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CONGRESSIONAL UPDATE: GONE FISHIN’ FOR VOTES

What you smell in DC is jet fumes. What you hear on Capitol Hill is silence.  Congress has left the building.

And what did they leave behind?  No budget.  Scant progress on appropriations.  Slow progress on executive nominations.  One lonely Supreme Court nominee.

Yes, Congress will be out for a seven week summer recess (due in part to the earlier than usual national party conventions), but our national legislature did finally exercise some Article One muscle: It approved 73 measures signed into law by President Barack Obama between January and June – nearly three times the number of bills approved in the first six months of 2015 and 20 more than in all of 2014.  With a mixed bag of accomplishments, both Republicans and Democrats are eager to spend quality time with their constituents, while feeling anxious heading into an election season certain to be like no other in recent memory.

Set out below is the state of play on key policy issues going into the summer recess.  When Congress returns, the House plans to be in session for 17 legislative days, while the Senate is scheduled to meet for 19 days before taking a break for the November election.

And when will the 114th Congress end?  It’s beginning to look a lot like Christmas…

BUDGET, APPROPRIATIONS & TAX

Budget Process

Congress will not adopt a budget resolution for fiscal year 2017, which begins on October 1, 2016.  In order to improve the odds for successful budgeting in the future, the chairs of the House and Senate Budget Committees, Representative Tom Price (R-GA) and Senator Mike Enzi (R-WY) respectively, both advocate overhauling the budget process that Congress has used for more than 40 years.  Neither has formally recommended a specific reform proposal, but both believe the time has come to take a serious look at ideas such as changing from a one-year to a two-year budget cycle, requiring a multi-year proposal from the president, accounting for mandatory spending (e.g., Social Security, Medicare) in the budget process, increasing the current 60-vote requirement to waive budget points of order in the Senate, and imposing penalties on Congress (such as withholding Member pay and eliminating recesses) if it cannot adopt a budget resolution or pass appropriations bills on time.

However, given the few number of days that Congress plans to be in session between now and the November elections, the budget focus for the remainder of the year is reduced to simply keeping the government functioning beyond September 30.  Thus, the question is not whether Congress will have to use a temporary continuing resolution, but rather how long that resolution will be.  Democratic and Republican leaders in Congress will put off a decision on the length of the continuing resolution until they can assess the political state of play following the national political conventions later this month, as well as the status of the presidential race when Congress returns to Washington after Labor Day.

Appropriations

Both the House and the Senate made good-faith efforts to complete the appropriations process under regular order.  However, the temptation to score political points as individual appropriations bills came to the floor became irresistible in the election-year atmosphere. Appropriations bills that traditionally were the easiest to pass, such as Military Construction/Veterans and Defense, got bogged down in arguments over a wide range of issues, including how much money to spend fighting the Zika virus and whether to vote on gun control options in response to mass shootings, among many others.  This sets the stage for a September stopgap measure necessary to keep the government open until sometime after the election.

Tax Reform

House Speaker Ryan issued the Republicans’ long-awaited tax reform “blueprint” at the end of June.  It was billed as a positive pro-growth vision for tax reform and simplification that would lower tax rates for corporations, pass-through businesses, and individuals, while eliminating most current law deductions and credits.  While the blueprint’s lack of detail didn’t allow a precise quantitative analysis of its federal budget impact, Republicans argue that its rate reduction/base broadening framework – combined with dynamic scoring that takes into account the plan’s effect on macroeconomic growth – brings the plan close to revenue neutrality.

The plan takes on some of the tax code’s most sacred cows – repealing the deductions for state and local income, property, and sales taxes, as well as making net interest non-deductible for businesses.  On the other hand, the plan proposes getting rid of some of the current tax code’s most unpopular features, including the alternative minimum tax for both individuals and businesses, the estate tax, and the complicated depreciation schedules for investments in business property.  However, Republicans made it clear that they consider the blueprint a work in progress and they encourage stakeholders to share concerns, complaints, and suggestions for improvement.

With tax reform off the table before sometime in 2017 at the earliest, the best way to assess how soon tax reform begins will be to keep an eye on how the new president puts together his or her fiscal policy transition team and how the new Administration fills the key fiscal policy slots at the White House, Treasury, and Office of Management and Budget.

Treasury

As the Obama Administration draws to a close, executive agencies such as Treasury continue to maintain an aggressive regulatory agenda.  Despite concerns raised by congressional Republicans, and some Democrats as well, Treasury closed its comment period as scheduled on July 7 for regulations that would rewrite the rules determining whether related-party corporate transactions are debt or equity.  Business interests from a broad spectrum of industries believe the proposed rules far exceed legitimate concerns over inappropriate tax-motivated activities and threaten ordinary financial transactions among related parties that had never before been considered as potentially abusive.

Treasury Secretary Jack Lew told Members of Congress that he will give careful consideration to the extensive comments that the Department received on the proposed regulations. Nevertheless, he indicated that he will not slow down the process and Treasury officials maintain that they plan to finalize the rules quickly.

TECHNOLOGY & CYBERSECURITY

U.S. Digital and National Security

Much of the technology industry’s focus on Capitol Hill in 2016 is on the legal parameters that enable law enforcement and national security agencies to access electronic records as part of a specific investigation or a broader surveillance initiative.  There is plenty of rhetoric and very little legislating, but with random acts of terror dominating the news, legislative action appears to lean toward concerns of national over digital security.

The year began with the Federal Bureau of Investigation’s (FBI) highly public attempt to force Apple to break into the iPhone used by San Bernardino terrorist Syed Farook.  While the FBI ultimately secured a work-around provided by a third party, broader questions and disagreements remain about the surveillance authority held by U.S. law enforcement and national security agencies to access information, particularly encrypted data.

House Homeland Security Chairman Michael McCaul (R-TX) and Senator Mark Warner (D-VA) sought to answer questions about U.S. encryption policy last February by introducing the Digital Security Commission Act, which would establish a broad-based commission of experts and stakeholders from law enforcement, intelligence community, technology industry, and privacy and civil liberties organizations, to make recommendations on the best ways to balance national security and digital security.  Despite bipartisan cosponsors, and conceptual support from the Director of the CIA and Hillary Clinton, neither the House bill nor the Senate bill appear to be moving forward.

Chairman McCaul released a primer last month on the encryption debate titled “Going Dark, Going Forward,” which makes a more detailed case for why a national commission is needed.  The bipartisan leadership of the House Energy and Commerce Committee and the House Judiciary Committee established a working group to study and make recommendations on encryption policy.  In addition, the Chairman and Vice-Chair of the Senate Select Committee on Intelligence, Senators Richard Burr (R-NC) and Dianne Feinstein (D-CA), introduced last April the Compliance with Court Orders Act, which would require electronic device manufacturers, software manufacturers, and electronic communication services, among others, to provide data that they made unintelligible (i.e., encrypted) or the means to access unintelligible data.  That bill is not expected to go anywhere, particularly given strong opposition from the tech community, as well as privacy and civil liberties advocates.

In the wake of more recent terrorist events, however, Congress is demonstrating a shift toward law enforcement’s efforts to access electronic data.  During the Senate’s consideration of the Commerce, Justice, and Science Appropriations bill, an amendment offered by Senator John McCain (R-AZ) to expand the FBI’s power to access electronic communications fell just one vote short of the 60 votes needed for passage.  Specifically, the McCain amendment would enable the FBI to compel companies to provide some forms of electronic communications data (such as email logs, web browser history, and IP addresses) sought via a National Security Letter, which acts similar to a subpoena for terror and national security records.  With four Senators missing the vote, Senator McCain believes he will prevail on a revote.

Senator John Cornyn (R-TX) sought to add a similar version of the McCain amendment during the Senate Judiciary Committee’s efforts to update the 1986 Electronic Communications Privacy Act (ECPA), which ended up derailing ECPA reform, despite strong bipartisan support for reform in the Senate, and a unanimous 419-0 vote for ECPA reform in the House last April.  It is not certain that securing an agreement on the McCain/Cornyn measures will pave the way for ECPA reform before the end of the year, but it is clear that national security concerns are slowly gaining some traction in the face of growing terrorist activity in the U.S. and globally.

Shield’s Up

After many months of negotiating and hand-wringing among representatives of the United States and the European Union, the EU member states on July 8 approved the U.S.-EU Privacy Shield framework – the successor agreement to the U.S.-EU Safe Harbor, which provided the legal basis for cross-border data transfers between the United States and European Union for 15 years before it was declared invalid by the European Court of Justice.  The European Commission formally approved the Privacy Shield this week.  Among the key features of the new agreement are:

  • a written commitment from the Obama Administration that U.S. intelligence services can engage in bulk collected of data originating in the European Union, but only under specific circumstances and pre-conditions;
  • a commitment that the U.S. Ombudsman – established within the U.S. State Department to review complaints from EU citizens regarding U.S. surveillance – will be independent from national security services; and
  • explicit data retention requirements that direct companies to remove data that do not meet the purposes for which they were collected.

With respect to Brexit, at this time, Privacy Shield will still apply for any companies transferring data from the United Kingdom to the United States.  The United Kingdom’s information commission noted that the United Kingdom likely will adopt measures similar to Privacy Shield after it leaves the European Union, which won’t be until 2018.

Lording Over Investigatory Powers

The British Parliament, led by the Home Ministry, spent all of 2016 considering wide-reaching legislation that would expand the investigatory reach of national security and intelligence entities within Her Majesty’s Government.  The bill, dubbed the “Investigatory Powers Bill” by its supporters and the “Snoopers Charter” by its detractors, passed the House of Commons on June 8 by a vote of 444 to 69.

The focus of the legislation is to clarify the powers, authority, and safeguards that govern the security and intelligence agencies’ collection and use of data.  The bill would overhaul the way bulk powers are authorized (warrants have to be authorized by a Secretary of State and approved by a judicial commissioner), and would establish a set of safeguards that control how bulk data is used, with access allowed when necessary and proportionate.

Most of the changes to the bill made in the House of Commons were in response to concerns raised by the business community (mostly from tech-based advocacy organizations) and civil liberties and privacy advocates.  The House of Lords will now consider the bill, and a final version is expected to pass sometime this fall.

Cybersecurity & Artificial Intelligence

With a dwindling number of legislative days remaining in the next Congress, we are seeing greater interest focused on two Administration-backed efforts to set the policymaking table on two key subjects with significant implications for the U.S. economy.

  • The President’s Commission on Enhancing National Cybersecurity – co-chaired by former National Security Advisor Tom Donilon and former IBM CEO Sam Palmisano – held a series of public meetings that began in April and continue into the fall in order to hear from industry, academia, and stakeholders on ways the United States can better strengthen cybersecurity in both the private and public sectors over the next decade.  The commission is expected to make its recommendations no later than December of this year.
  • In May, the White House announced a new White House Future of Artificial Intelligence (AI) Initiative, led by the Office of Science and Technology Policy (OSTP).  OSTP is holding a series of public meetings to hear from thought leaders in business, government, and academia on the social and economic implications of AI.  On June 27, OSTP published in the Federal Register a Request for Information (RFI) to solicit input on how the United States is preparing for a future with AI, with a focus on what our country needs in terms of research, technology, tools, and scientific and workforce training.  The deadline for comments under the RFI is July 22, and the OSTP is expected to release a set of recommendations later this year.

TRADE

Trans-Pacific Partnership

The Administration and some in Congress are focused on getting the Trans-Pacific Partnership (TPP) over the finishing line before the president leaves the White House.  TPP is must-pass legislation during the lame duck given the opposition of both presidential nominees.  Most recently, the Democratic National Committee released a draft platform that did not take an official position on TPP.  The draft platform read like a congressional constituent response letter: “Proponents support the agreement and opponents think the agreement does not go far enough.  Thank you for the benefit of your opinion.”  As a result, Senator Bernie Sanders (I-VT) has vowed to take his TPP opposition to the convention floor where he is likely to speak in primetime.  It would be difficult for the party to oppose the president’s top trade priority.  House and Senate leadership has indicated there will be no vote on TPP until after the election.

Transatlantic Trade and Investment Partnership

The United Kingdom’s exit from the European Union could make Transatlantic Trade and Investment Partnership (TTIP) too difficult to finish before the end of President Obama’s tenure.  U.S. Trade Representative Michael Froman and European Trade Commissioner Cecilia Malmström are working in good faith to get a deal done, but many items remain at issue and the Brexit will make negotiations even more difficult.

FINANCIAL SERVICES

This week, the House Financial Services Committee held the first hearing in a series of hearings expected on the Republican alternative to the Dodd-Frank Act, titled the Financial CHOICE Act.  The first hearing focused on capital requirements.  Other aspects of the bill will be examined by the committee in the fall.  The Financial CHOICE Act is not expected to receive consideration in the Senate.

The Administration will continue to issue financial services regulations and guidance.  Among the issues expected to be addressed: banking regulators on marketplace lending, the Securities and Exchange Commission on “dark pools,” and the Consumer Financial Protection Bureau on prepaid cards.

DEFENSE

Both the House and Senate have passed their versions of the 2017 National Defense Authorization Act (NDAA).  The House named conferees late last week and the Senate will act in short order.  The two versions differ vastly on issues including women and the draft, the $18 billion top-line divide, housing allowances, and acquisition reform to name a few.  The NDAA is a yearly authorization so it will get done, but more likely in September or a lame duck session of Congress.

LABOR

Past is prologue.  There was an unsuccessful attempt by Congress to defund the fiduciary rule in the omnibus appropriations legislation that passed at the end of last year.  There will be an attempt in the end-of-the-year funding bill to defund the overtime rule.  It is not expected to be successful.

Changing workforce needs framed recent committee debate surrounding reauthorization of the Carl D. Perkins Career and Technical Education Act, which passed the House Education and Workforce Committee on July 7.  The bipartisan vote was another high note from the committee, which earlier this year reauthorized the Elementary and Secondary Education Act.  The committee is expected to turn attention to higher education in the fall.  Focus on college affordability and student debt will continue given the Clinton campaign’s pivot to support free in-state tuition by 2021 for families with income up to $125,000.

On April 6, the Department of Labor (DOL) issued its fiduciary rule to address financial advisers’ conflicts of interest.  Attention now turns to implementation with compliance generally.

On May 18, DOL issued a final rule updating overtime regulations that will take effect on December 1, 2016.  The final rule is a target for appropriations riders, but the White House has signaled that addressing wage stagnation is a legacy issue to address income inequality, and one of its highest priorities.

COPYRIGHT REFORM & PATENTS

After efforts to pass the Stop Online Piracy Act (SOPA) and the PROTECT IP Act (PIPA) broke down five years ago, Congress took a break from any attempt to reform U.S. copyright laws.  But now both chambers are tip-toeing back to the issue.  House Judiciary Chairman Bob Goodlatte (R-VA) is expected release a white paper on copyright reform this summer.  Chairman Goodlatte is term-limited in his committee service and will surrender the gavel in 2019.  He views copyright reform as a legacy issue and is committed to working with Ranking Member John Conyers (D-MI) to get this done in a meaningful, bipartisan way.  More modest efforts are underway across the Capitol, where Judiciary Chairman Chuck Grassley (R-IA) and Ranking Member Patrick Leahy (D-VT) recently released a statement of principles to guide Copyright Office modernization legislation.

The Senate this week confirmed Dr. Carla Hayden, the head of Baltimore’s public library system, as the next Librarian of Congress.  The Government Accountability Office and other copyright stakeholders previously criticized the Library of Congress, which oversees the U.S. Copyright Office, for failing to keep up with changes in technology.  Dr. Hayden pledged to modernize the Copyright Office and copyright stakeholders have high hopes that she will do just that.

Given that the Judiciary Committee members and staff are focusing on copyright reform, they do not have the bandwidth to tackle other outstanding intellectual property issues, such as venue reform in patent litigation.  Those hoping that Congress will soon address costly and abusive patent litigation however got a boost last month from Hillary Clinton, who in her “Initiative on Technology and Innovation,” wrote that she, among other things, “supports laws to curb forum shopping and ensure that patent litigants have a nexus to the venue in which they are suing.”  Whether Congress seeks to draft these laws in 2017 remains an open question.

CRIMINAL JUSTICE REFORM

Early this year criminal justice reform was seen as one of the big-ticket pieces of legislation that could make it across the finish line by the end of President Obama’s term.  While the desire to pass a bill remains strong for many in both parties, some Republicans in both the House and Senate want to ensure that the legislation remains, in their view, “tough on violent offenders.”  Still, advocates for reform see a glimmer of hope for a lame duck play.  Senate Judiciary Chairman Chuck Grassley (R-IA) recently said there was a “good chance” that Congress could pass the bill in September when Congress returns or in a post-election lame duck session.  Senator Dick Durbin (D-IL), however, was far more pessimistic than Senator Grassley, calling the chance that anything would happen this year a “long shot.”  Notwithstanding these concerns, the bill remains popular and bipartisan.  Even if Congress fails to pass criminal justice reform in 2016, it will be at the top of the agenda next year, regardless of who wins this November.

HEALTH

Mental Health

Last week the House passed a bipartisan, comprehensive mental health bill.  Although House Democrats initially pushed to address gun control as part of the debate and raised concerns about the bill’s lack of funding, the legislation cleared the House on a 422-2 vote.  Similar legislation also has bipartisan support in the Senate, but the prospects of moving a bill there are uncertain. The legislation remains on the list of potential bills that could advance in September, but it remains unclear if the Senate can address mental health reform without debating gun control measures.

Opioids

Shortly before adjourning for the summer recess, the House and Senate overwhelmingly approved the Comprehensive Addiction and Recovery Act.  Despite concerns by congressional Democrats that the final legislation did not include the $1.1 billion in emergency funding the White House requested, the legislation cleared the House by a vote of 407-5 on July 8 and the Senate by a vote of 92-2 on July 13.  Congressional Democrats touted the legislation as a good first step and are continuing to push for the funding through the regular appropriations process.

Zika

Congress left town for the summer recess without providing additional funding to combat the Zika virus.  In February, the Obama Administration requested $1.9 billion in emergency funding to respond to Zika, including funds to develop a vaccine.  In May, the Senate approved a $1.1 billion measure and the House approved a smaller $622 million package.  After several months of partisan negotiations, the House and Senate Republican leadership reached a compromise that provided $1.1 billion, but it contained policy measures strongly opposed by congressional Democrats, including a provision to ban Planned Parenthood from receiving any of the money as well as a rider that would ease rules on pesticide spraying.  With neither side backing down, a solution was not reached before the recess.  There is also a disagreement about the urgency of new funding.  While the White House claims the failure of Congress to approve funding for Zika is delaying vaccine research, congressional Republicans note the Administration has failed to distribute some $600 million in funding already available for fighting Zika.

ENERGY

A comprehensive energy bill appears to be back on track after months of negotiations.  The Senate passed an energy bill in April addressing a range of issues, including promoting natural gas exports, improving energy efficiency of buildings, modernizing energy infrastructure, and promoting renewable energy.  The legislation, which was adopted by a vote of 85-12, represents the first comprehensive energy bill to advance since 2007.  The House passed a similar energy bill in May, but only after adding a number of controversial provisions related to the Endangered Species Act, California drought, and other natural resources issues.  Senate Democrats objected to going to conference until an agreement could be reached to outline the parameters for the negotiation, including removing controversial provisions that were subject to a presidential veto threat.  Having finally reached an agreement, the Senate and House have now named conferees and are working to reconcile differences and produce a final bill that can clear both chambers.  The energy bill is one of the few policy issues that may be resolved before the November election.

In addition to the comprehensive energy bill, congressional leaders continue to discuss and negotiate a potential extension of several renewable energy tax credits (commercial and residential) that were not included when Congress extended solar and wind tax credits in December 2015.

FOOD & AGRICULTURE

The long, painful road known as Genetically Modified Organism (GMO) labeling legislation has finally come to a close with the House and Senate passing legislation right before the summer break.  The compromise legislation will supersede Vermont’s mandatory labeling regime and allow the U.S. Department of Agriculture to establish a national uniform disclosure standard for food that contains bioengineered ingredients.  With the food and agriculture industry’s top priority now a closed item, efforts may turn to unfinished business such as whether there is any way to close the monstrous gap between the House and Senate versions of the Child Nutrition Reauthorization bills.  In addition, topics such as stemming the tide of food waste and protecting big data in agriculture are receiving attention in Congress, but the solutions are yet to be determined.  What is more likely is that the committees of jurisdiction and industry advocates take the rest of the year off to heal after the GMO debate and start preparing for the next Farm Bill which is – like it or not – just around the corner.

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