Extenders: Senate Finance Chairman Chuck Grassley (R-Iowa) said lawmakers hope to attach tax extenders that expired in 2017 to the next spending bill. His House counterpart, Ways and Means Chairman Richard Neal (D-Mass.), said House Democrats were also discussing the issue. Since the filing season for 2018 taxes has already begun, Congress would have to revive the provisions retroactively, and some taxpayers who have already filed would probably need to amend their returns to claim the benefits.

So far, so good?: No major glitches have publicly emerged so far since tax filing began on Jan. 28, following the IRS's 35-day shutdown. But the real test begins this month, when refunds start going out. The agency has projected it will send out nearly 42 million refunds in February. If its expectations fall noticeably short, that will be a good indication that all is not well.

Trump's tax returns: The new Democratic majority at Ways and Means will get down to business this month on Trump's tax returns, at least tangentially. The panel's oversight subcommittee slated a hearing for Feb. 7 on legislation that would require presidents, vice presidents and candidates for those offices to disclose their tax returns for the past 10 years, which would then be made public. But left-leaning Democrats are itching to get their hands on Trump's returns, which they think could show financial chicanery. They're pressuring Neal to get moving on that effort, but the chairman has repeatedly said he will take a methodical approach to what is sure to be an explosive political and legal issue. - Toby Eckert

DEFENSE

Early to work: Lawmakers are kick-starting their oversight work and laying the groundwork for the annual defense policy bill, even as the Trump administration's fiscal 2020 budget proposal has been delayed by the shutdown.

After an initial hearing on the deployment of troops to the U.S.-Mexico border, the House Armed Services Committee, under new Chairman Adam Smith (D-Wash.), aims next to scrutinize the administration's counterterrorism operations in a Feb. 6 hearing. The panel has already received a classified Pentagon briefing on Syria, and Smith says he intends to pursue one on Afghanistan as well.

Meanwhile, the Senate Armed Services panel is slated to hear from intelligence leaders on worldwide threats and from military commanders who oversee U.S. forces in Africa and Central and South America.

Space slow-walk: Soon Congress will have a fresh Space Force proposal from the Pentagon to consider - a plan that appears to be considerably less ambitious than originally envisioned by the president. The Defense Department is still putting the finishing touches on its plan, but acting Defense Secretary Patrick Shanahan says he would prefer that a new Space Force fall under the Air Force, rather than establishing it as a more prominent standalone military service.

"It's going to be small - as small as possible footprint," he told reporters at the Pentagon. - Connor O'Brien

CYBERSECURITY

Did hackers strike during the shutdown? Several Democratic senators are asking whether criminal hackers could have attacked while federal cybersecurity workers weren't on the job. More than half of the Cybersecurity and Infrastructure Security Agency at the Department of Homeland Security was furloughed, as were cyber pros at the Department of Commerce and many other agencies. What's more, the security certificates on at least 130 federal websites expired during the shutdown, meaning that information sent to those sites wasn't protected.

"We are concerned that these circumstances have left our government and citizens vulnerable to cyberattacks," a group of Senate Democrats said in aletter to DHS Secretary Kirstjen Nielsen and NSA Director Gen. Paul Nakasone. They also wanted answers from the Trump administration about how the government planned to deal with delayed contracts for cybersecurity vendors. Separately, Sen. Mark Warner (D-Va.) said in his own letter to Nielsen that he was concerned the shutdown would have a long-term impact on the morale of federal cybersecurity workers, driving them to seek higher-paying jobs in the private sector. - Mike Farrell

EDUCATION

Teacher strikes pending: The Los Angeles teachers strike may have ended in a deal, but the wave of labor unrest continues with teachers in Denver and Oakland possibly looking to strike. West Virginia teachers unions also joined the wave with their outrage over a contentious education spending bill that proposed a 5 percent raise with other changes they don't like.

College rules, round two: The Trump administration's effort to overhaul higher education regulations is slated to head into its second round of three negotiated rulemaking sessions on Feb. 19. An Education Department panel is debating a rewrite of federal rules, including those that govern accreditation, religious schools and nontraditional education providers.

Harvard affirmative action case to close: The legal fight over Harvard University's use of race in admissions heads to its last hearing in mid-February. The lawsuit, filed in 2014 by Students for Fair Admissions, accused the university of intentionally discriminating against Asian-American applicants. - Bianca Quilantan

AGRICULTURE

Trade aid deadline: Commodity producers stung by retaliatory tariffs in 2018 have until Valentine's Day to apply for USDA's trade relief program. Agriculture Secretary Sonny Perdue extended the deadline during the government shutdown, when farmers and ranchers were unable to file applications because Farm Service Agency offices were shuttered.

Farm bill implementation: USDA employees are ramping up implementation of the 2018 farm bill, H.R. 2 (115), which was signed into law a little more than 24 hours before the shutdown began. USDA will be under pressure to quickly stand up the revamped margin coverage program for dairy farmers, one of the biggest changes in the new bill.

USDA's shutdown recovery efforts also include pumping out dozens of delayedcrop data publications and foreign sales reports that can influence planting decisions and sway commodity trading. - Ryan McCrimmon

TECHNOLOGY

Merger mania: T-Mobile's proposed $26 billion merger with Sprint has been flying somewhat under the radar in Washington, but look for that to change. As the Justice Department and FCC review the transaction, Congress is turning its attention to the mega-deal. Two House Energy and Commerce subcommittees - antitrust and telecom - will hold a joint hearing on the merger Feb. 13, with Democrats keen on exploring the deal's impact on consumers, workers and the wireless industry. Senate Democrats are pressing Commerce Chairman Roger Wicker (R-Miss.) to hold a hearing on the merger as well. - Eric Engleman

ENERGY

Climate dealings: House Democrats will spotlight climate change with an early round of committee hearings, but the real action is unfolding behind the scenes as the party negotiates its legislation. Progressives are advocating for a Green New Deal that would decarbonize the U.S. economy within 10 years, while others in the party worry that timeline is far too ambitious. In the short-term, though, the focus will be on the hearings: Both the Energy and Commerce and Natural Resources committees are planning their first sessions Feb. 6. - Anthony Adragna

CANADA

Make or break time for Keystone: February could be a decisive time for the Keystone XL pipeline. A Montana court promises a decision soon on whether pipeline company TransCanada can start preliminary ground work this winter - even before the company gets its final review from the State Department, an additional step ordered by a court.

TransCanada needs two years to build the pipeline; if it doesn't get built by early 2021 there's no guarantee the project will still have a friend in the White House. It now has a supporter in Trump, who granted a presidential permit, while many Democrats oppose it. Canada's oil industry desperately needs a new export route to foreign refineries, and the anger in resource country over stymied projects is not only becoming a political nightmare for Prime Minister Justin Trudeau - who is up for re-election in October - but also a strain on Canada's national unity.

Meanwhile, opportunities are being squandered: Canada, which exports the same heavy crude to U.S. Gulf Coast refineries as Venezuela, should have been able to fill the void left by possible sanctions or embargoes. Canada's National Energy Board said the deficit is because there aren't enough pipelines and not enough trains to carry much more cargo. - Alexander Panetta

HEALTH CARE

Dems decry 'sabotage': Newly empowered House Democrats are following through on their campaign promises to probe the Trump administration's efforts to undermine the 2010 health care law. The powerful House Energy and Commerce Committee this week holds its first hearing on the Trump administration's decision to partially support a lawsuit from 20 red states that could wipe out Obamacare. In a break with the traditional practice of defending laws it enforces, the Justice Department last June said it wouldn't fight the lawsuit as it also urged the courts to make a more limited strike to Obamacare's popular insurance protections for pre-existing conditions. Democrats during the campaign railed against the lawsuit, calling it part of the administration's broader effort to "sabotage" Obamacare after Republican lawmakers failed to repeal it. - Jason Millman

TRANSPORTATION

Investment roadmap: New House Transportation Chairman Peter DeFazio(D-Ore.) has planned a hearing on infrastructure investment early in February, where he's sure to talk about his plans to boost spending on transportation priorities. In the past, DeFazio has not shied away from support for a gas tax increase or switch to a fee on vehicle miles traveled, which other lawmakers would find politically perilous. He's said he wants to come up with a plan that would inject $500 billion into the U.S. transportation network, piggybacking on Trump's call for $1 trillion in investment. But it remains to be seen how he would propose to pay for all that spending or how it would be divided. The hearing may hold some clues. - Kathryn A. Wolfe

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