United States: Washington Outlook For 2015

Happy New Year, and welcome to the 114th Congress!

As Congress returns this month to a changed political landscape with the Republican Party now in control of both the House of Representatives and the Senate, ML Strategies is pleased to continue our tradition of offering an Outlook for the new Congress. In addition to the Congressional legislative agenda, we also discuss the Obama Administration's regulatory plans.

INTRODUCTION

Legislative Agenda

The new political dynamics of the 114th Congress will present some challenges over the next two years, as well as areas of opportunity for bipartisan cooperation on Capitol Hill and with the Obama Administration. The legislative agenda, in particular, will largely be influenced by a series of milestone dates that started with the swearing-in of the new Congress on January 6th and is continuing with a series of political party retreats. The joint House and Senate Republican retreat was held January 15th through the 16th, while Senate Democrats held a retreat January 14th through the 15th. A House Democratic retreat will be held January 28th through the 30th, and a House Progressive Caucus retreat will be held February 6th through the 7th. These retreats give the Republican and Democratic leadership of the House and Senate the opportunity to hear from their members about their goals and vision for the 114th Congress, and allow the leadership to start working to build consensus around policy priorities.

Following on President Obama's delivery of the State of the Union address to a joint session of Congress, his Fiscal Year 2016 Budget Request will be released on February 2nd, providing additional insight into the Obama Administration's goals for the coming year.

Much of the legislative agenda for the coming year will be driven by the need to address issues that have expired or have expiring dates looming on the 2015 calendar, including:

• Tax Extenders package (approximately 60 tax provisions expired on December 31, 2014);
• Department of Homeland Security FY 2015 Appropriations (current funding expires on February 27, 2015);
• Sustainable Growth Rate (SGR) or "Doc Fix" (current extension expires March 31, 2015);
• Highway Trust Fund (the current funding extension expires on May 31, 2015);
• USA Patriot Act (three provisions expire on June 1, 2015);
• Export-Import Bank authorization (current authorization expires on June 30, 2015);
• Federal Aviation Administration reauthorization (the current authorization expires on September 30, 2015);
• Children's Health Insurance Program (funding expires on September 30, 2015);
• Child Nutrition and WIC Reauthorization Act (covers federal child nutrition programs and expires on September 30, 2015); and
• Internet Tax Moratorium (expires September 30, 2015).

Other measures that are time-sensitive include:

• FY 2016 Budget Resolution (which has a non-binding deadline of April 15);
• Debt Ceiling (the debt ceiling was last addressed in February 2014, when Congress suspended it until March 15, 2015 – although the Treasury Department can likely use certain measures to extend the ceiling through August 2015);
• FY 2016 Appropriations (the next fiscal year begins on October 1, 2015); and
• National Defense Authorization Act (this would be the 54th consecutive annual authorization).

In addition to these legislative measures, two high-profile nomination battles will take place this year for Attorney General and Secretary of Defense, serving as proxies for Republican oversight of President Obama's executive order on immigration and defense strategy, respectively.

Although the Republicans now maintain majorities in both chambers of Congress, it is clear that Republican leadership will, in some cases, have to rely on Democratic votes to achieve some of their legislative goals since they will likely lose some of their more conservative members on issues like the budget, tax reform, the highway bill, etc.

In the Senate, where 60 votes are needed to end debate on legislation and move to a vote, Republicans will need six Democrats to join their 54-seat majority. In the House of Representatives, bills are passed with a majority vote, which the Republicans will most times secure with their expanded caucus.

Further, with Republicans seeking to pass some measures this Congress that are sure to have the support of their base but also to exact a presidential veto, the GOP will have to rely even more on Democratic votes if they hope to secure the support of two-thirds of all Members of the House or Senate required to override a presidential veto.

Regulatory Agenda

Many of the most visible recent efforts on new regulations stem from implementation of the Affordable Care Act (ACA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), while the Administration continues to use more long-standing laws such as the Clean Air Act and Clean Water Act for implementation of its environmental agenda.

The Executive Branch agencies will continue to pursue an aggressive agenda throughout the year, with some specific regulatory items discussed throughout this report. The regulatory agendas for more than 60 Cabinet, Executive, and independent agencies are included in the Unified Agenda, which is published twice a year — in the spring and fall.

Congressional Republicans will seek to limit the Administration's regulatory agenda, and to repeal or revise regulations already in place, either via the appropriations process or other measures. This is discussed in greater detail in the Regulatory Reform section of this Outlook.

Summary

We have also included, in the Appendix, the House and Senate calendars for 2015 and the new congressional committee assignments.

AGRICULTURE, FOOD SAFETY, AND NUTRITION

As Senator Pat Roberts (R-KS) takes over as chairman of the Senate Agriculture Committee, he has said that oversight of the Commodity Futures Trading Commission (CFTC) and federal nutrition programs will be his top priorities. The schedule will begin with hearings on farm law implementation and the reauthorization of the CFTC and school meal programs.

Republicans on Capitol Hill will continue their opposition to much of the Administration's expansion of the federal role in school nutrition. Just last month, in the Cromnibus appropriations bill that funds the Federal government through the end of the current fiscal year, the GOP included provisions to allow states greater flexibility to exempt schools from the Department of Agriculture's whole-grain standards provided that they can show hardship. The spending bill also included a provision to halt proposed restrictions on sodium.

Major Policy Issues

Commodity Futures Trading Commission (CFTC) Reauthorization

Senate Agriculture Committee Chairman Pat Roberts (R-KS) plans to add oversight of the CFTC to the committee agenda. In June 2013, the House passed a bill that would have reauthorized the CFTC until 2018. However, it did not get past the Senate and the Obama administration's opposition. Democrats opposed the bill because it would have required cost-benefit analysis of agency regulations. Roberts has expressed concerns about the CFTC's implementation of the Dodd-Frank Act. In particular, he argues that some provisions would make commodity trades more difficult for farmers. With a Republican controlled Senate, the bill may be able to get through Congress but could still face a veto from President Obama.

Food Safety

The Food and Drug Administration (FDA) will finalize five of the seven major Food Safety Modernization Act (FSMA) rules by the end of 2015. It will finalize the rules for preventive controls for human food and preventive controls for animal food by August 30th and the rules for produce safety, third-party accreditation, and foreign supplier verification program by October 31st. (The FDA will finalize the other two rules, which pertain to intentional adulteration and sanitary transportation, by May 31, 2016).

Child Nutrition

The Healthy, Hunger-Free Kids Act of 2010, which subsidizes discounted school meals and supplemental nutrition for women, children, and infants, is set to expire on September 30, 2015. The White House would like a robust bill, with incentives for schools to serve fruit and bans on trans-fats in donuts. However, congressional Republicans want to scale back the bill.

In the 113th Congress, Rep. Robert Aderholt (R-AL), Chairman of the House Appropriations Agriculture Subcommittee, and Senator John Hoeven (R-ND), a member of the Senate Appropriations Subcommittee on Agriculture, were the strongest critics of the White House's school lunch initiatives. In the 114th Congress, they will be joined by Rep. John Kline (R-MN), Chairman of the House Education and Workforce Committee, and Senator Pat Roberts (R-KS), Chairman of the Senate Agriculture Committee, both of whom have criticized the Healthy, Hungry-Free Kids Act in the past. Congressional Republicans will try to revise the act by reintroducing various food-related measures.

Rep. Cathy McMorris Rodgers (R-WA) plans to reintroduce the bipartisan Common Sense Nutrition Disclosure Act. The legislation, which she first introduced in March 2013, would repeal some of the FDA's menu labeling rules, which affect chain restaurants, grocery stores, and movie theaters. FDA released two final rules for menu and vending machine labeling on November 25, 2014. The rules stem from provisions in the Affordable Care Act.

Genetically Modified Organisms (GMOs)

Rep. Mike Pompeo (R-KS) intends to reintroduce the Safe and Accurate Food Labeling Act of 2014. This act would limit states' ability to set their own food standards by – among other means – preventing them from mandating the labeling of GMOs. Though his bill's two Democratic co-sponsors, former Reps. Jim Matheson (D-UT) and Mike McIntyre (D-NC), have retired, it received a warm reception from Energy and Commerce Democrats when it was first introduced. Former Rep. Henry Waxman (D-CA), then the committee's ranking member, said GMO labeling could be "inherently misleading," while Rep. G.K. Butterfield (D-NC) said it would impose additional costs onto consumers. These comments bode well for Pompeo's bill, which would need Democratic support to become law.

APPROPRIATIONS, BUDGET, AND DEBT CEILING

The Congressional Budget Act of 1974 established the congressional budget process, which coordinates the legislative activities on the budget resolution, appropriations bills, reconciliation legislation, revenue measures, and other budgetary legislation.

The Fiscal Year 2016 appropriation process will get underway on February 2nd when President Obama submits his annual budget request to Congress. In recent years, there has been a departure from "regular order" where all 12 annual spending bills work through the committee process and are approved as stand-alone measures prior to the start of the new fiscal year on October 1. Last year, House Committee Appropriations Committee Chairman Hal Rogers (R-KY) and Senator Barbara Mikulski (D-MD), then Chairwoman of the Senate Appropriations Committee and now the Ranking Member, both indicated a desire and commitment to returning the process to regular order, but that was not to be. Instead, as has been the case for the past several years, the process included passage of a Continuing Resolution funding the government for a short-period of time, and then a final Omnibus spending bill – the so-called "Cromnibus" – passed in December, folding 11 of the 12 appropriations measures into a single bill and funding the government for the remainder of the fiscal year. Now, with Republicans in the majority in the Senate and Senator Thad Cochran (R-MS) serving as chairman of the Appropriations Committee, we could see a more streamlined process and perhaps a return to regular order, or something akin to regular order.

But first, we'll be looking for the President's budget priorities when he submits his annual budget request to Congress, and for the spending levels set by the House and Senate Budget Committees through the Budget Resolution, which could this year see the use of the reconciliation process, especially as Republicans seek to pass legislation to repeal or revise the Affordable Care Act (ACA).

Congress must also decide whether the discretionary spending caps, set by the Bipartisan Budget Act (BBA) of 2013, will be raised. The BBA, a bipartisan compromise led by Representative Paul Ryan (R-WI) and Senator Patty Murray (D-WA), increased the spending caps of sequestration for Fiscal Years 2014 and 2015 to $1.012 trillion and $1.014 trillion respectively.

Republicans and Democrats have significant differences in their goals for the budget on issues ranging from discretionary spending levels, to entitlements and taxes. Republicans are calling for cuts in spending on non-defense budget items, and parallel increases to defense spending; while the White House would like to see increases in both.

Major Policy Issues

Fiscal Year 2015 Department of Homeland Security Appropriations

With passage of a spending bill funding the federal government through September 30, 2015, Fiscal Year 2015 appropriations were completed – 77 days into the new fiscal year – on December 16, 2014, ending the federal government's reliance on a Continuing Resolution for funding. The exception to this final chapter in the FY 15 appropriations process was the Department of Homeland Security (DHS), which was only funded through February 27, 2015. The Department was singled out for short-term funding in order to provide Republicans a mechanism to potentially challenge President Obama's recent immigration executive order by withholding funds. However, the immigration order is primarily to be carried out by U.S. Citizenship and Immigration Services, which is not funded through the appropriations process, but instead through user fees. DHS is operating under a Continuing Resolution which funds the agency at Fiscal Year 2014 levels. Contemporaneous with the initiation of work on Fiscal Year 2016 appropriations, see below, Congress will need to move quickly to pass another Continuing Resolution for DHS, either for a short term or, more likely, through the end of the fiscal year.

Fiscal Year 2016 Budget Request

President Obama will submit his Fiscal Year 2015 Budget Request to Congress on February 2, launching the appropriations process for the upcoming fiscal year. This will be the first time the budget has been delivered to Congress on time since 2010. The White House has said that they hope to see a return to "regular order" in the appropriations process – with all 12 spending bills approved before the start of FY16 on October 1, 2015. The President may give some indication of what his spending priorities will be for the upcoming fiscal year when he delivers his State of the Union address to both houses of Congress on January 20th.

Fiscal Year 2016 Budget Resolution

In response to the President's budget request, Congress will, in compliance with the Congressional Budget Act of 1974 (CBA), approve a budget resolution, establishing overall budgetary and fiscal policy and covering at least five fiscal years (in this case, the upcoming FY 16, plus the four subsequent fiscal years). Further, the budget resolution will set total budget authority and outlays (i.e., government payments) for each covered year, and will set top line spending levels for each of the 12 appropriations subcommittees of the House and Senate Appropriations Committees. Although the Budget Resolution is a guide and does not become law, the CBA sets a target date of April 15 for concurrent adoption of the resolution.

In practice, largely due to a divided Congress, the failure to pass budget resolutions has been the norm for the past several years. Congress last passed a budget resolution by the April 15 deadline in 2003 for Fiscal Year 2004, and the last time a budget resolution was approved at all was in 2009 for Fiscal Year 2010. In the absence of a budget resolution, the House and Senate can pass a "deeming resolution," which is an ad hoc legislative mechanism whereby House- or Senate-passed budget levels are deemed to be considered enforceable.

Reconciliation

As a part of the budget resolution, it is possible that we will see congressional Republicans utilize the reconciliation process, which allows Congress to change current law in order to bring revenue, spending, and debt-limit levels into conformity with the policies of the budget resolution. Reconciliation instructions, the first of a two-stage process, must be included in the budget resolution, instructing the appropriate committees to develop legislation achieving the desired budgetary outcomes. If the budget resolution instructs more than one committee in a chamber, then the instructed committees submit their legislative recommendations to their respective Budget Committees by the deadline prescribed in the budget resolution. The Budget Committees would then incorporate them into an omnibus budget reconciliation bill without making any substantive revisions.

The reconciliation bill is then taken up, under expedited procedures, by the House and Senate. In the House, there would be a special rule for consideration of the bill that places restrictions on debate time and the offering of amendments. In the Senate, debate on the reconciliation bill would be limited to 20 hours with any amendments required to be germane and to not include extraneous matter. It can be passed with 51 votes, and cannot be filibustered.

The use of reconciliation would be a key part of Republican efforts to pass legislation repealing or revising the ACA. While the reconciliation bill must be signed by the President, he is expected to veto such a measure if it repeals some or all of the ACA. The use of reconciliation on health care, especially the ACA, is discussed in greater detail in the Health Care section.

Fiscal Year 2016 Appropriations

Republicans on Capitol Hill will use their new majorities to influence, and sometimes seek to limit, the Administration's activities through the 12 annual appropriations bills: Agriculture, Rural Development, Food and Drug Administration, and Related Agencies; Commerce, Justice, Science, and Related Agencies; Defense; Energy and Water Development; Financial Services and General Government; Homeland Security; Interior, Environment, and Related Agencies; Labor, Health and Human Services, Education, and Related Agencies; Legislative Branch; Military Construction, Veterans Affairs, and Related Agencies; State, Foreign Operations, and Related Programs; and Transportation, Housing and Urban Development, and Related Agencies. These 12 spending bills provide discretionary funding for numerous activities, as well as general government operations, amounting to 35% to 39% of total federal spending in recent years. The remainder is made up of mandatory spending not subject to the appropriations process, as well as net interest on the public debt. Hearings will be held by the House and Senate Appropriations Committees and their various subcommittees throughout the spring and summer.

Dynamic Scoring

In one of its first actions in the new 114th Congress, on January 6th the House of Representatives approved new rules that adopted "dynamic scoring," which requires the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) to incorporate broad economic changes in economic output, employment, capital stock, and other macroeconomic variables when estimating the cost of proposed legislation that is anticipated to have a significant impact on the economy, and how much revenue the measure could generate.

House Republicans believe that dynamic scoring is better for large tax or spending bills than the calculations traditionally used because it takes into account labor markets, inflation and interest rates. Democrats generally opposed the adoption of dynamic scoring, arguing that it increases the potential for lower-than-predicted revenue. The newly adopted rules also require that, at the request of the chairman of the House Budget Committee, dynamic scoring be performed on non-revenue bills.

In the Senate, a bill can be blocked or slowed should a Senator raise a budgetary point of order against legislation that is scored as requiring significant spending or if it would add to the deficit.

Sixty votes are needed to waive points of order. With dynamic scoring integrated into the scores developed by CBO and JCT, the Senate Budget Committee may be able to use the estimates to get around points of order.

Debt Ceiling

After the government shutdown of 2013, there appears to be little to no appetite on Capitol Hill for a replay in 2015, when the current suspension of the ceiling expires on March 15th. Using extraordinary measures, the Treasury Department should be able to continue to meet the government's financial obligations until at least sometime in August, giving congressional Republicans time to focus on other priorities. This time leeway is bolstered by the fact that the suspension ends, fortuitously, during tax season when federal receipts will see an influx of payments. However, after March 15, the debt ceiling level will be restored at a level that reflects all federal debt incurred since the suspension began in February 2014.

House Speaker John Boehner (R-OH) and Senate Majority Leader Mitch McConnell (R-KY) have both said that they will not allow debate on the debt ceiling to threaten default by the U.S. Government on its financial obligations.

Time Table of the Budget Process

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